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The estimate of losses from uncollectible accounts may be determined by taking a certain percentage of credit sales. This percentage is usually based on past experience. The adjustment for the estimated losses is debited to Bad Debt Expense and credited to Allowance fro Doubtful Accounts. The estimate may also be based on an analysis of the age of the accounts receivable. A different percentage ..
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Accounts receivable are amounts currently owed by customers who have purchased goods and services on short-term credit. At the date of the credit sale, Account Receivable is debited and Sales Revenue is credited. Sometimes companies offer a cash discount (also called a sales discount) to encourage early payment by the customer and sales can be recorded at its gross amount or net of allowed disco..
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Every month the company will receive a statement form the bank. The bank statement will show the beginning and ending cash balance deposits, collections made by the bank for the company, checks paid, deductions from service fees and other charges. The cash balance shown on the bank statement usually does not agree with the balance of cash account shown in the accounting records. Upon receipt of ..
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Current assets are defined as cash and other assets that are reasonably expected to be realized in cash or to be sold or consumed within one year or within the normal operating cycle of the business, whichever is longer. In addition to cash, current assets typically include temporary investments in marketable securities, notes receivable, accounts receivable, merchandise inventory and prepaid ex..
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Closing entries are journalized, and dated, only at the end of each accounting period. The closing entries can be (a) taken directly from the worksheet, or (b) developed from the adjusted trial balance, if a worksheet is not prepared.<br><br>Step 9. Prepare a Post-Closing Trial Balance<br>The purposes of a trial balance are (a) to verify the equality of the debits and credits a..
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Step 6. Prepare Financial Statements<br><br>Once all transactions have been analyzed, journalized, and posted and all adjusting entries have been made, the accounts can be summarized and presented in the form of financial statements. The information for the income statement and the balance sheet is taken directly form the worksheet, when one is used. When a worksheet is not used, fin..
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When we discuss the worksheet, the term adjusting entry should not be omitted.<br><br>As we know that, transactions generally are recorded in a journal as they happen, and then posted to the ledger accounts. The entries to be made are based on the best information available at the time, and the balances of the accounts can be included in the financial statements. While some accounts ..
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Step 5.prepare a Worksheet<br><br>The financial statements cannot be prepared until all of the necessary adjusting entries have been formulated. The unadjusted trial balance must be adjusted to in corporate the effects of all of the adjusting entries. This adjustment may be accomplished by either (a) recording all of the adjusting entries in the journal followed by immediate posting ..
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Step 3. Post Journal Entries to Accounts<br>Once transactions have been analyzed and recorded in journal, it is necessary to classify and group all similar items. This is accomplished by the procedure of posting all the journal entries to appropriate accounts. All accounts are maintained in an accounting record called the General Ledger. A ledger, then, is a book of accounts in which data ..
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Step 1. Analyze Transactions and Business Documents<br>The first step in the accounting cycle is to analyze transactions and business documents—the sale invoices, check stubs, and other records that are evidence of those transactions. Business documents confirm that a transaction has occurred and establish the amounts to be recorded. The accountant must determine the most appropriate way ..
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The sequence of accounting procedures used to record, classify, and summarize accounting information is often termed the accounting cycle. The accounting cycle begins with the initial recording of business transactions and concludes with the preparation of formal financial statements summarizing the effects of these transactions upon the assets, liabilities, and owners’ equity of the business. ..
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The Objectivity Principle<br>According to the objectivity principle, the accounting records from which the periodic accounting statements are prepared must have objectivity and verifiability; they must be maintained in such a way that the individual bias or personal opinion of the accountant does not influence the accounting process, so as to ensure greater truth and reliability in account..
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The Matching Principle<br>The matching principle defines when an expense should be recognized. It requires that in any period when revenue is recognized, the expense incurred in generating that revenue should be recognized. In other words, the expenses should be matched to and charged against the revenues in the same accounting period as the revenues are recognized. Some expenses reflect a..
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The historical cost principle<br>Since one important function of the accountant is measurement, there must be a common basis that is meaningful to all interested parties. The most commonly used basis is historical cost, which means that most assets are recorded at their acquisition cost measured in terms of money paid. The exchange price between independent parties establishes the historic..
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The purpose of accounting is to provide information that can be useful for economic decision-making. For this purpose, we should have certain accounting principles that provide guidelines and a common ground to practice accounting and to communicate accounting information effectively. The most important principles are as follows:<br>-Accrual<br>-Historical cost<br>-Realization&..
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Accounting is the study of how businesses track their income and assets over time. Accountants engage in a wide variety of activities besides preparing financial statements and recording business transactions including computing costs and efficiency gains from new technologies, participating in strategies for mergers and acquisitions, quality management, developing and using information systems ..
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Financial accounting relies on certain standards or guides that have proved useful over the years in imparting economic data. These standards are called generally accepted accounting principles. They are closely relayed to experience and practice and may change over time. Various terms, such as principle, standard, assumption, convention, and concept, are often used to describe such guides.<b..
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The growth of organizations, changes in technology, government regulation, and the globalization of economy during the twentieth century have spurred the development of accounting. As a result, a number of specialized fields of accounting have evolved in addition to financial accounting and managerial accounting, which include auditing, cost accounting, tax accounting, budgetary accounting, gove..
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Another important function of accounting is to provide the management inside an organization with the accounting information needed in the organization’s internal decision-making, which relates to planning, control, and evaluation within an organization. For example, budgets are prepared under the directions of a company’s controller on an annual basis and express the desires and goals of the ..
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Accounting is an information system necessitated by the great complexity of modern business.<br>One of the most important functions of accounting is to accumulate and report financial information that shows an organization’s financial position and the results of its operations to its interested users. These users include managers, stockholders, banks and other creditors, government agenci..
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