Per annum means yearly or annually. For example, if a business charges its customers 1.5% per month on any unpaid balance, the per annum rate is 18%. The per annum rate was the result of 1.5% X 12 months in a year.

When a supplier offers a credit customer an [...] Continue Reading…

A recurring journal entry is a journal entry that is recorded in every accounting period. For example, a company issuing monthly financial statements might record depreciation by debiting Depreciation Expense for $3,000 and crediting Accumulated Depreciation for $3,000 each and every month. If the accounts and the amounts are [...] Continue Reading…

In accounting the monthly close is the processing of transactions, journal entries and financial statements at the end of each month. Under the accrual method of accounting, it is imperative that the financial statements reflect only the transactions and journal entries having relevance to the current month’s revenues and [...] Continue Reading…

Accountants often use negative amounts to indicate an unfavorable variance. For instance, if actual revenues are less than the budgeted revenues, the variance (or difference) will be shown as a negative amount. The reason is that having less revenues than planned is not good. On the other hand, if [...] Continue Reading…

Nonoperating expenses are the expenses incurred by a business which are outside of its main or central operations. Nonoperating expenses are also described as incidental or peripheral. A common example is a retailer’s interest expense. The retailer’s main operations are purchasing and selling merchandise. Borrowing money is outside of [...] Continue Reading…

Nonoperating revenues are the amounts earned by a business which are outside of its main or central operations. Nonoperating revenues are also described as incidental or peripheral. A common example is a retailer’s investment income or interest income. The retailer’s main operations are purchasing and selling merchandise. Investing its [...] Continue Reading…

Some retailers view the goods purchased as part of the expense known as the cost of goods sold. Other retailers view the goods purchased as part of the asset inventory.

To appreciate both views, let’s assume that a retailer begins the year with inventory having a cost of $800. It [...] Continue Reading…

There are two ways to write off a bad account receivable. One is the direct write-off method and the other occurs under the allowance method.

Under the direct write-off method a company writes off a bad account receivable after the specific account is found to be uncollectible. This write off [...] Continue Reading…

Generally, expenses are deferred in order to comply with the accounting guideline known as the matching principle.

To illustrate the concept, let’s assume that a company pays $3,000 on December 30 to rent a warehouse for the upcoming three-month period of January 1 through March 31. Since none of the [...] Continue Reading…

The balance in the current asset account Prepaid Expenses should be adjusted prior to issuing a company’s financial statements. If the company issues financial statements for each calendar month, you will need to adjust the balance in Prepaid Expenses as of the end of each month. If your company [...] Continue Reading…