Tax is a financial obligation that a taxpayer pays to a government. For companies, it represents an expense deducted from revenues to reach net earnings. However, stakeholders may consider pretax income to determine a company’s performance accurately. Before discussing how to calculate it, it is crucial to define this income. …

The accrual concept is an accounting principle that focuses on recording transactions when they occur rather than when cash is received or paid. It recognizes revenue when qualified as earned and expenses when incurred, regardless of the timing of cash flows. It ensures that financial statements provide a more accurate …

The income statement is a financial document that presents a company’s financial performance over a specific period. Companies use a structure provided by the accounting standards to prepare income statements for external reporting. However, they may also use the same format for internal reporting. The variable costing income statement is …

Accounting is the process of recording, summarizing, analyzing, and communicating financial information about an organization’s economic activities. It includes many branches. Two of the most common ones include cost and financial accounting. What is Cost Accounting? Cost accounting is a specialized branch of accounting that focuses on tracking, analyzing, and …

Accounting follows principles crucial in dictating the treatment of various transactions. Two of these principles include matching (or revenue recognition) and accruals. The matching principle states that expenses should get recognized in the same accounting period as the revenues they help generate. On the other hand, the accruals principle states …

Companies prepare financial statements to provide crucial information about their finances. One of these includes the statement of financial position. It is often the first financial statement presented on the annual report for any company. What is the Statement of Financial Position? The Statement of Financial Position, or the Balance …

Companies may offer many types of discounts to their customers. These discounts come with various objectives, for example, encouraging customers to buy more or pay promptly. In accounting, discounts fall into two categories, trade and cash discounts. People often confuse the two. Trade discounts usually occur before the latter. What …

Companies require funds to operate. These funds typically come from two sources, equity or debt. In the former case, it includes any funds provided by shareholders. These funds may also fall under the definition of contributed capital What is Contributed Capital? Contributed capital is the money or assets shareholders invest …

An asset’s selling price represents the proceeds a company can expect from selling it. However, it may not always be what the company estimates. Therefore, companies may calculate the net realizable value, which is relevant in accounting. It mainly applies in two areas, inventory, and accounts receivable. What is the …

When a financial transaction occurs, it initially gets recorded in a journal known as the general journal. This journal entry captures crucial details of the transaction, including the date, accounts involved, amounts, and a brief description. Periodically, these journal entries are later posted or transferred to their respective accounts in …