Working capital is the amount of current assets minus the amount of current liabilities as of specific date. These amounts are obtained from your company’s balance sheet. For example, if your company’s balance sheet reports current assets of $450,000 and current liabilities of $320,000 then your company’s working capital [...] Continue Reading…

In the tip of April 20, I mentioned that adjusting entries almost always involve both a balance sheet account and an income statement account. (For example, the cost of supplies that are no longer on hand is moved from the balance sheet to supplies expense on the income statement. [...] Continue Reading…

If a voided check was written in a previous month, remove the voided check from the list of outstanding checks and write a journal entry to debit Cash and credit the account(s) that was debited when the check was originally recorded. This entry restores the cash into the checking [...] Continue Reading…

One day I was explaining to the owner of a small business that I would have to accrue for the shipping expenses associated with his company’s sales. Since the shipping company billed him on the 15th of each month for his shipments from the 16th of the previous month [...] Continue Reading…

Under the accrual basis of accounting, revenues are reported on the income statement when they are earned. (Under the cash basis of accounting, revenues are reported on the income statement when the cash is received.) Under the accrual basis of accounting, expenses are matched with the related revenues and/or [...] Continue Reading…

Conservatism has to do with uncertainty. When uncertainty exists between two alternatives that appear to be reasonable, the accountant “breaks the tie” by picking the alternative that reports less profit and less asset amount (or more liability amount).

If there is uncertainty as to whether there was a gain, the [...] Continue Reading…

When I became a director of a meatpacking company, I was concerned about the thin profit margins, the corporation’s lack of working capital, and my inexperience in the industry.

The company slaughtered cattle from Tuesday through Saturday. By Monday the products were shipped and the coolers were empty–what a perfect [...] Continue Reading…

Here’s a tip a dear neighbor (Herb) had learned in the 1920′s from an instructor at a technical college: When doing the bank reconciliation, put it where it ain’t. He found it to be helpful and wanted me to share it.

Here are several examples to show how it helped [...] Continue Reading…

Not necessarily. The balance in retained earnings means that the company has been profitable over the years and its dividends to stockholders have been less than its profits. It is possible that a company with billions of dollars of retained earnings has very little cash available today.

One possible explanation [...] Continue Reading…

An asset that is fully depreciated and continues to be used in the business will be reported on the balance sheet at its cost along with its accumulated depreciation. There will be no depreciation expense recorded after the asset is fully depreciated. No entry is required until the asset [...] Continue Reading…