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.

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 traditional 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. 

Various Sets of Accounting Books

Accounting Books

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 – Explanation and Examples

Fixed Costs

‘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? 

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