Accounting

Accounting practice refers to the collective procedures and practices of an entity to manage accounting needs. The accounting needs include the day-to-day accounting records as well as compliance with regulatory authorities. Accounting practice involves several types and control procedures. An entity can follow GAAP or IFRS accounting practices. Let us analyze the concept of accounting […]

Sellers offer sales discounts to increase sales revenue. It increases sales but creates a new accounting entry for sales discounts to be recorded in the account books. Sellers can offer sales discounts in several forms such as cash discounts, trade discounts, invoice discounts, and so on. The accounting entries for these discounts must reflect on

Security deposits are often part of leases. Rental leases require at least one month’s rent to be deposited as a security amount to the landlord. Tenants may claim a refund of the security deposit at the time of contract maturity. Some trade contracts or leases of equipment may also require security deposits. Security deposits cannot

Definition Fixed assets are the long-term tangible assets the business uses to generate cash flow and maintain business activities. Usually, these assets are used by the business for the long term and presented in the company’s balance sheet with the name property, plant, and equipment. These assets are also termed capital assets and can be

Definition Liabilities in accounting are defined as a sacrifice of future economic benefits a company is under obligation to perform as a result of the past transactions with a different entity. Example Consider a bakery that wants to buy a dough machine. The price of the dough machine is five thousand dollars. The owner of

Definition The incremental borrowing rate or IBR can be defined as the interest payment that a lessee has to make when to borrow to finance the capital asset purchase. Explanation When a company is looking to borrow an asset, it will need to borrow money to finance the purchase. This is where the increment borrowing

Definition Prepayment accounting, also known as prepaid expenses, is the accounting method used to jolt down the payments in the books of a company when the company pays for products or services before it receives the product. Explanation Sometimes, what happens is that companies have to pay before they receive the product, which does not

Overview If you take a look at a bank’s balance sheet, you wouldn’t find the inventory line in it. However, it doesn’t mean banks do not have inventory. Like other consumer service industries, banks do not have tangible inventory. Cash reserves at bank vaults and deposited with the central banks are the only physical inventory

Definition: Depreciation is the method the company uses to spread an asset’s cost over its useful life. The cost of assets spreads over the period because of the economic value of the assets reduces due to their usage. For tangible assets the term is used depreciation, for intangibles, it is called amortization. Accounting depreciation or

Overview The International Financial Reporting Standards (IFRS) are governed and issued by the International Accounting Standard Board (IASB). Assets and liabilities are key components of a balance sheet for any company. However, these assets and liabilities must be recognized and reported according to the IFRS rules. Further, assets can be classified into different categories. Each