Accounting is the measurement of economic activity for a business operation. It is customarily reported via financial information. Learn about the basic accounting concepts and the associated principles used in accounting to report financial information.
Insolvency refers to the ability to pay bills in a timely manner. It does not mean bankruptcy but long-term insolvency is a underlying factor of bankruptcy. Many owners and/or managers of small business have no idea of how to determine if the company is insolvent or headed towards the inability to meet their day to day obligations.
Pooling of costs is an accounting trick used to facilitate better matching of costs against the respective revenue stream or predicted cost for the respective product or function.
To understand the cash situation, the cash flows statement is an additional report included in financial statements to basically convert the accrual basis balance sheet and income statement into a cash basis report. This way, management gets the best attributes of both accrual and cash basis accounting.
n a pure cash only operation, the profit as reported on the income statement would also be cash flow from operations. But modern-day business is not pure in how it is conducted. Companies agree to pay suppliers at a later time, payroll is weekly or monthly, benefits that are paid in the future are offered to employees, credit is extended to customers; the list can go on and on.
The accounting profession uses various tools to generate accurate accounting information at the close of accounting cycles (monthly, quarterly and annually). The primary document is the working trial balance. It is very similar to the traditional trial balance except there are additional columns used to identify various adjustments and the corresponding source documents (work papers).
When a business acquires a loan there are typically closing costs involved. Generally Accepted Accounting Principles (GAAP) require these financing costs to be amortized (allocated) over the life of the loan. There are several principles the reader needs to understand to properly calculate and assign these costs to the financial statements. This lesson explains the basic business principles of amortization of financing costs, organization of information, reporting and interpretation. It is written for bookkeepers, novice accountants and small business owners. The final section is an in depth example and model to follow.
Many business owners misunderstand the use of term ‘Cost of Sales’ by restricting it to just simply ‘Cost of Goods Sold’. Basically, most business entrepreneurs and even accountants don’t realize that it has several different names and presentation formats. But it is essentially costs of sales.
Accounting’s primary purpose is to measure economic activity. There are several different methods to determine the economic value generated in your business each year. In accounting this is referred to as sets of books. There are four basic sets of accounting books. Each has a different purpose and end goal.
‘Fixed costs’ is a business term used mostly in cost accounting. It has several meanings based on its usage. The most common definition associated with fixed costs is expenses that must be paid regardless of production or sales volume. The best example is rent for a company. It doesn’t matter whether you produce or sell one widget or several thousand, the rent must still be paid.
So why is it important to understand fixed costs? How is it used in cost accounting and in financial reporting? Finally, what are examples of fixed costs?
Deferred or unearned revenue is an advance payment made by a customer for a product or service that has not yet been rendered (delivered).
