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 …
Share capital is the prominent line item under the owner’s equity of a company. It reflects the investment received by the company from shareholders by issuing common stocks. Share capital can include preferred stocks. It is recognized at par or face value to the issue price of shares. Share capital should be adjusted for any …
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 …
Accounting For Security Deposits – Refundable Cash Deposits Read More »
Invoice discounting is when the business uses an unpaid invoice from customers or a balance of the accounts receivables as collateral to obtain the loan from the lenders. It enables the business to remain operational when it does not have sufficient working capital to continue its activities. This type of financing is specifically valuable for …
What is Invoice Discounting? (Advantages and Disadvantage) Read More »
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 …
Accounting for Fixed Assets: Definition, Capitalization, Depreciation, and More Read More »
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 …
Accounting for liabilities: Types, measurement, Recognition, and Classification Read More »
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 …
Abbreviation for Credit: The term credit was derived from the Latin term ‘Creditum’ which means to entrust or something that is entrusted. Its abbreviation is ‘Cr’. Therefore, a credit shows that an obligation is due to another party. Credit is as important a part of financial statements as debit is. Invented by the father of …
What is the Abbreviation for Credit? (Explained) Read More »
What is a T-Account? In double-entry accounting, the T-account is a basic training tool that demonstrates how one side of an accounting transaction is shown in another account. Even the highly qualified accountants clarify transactions that are more intricate using T-accounts. A T-account is a demonstration of a general ledger account in visual form. The …
What is T-Accounting and How Does It Work? (Explanation) Read More »
