Accounting Concepts and Principles

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 – Detection

Insolvency

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.

Cash Flow From Operations – Basic Formula

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.

Working Trial Balance

Working Trial Balance

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 traitional trial balance except there are additional columns used to identify various adjustments and the corresponding source documents (work papers).

Amortization of Financing Costs

Amortization of Financing Costs

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. 

Break-Even Analysis – Fundamentals

Break-Even Analysis - Fundamentals

Breakeven analysis is a managerial (cost) accounting tool used to examine the relationship of price to cost of a product.   It also considers various sales volumes and the effect on profit given the different relationships of price to cost.   The breakeven analysis is an essential tool in maximizing profit with the least amount of resources.

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