Capital Expenditures

A financial concept addressing the cost associated with big ticket items including technology equipment, vehicles,and real estate. Often money is raised through the sale of stock and/or borrowing money from a financial institution. This term ties to other terms such as ‘Debt Service’, ‘Interest on Debt’ and so on.

Bookkeeping – Introduction to Depreciation (Lesson 50)

Depreciation is the process of allocating the initial capital outlay for fixed asset purchases over time to the income statement.   The basic principle is that any fixed asset has a predetermined lifetime based on time, usage or fair market value.   Your job as the bookkeeper is to assign depreciation expense to the respective asset …

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Replacement Reserves- Understanding the Fundamentals

Long term and short term housing rental businesses use a financial operations tool to maintain, repair and upgrade the physical facilities.  This tool is known as replacement reserves in the real estate industry.  In almost all cases it is a contractual agreement requirement between the mortgage lender and the borrower.  The financial arrangement between the …

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Gross Domestic Product (GDP)

Gross Domestic Product is defined as the total production for the country.  It is measured by including all the dollars spent to purchase products/services from all the various sellers of goods.  The largest purchaser of products/services is consumers.  Coming in behind consumers are businesses, remember they are buying goods too.   This includes everything from office …

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Capital Expenditures – IRS Definition

The Internal Revenue Service uses a complex definition to identify capital expenditures (assets).  A capital expenditure is not deductible as an expense in the tax year purchased; the taxpayer or entity must use depreciation, amortization or depletion to obtain deductible value on the entity’s return.  This article is an introduction to the Internal Revenue Service’s …

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Internal Revenue Service (IRS) Definition of an Expense

The Internal Revenue Service defines a business expense as ‘ordinary’ and ‘necessary’.  Ordinary expenses are those costs typically incurred in your industry.  So a restaurant would not ordinarily purchase vaccines.  And a medical practice would not purchase 50 heads of lettuce.  So it is important to understand the concept of ordinary.  Necessary expenses are those …

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