Depreciation is an accounting method that allocates the cost of a tangible asset over its useful life, reflecting its gradual decrease in value or wear and tear. By spreading the cost, it accurately represents the asset’s impact on a company’s financial statements. Methods like straight-line, declining balance, and units-of-production help …

Determining an asset’s residual worth after its useful life plays a significant role in financial calculations and asset management. This consideration encompasses estimating the value derived from the asset’s disposal. In accounting, this worth falls under the definition of salvage value. What is an Asset’s Salvage Value? The salvage value …

Companies must report their revenues for each accounting period in the income statement. Typically, companies use the sales account to record and track these revenues. Before discussing the accounting treatment, it is crucial to know what this account is. What is the Sales Account? The sales account is a financial …

Employers pay various taxes to the government on behalf of their employees. Some of these are collected from the employees, while others are the employers’ responsibility solely. One of the taxes falling under the latter category comes from the Federal Unemployment Tax Act. What is the Federal Unemployment Tax Act …

Companies use various techniques to determine the cost of a product. It is crucial in managerial accounting as it allows for better decision-making regarding costs and profitability. Companies may use product costing to determine those costs. What is Product Costing? Product costing is a process to determine the total cost …

One of the crucial sources of cash inflows for a company is its sales. However, some companies offer credit, which can postpone those cash flows. Companies must manage these balances effectively to operate efficiently. They can use accounts receivable days to determine how long it takes them to recover debt …

Uncertainty is a part of any business. Sometimes, however, they may come with accounting implications if they have a monetary impact. Accounting standards dictate how companies deal with uncertain situations. The accounting for these instances may fall under contingencies. What are Contingencies in Accounting? Contingencies in accounting refer to uncertain …

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 …