Accrual Accounting

A type of accounting whereby all current information is included in the financial reports. It’s counterpart is cash accounting whereby only actual cash income and cash expenses are included in the accounting reports. Accrual accounting is more acceptable because it portrays a more accurate picture of the business financial situation.

Net Profit

No other business term is so misunderstood, misstated, misleading or deceiving as the words ‘net profit’.   Accounting defines net profit as the amount earned after all associated costs and expenses are subtracted from the associated sales.   The larger or more public the company the more reliable the dollar value as stated on the …

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Bookkeeping – Cash or Accrual (Lesson 25)

Generally Accepted Accounting Principles (GAAP) advocates using the accrual basis of accounting over cash basis.   The difference between the two methods is important to understand as a bookkeeper. In general, cash basis focuses on the bank account, entries are only made whenever there is any form of an economic impact on the business.   …

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Various Sets of 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.  This article is written to …

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Fixed Costs – Explanation and Examples

‘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 …

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Deferred (Unearned) Revenue – Definition and Accounting Procedures

Deferred or unearned revenue is an advance payment made by a customer for a product or service that has not yet been rendered (delivered).  It is a very common economic transaction.  When you book and prepay for your airline ticket, the flight service records this as unearned revenue.  Once you board the plane and land …

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What is Accrual Accounting?

Accrual accounting is the preferred method of accounting for all business operations.  Any publicly traded company must comply with the principles of accrual accounting.  Small business operations can choose between cash and accrual accounting for their records.  Although cash accounting is the easiest to work with as a small business operation, accrual accounting will provide …

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Depreciation – This is Weird Accounting

In the world of accounting, there are two types of expenses on the reports widely misunderstood.  They are depreciation and amortization.  I will try to help the novice gain an understanding of depreciation in this article.  So if you can, clear your mind and let us begin: In business we buy all types of goods to …

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Cash Counts

“How are you going to pay for this?” I asked? My client responded, “I still have checks” which meant he didn’t have any cash. He had the ability to write a check but no cash to back it up. I can’t stress enough how important cash is in any business operation. The reality is, cash …

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