When a company purchases goods or services on credit, it will increase its accounts payable (a current liability). When a company sells goods or services on credit, it will increase its accounts receivable (a current asset).

Just as one company’s purchase is another company’s sale, the accounts payable of one [...] Continue Reading…

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 [...] Continue Reading…

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…