The term encumbrance is crucial in accounting. However, it has applications outside finance as well. Before discussing its accounting, it is crucial to define what it means. What is Encumbrance? An encumbrance refers to a claim or liability that affects the ownership or value of an asset. In real estate, …

Prepayments are common for companies that may prepay suppliers or other parties for a promise of future goods or services. Therefore, companies must follow the accounting guidelines for prepayments. However, it is crucial to define what they are first. What is a Prepayment? A prepayment is an advance payment made …

Companies must carry over balances from one year to another for the next accounting period. However, they cannot do so directly to revenue and expense accounts. Therefore, companies must use an income summary account. What is an Income Summary Account? An income summary account is a temporary account used in …

Companies often get into a relationship with other entities for various reasons. The nature of this relationship determines how companies account for it in the financial statements. One of the complex relationships companies can get into is a joint venture. Before discussing its accounting, it is crucial to understand what …

Companies pay different types of taxes depending on the jurisdiction where they operate. However, income tax is usually a consistent requirement in every jurisdiction. What is Income Tax Expense? Income tax expense refers to the amount a business or individual must pay in taxes based on their taxable income for …

Companies strive to control the costs related to projects. It is a crucial part of project management. One of the metrics often used to determine the reasonability of project costs is cost variance. What is Cost Variance? Cost variance is a critical metric in project management and accounting that assesses …

Companies use various depreciation methods to determine the depreciation expense for an asset. One of these methods is the sum of the years’ digits depreciation. What is the Sum of the Years’ Digits Depreciation? Sum of the Years’ Digits Depreciation (SYD) is an accelerated method used to depreciate an asset, …

Accounts in accounting are systematic records that categorize and track financial transactions related to a specific aspect of a business. They serve as the building blocks of financial statements, providing a structured way to organize and report financial information. They may have several types based on specific criteria. One of …

Companies pay their employees after predefined intervals. However, accounting requires them to recognize any liability incurred for those expenses regardless of the payment. Therefore, companies use accrued payroll to track it. What is Accrued Payroll? Accrued payroll is a fundamental concept in accounting that represents the accumulated amount of employee …

Job costing is crucial for companies as it helps determine the cost of individual jobs or projects, enabling accurate pricing, budgeting, and profitability analysis. An essential document that helps companies is a job cost sheet. What is a Job Cost Sheet? A job cost sheet is a comprehensive document used …