When companies incur an expense, they record it in the income statement for that year. However, the same does not apply to costs borne on assets. More specifically, when companies acquire fixed assets, they cannot charge it as an expense. Instead, they must spread these costs until they use those …

Companies prepare four financial statements, which are crucial in describing their operations. These financial statements include records of the company’s activities from the past. Usually, they consist of the balance sheet, income statement, statement of cash flows, and statement of changes in equity. These statements consist of records, each represented …

Nowadays, there are multiple ways to account for your business’s finances. Each of them is used for different purposes and serves a specific set of needs. Some people use one type of accounting over another simply because that is the way their accountant told them to do it. The two …

Companies offer credit sales, allowing customers to pay for products and services later. Companies record sales made on credit as accounts receivable. Later, they account for any repayments from customers as a reduction in that account. Sometimes, however, customers may also fail to repay their suppliers. In those cases, companies …

Companies attract customers through their products and services. In addition to those, companies also provide other packages or incentives. These incentives come through the provision of credit terms and incentives. On top of these, companies also offer discounts that promote more sales. Usually, companies provide two forms of discounts, namely …

The income statement details a company’s financial performance. This statement includes revenues and expenditures. Based on those items, it calculates several types of profits. However, it must categorize expenses into several categories depending on their nature. One of these classifications includes the cost of goods sold. What is the Cost …

A corporation is a legal entity established by individuals or shareholders in order to generate profits. In other words, it’s an impersonal entity that possesses an existence that is separate from its owners. A corporation can own assets, borrow money, enter into contracts, hire employees, and much more. It is …

When entering an item into the financial systems, companies must have a supporting document. In most cases, this document will differ based on the type of transaction. Once entered, companies cannot remove the entry. However, they can still reverse the impact through other journal entries. Nonetheless, the transaction will require …

The term reserves describe resources kept or retained for future use. Usually, these resources are not available for immediate utilization. However, they can help in the future if required. This term has various meanings in every field. In accounting, it covers several areas. These include a portion of shareholders’ equity, …

The accounting for goods sold to customers is straightforward. When a company delivers goods, it records an expense while reducing inventory. Similarly, it accounts for the revenues generated from those goods. For services, however, the process may differ, which falls under services rendered. Before understanding its accounting, though, it is …