A purchase discount is a deduction that may be available to a buyer if the buyer pays an invoice within a prescribed time. For example, a supplier’s invoice for $10,000 with the credit terms 2/10 net 30 indicates that the buyer will be allowed a purchase discount of $200 [...] Continue Reading…

I view cash flow net of tax as the amount of cash spent minus the income tax savings when the amount is deductible on the corporation’s income tax return.

To illustrate this, let’s assume that a U.S. corporation pays a combined federal and state income tax rate of 40% on [...] Continue Reading…

To start a petty cash fund you need to open a general ledger account entitled Petty Cash. This will be an additional cash account that you could report either separately or have its balance included with other cash accounts when preparing a balance sheet.

Next you need to write a [...] Continue Reading…

When a business uses its credit card, the transaction date is the date the credit card is used, not the date that the credit card statement is paid.

For example, if a business uses its credit card to purchase an asset on December 30, both the asset and the liability [...] Continue Reading…

Many (perhaps most) accountants use the term full cost to mean the full manufacturing or production cost of a product. To these accountants this means a product’s cost of materials, labor, and both variable and fixed manufacturing overhead. These accountants do not include selling, administrative, or interest costs in [...] Continue Reading…

In bookkeeping, a debit can signify an increase in an asset, an expense, and the owner’s draws. A debit can also signify a decrease in a liability, revenues, and owner’s equity.

A debit is one-half of bookkeeping’s double-entry system. The other half is a credit.

A debit is also the amount [...] Continue Reading…

The use of estimates does not necessarily violate objectivity. If it is not possible to determine the exact amount of an expense and/or liability within a reasonable time, estimates may be necessary. In that situation, objectivity is met when the estimated amounts are similar to the amounts that another [...] Continue Reading…

While bookkeeping involves mostly precise amounts from sales and purchase invoices, cash receipts and checks written, etc. there are situations when estimates need to be entered. This is especially true when monthly financial statements are prepared under the accrual method of accounting. For instance, the monthly bookkeeping entries for [...] Continue Reading…

I envision a bookkeeper as a person employed by a smaller company and being responsible for recording nearly all of its transactions. Hence, the bookkeeper would likely process sales invoices, customers’ remittances, purchases, payments to vendors, payroll, monitoring receivables, preparing journal entries, and more.

I view an accounting clerk as [...] Continue Reading…

Double-entry bookkeeping refers to the 500-year-old system in which each financial transaction of a company is recorded with an entry into at least two of its general ledger accounts.

For example, if a company borrows $10,000 from its bank, the company’s asset account Cash is increased with a debit entry [...] Continue Reading…