Accounting Research

This brief post covers the basics of the profit and loss account . The profit and loss accounts lists all income and expenditure , with the difference being they profit or loss made by the business. The profit and loss account hastwo parts , albeit in the same statement. The first part account calculates the profit earned from buying and selling goods . This is called the Tradingaccount . Here’s an example of the layout. Here’s a brief explanation of each of the some of the items and terms above. First, there is the title of the account. It informs the user of the name of the statement (what), the name of the business (who) and the time period involved (when). Sales: The amount of money earned by the business selling books in the past year i.e. Income. Sales returns/returns in may have to be subtracted to get this figure. LESS COST OF SALES : this is a heading, which indicates that this calculation is going to be completed. This calculation will work out the cost of al...

Accounting software is a class of computer programs that enable you to manage your business's financial transactions . Such programs can vary widely in scope, with some programs designed for little more than simple bookkeeping and some designed to manage the entire financial comings and goings of large businesses. Using accounting software helps companies to use the resources in their accounting departments efficiently, and can reduce costly bookkeeping mistakes. Accuracy Accounting software can help to increase the accuracy of your records by reducing or eliminating human errors in calculation. Manual bookkeeping processes involve making a lot of mathematical calculations by hand. An incorrect calculation early on in the in the process could have a great impact on the end balance . Computers, on the other hand, are virtually incapable of making such errors. However, it should be noted that accounting software is not immune to human errors arising from data entry or ...

Financial Statements represent a formal record of the financial activities of an entity. These are written reports that quantify the financial strength, performance and liquidity of a company. Financial Statements reflect the financial effects of business transactions and events on the entity. Financial Statements represent a formal record of the financial activities of an entity. These are written reports that quantify the financial strength, performance and liquidity of a company. Financial Statements reflect the financial effects of business transactions and events on the entity. Four Types of Financial Statements The four main types of financial statements are: 1. Statement of Financial Position Statement of Financial Position, also known as the Balance Sheet , presents the financial position of an entity at a given date. It is comprised of the following three elements: Assets: Something a business owns or controls (e.g. cash, inventory, plantand machiner...

Companies often find it advantageous to invest in other companies without necessarily taking control of them. The accounting for investments hinges on the amount of sway the investor holds with the investee. Investors use the fairvalue method when the level of influence is insignificant and consolidationaccounting when investors control the investee. Companies use the equity method when they have substantial influence on the investee. Equity Method Under the equity method, the investor books the investment as a noncurrentasset at the price it pays for the investee stock. The investor then recognizes its share of investee income and adjusts the book value of the asset accordingly. For example, if the investor owns 30 percent of the investee’s voting shares and the investee earns $1 million in the quarter, the investor records $300,000 as income and as an increase to the investment’s book value. The investor treats any dividends it receives on the investee share...

Double entry bookkeeping. It’s a term you’ve heard a lot if you’ve been reading our accounting software reviews . You’ve probably picked up from context that double entry is a good thing. But what, exactly, does it mean? A Brief (and Oversimplified) History of Accounting Back in the days before computers , business owners had to find a way of keeping their records accurate. Furthermore, as businesses became more and more complex, they needed to have a clear way of expressing the financial states of those businesses. The double-entry system helped on both fronts. The earliest known records demonstrating double-entry bookkeeping show up at the end of the thirteenth century. A few other scattered references appear over the following years, and in 1458, Benedikt Kotruljević discussed the system in his publication Della mercatura e del mercante perfetto (Of Commerce and the Perfect Merchant). And in 1494, Fra Luca Bartolomeo de Pacioli described the system in detail in Summa de...

The short life-span and upgradeability of many IT assets complicate the otherwise fairly simple concept of depreciation . In this article, Michael Blackstaff explains the pros and cons of different depreciation methods. Take any dozen organizations and you will find as many different approaches to the depreciation of IT assets. Some methods cause an artificially high or low charge to the profit and loss account and to budgets in the year of acquisition. Some approaches to the depreciation of upgrades have the effect of causing depreciation 'peaks', either in the middle or at the end of life of the upgradeable range. Depreciation is an accounting technique for charging the cost of a fixedasset as an expense to the profit and loss accounts of the years that benefit from its use. The expense reduces both the profit and the book value of theasset. When the asset is eventually sold, the proceeds of sale are deducted from its book value. Any remaining amount is ch...

We all have a sense that more income and less debt are both good things. But what’s the ideal ratio between income and debt ? If your debt-to-incomeratio is too high, any shock to your income could leave you with unsustainable levels of debt. Avoiding debt altogether has drawbacks, too (consider no-fee credit cards and secured credit cards if you are scared of digging yourself in debt). Let us break it down for you with our guide to the debt-to-income ratio . The Debt-to-Income Ratio Defined You know how it works. Every month you figure out the money you have coming in and the money you owe. There are your recurring bills for things like your cell phone and internet. There’s your regular spending on groceries and transportation. Then, there’s the money you spend to service your debt. That could be your mortgage , auto loan , student loans , personal loan or credit carddebt . Are there months when you feel like all your money goes to making payments on your debt? It sounds ...