The four main financial statements are the income statement, statement of retained earnings, balance sheet, and cash flow statement. All four statements are interrelated and allow the user to more fully understand the financial performance of the business through the analysis of its financial statements.
Relationship Between Financial Statements January 26th, 2017Team
Contra means against. In bookkeeping terms, a contra expense account refers to an account which is offset against an expense account.
As an expense account is normally a debit balance, a contra expense account will normally be a credit balance. When the two balances are offset against each other they show the net balance of both accounts.
Following a physical count, a business has consumable supplies on hand of 350. The accounting records before adjustment show supplies on hand of 500, and an adjusting entry is needed to record the amount of supplies used for the period.
Consumable Supplies Expense Recorded November 6th, 2016Team
Errors in inventory impact the balance sheet and income statement of a business, but have no effect on its operating cash flow. In the cash flow the change in net income as a result of the inventory error, is compensated for by a change in the movement on working capital.
A business has an estimated annual income tax expense of 14,000 due of profits for the accounting period. A demand for the amount has not yet been received from the tax authorities, and the expense has not been recorded in the accounting records. An accrued income tax adjusting entry is made in the accounting records.
A vertical analysis shows each line of financial statements as a percentage of a base line item so that comparisons can be made. This free Excel calculator produces a vertical analysis of an income statement in relation to total revenue, and of a balance sheet in relation to total assets.
Vertical Analysis Calculator November 6th, 2016Team
A utilities bill will be recorded as an expense to the business. As the business is given credit by the supplier, the other side of the accounting equation is a liability to the supplier (accounts payable).
Purchasing services on account will be recorded as an expense to the business. As the services are purchased on account, the other side of the accounting equation is a liability to the supplier (accounts payable).
Purchase Services on Account November 6th, 2016Team
The percentage of completion method is used to calculate the amount of revenue and income that can be recognized by a business on a long term project. The method is in accordance with the matching or accruals concept of accounting, and ensures that the costs incurred on the project are matched to the revenues arising from that project.
Percentage of Completion Method November 6th, 2016Team
A business needs to separate period and product cost as product costs are included as part of the inventory until the product is sold, whereas period costs are treated as an expense in the income statement in the period in which they are incurred.
A business has been invoiced 500 for goods and takes a 2% cash settlement discount for early payment.
The original invoice would have been posted to accounts payable, so the balance before settlement on the suppliers account is 500. A 2% discount on 500 is 10, and the amount of cash the customer pays is therefore 490.