The outstanding checks of the previous month will have either cleared the bank in the current month or will remain on the list of outstanding checks.

If an outstanding check of the previous month clears the bank (is paid by the bank) in the current month, you simply remove that check from the list of outstanding checks.

If an outstanding check of the previous month does not clear the bank in the current month, the check will remain on the list of outstanding checks until the month that it does clear the bank. In the bank reconciliation process, the total amount of the outstanding checks is deducted from the balance appearing on the bank statement.

Learn more about Bank Reconciliation.

Since Accounts Payable is a liability account, it should have a credit balance. The credit balance indicates the amount that company or organization owes to its suppliers or vendors.

The Accounts Payable account is credited when goods or services are purchased on credit terms (as opposed to being purchased for [...] Continue Reading…

When loan costs are significant, they must be amortized because of the matching principle. In other words, all of the costs of a loan must be matched to the accounting periods when the loan is outstanding.

To clarify this, let’s assume that a company incurs legal, accounting, and registration fees [...] Continue Reading…

Repairs to office equipment are period costs. That is, the cost of the repairs to office equipment will be reported as a selling, general and administrative (SG&A) expense in the period in which the repairs take place.

Repairs to factory equipment are not period costs. Rather, the costs of repairs [...] Continue Reading…

Most companies will not use the double-declining balance method of depreciation on their financial statements. The reason is that it causes the company’s net income in the early years of an asset’s life to be lower than it would be under the straight-line method.

One reason for using double-declining balance [...] Continue Reading…