A received cash on account journal entry is needed when a business has received cash from a customer and the amount is not allocated to a particular customer invoice or the customer has not yet been invoiced.
Last modified January 27th, 2020
Tag: Balance Sheet
Deferred Revenue Journal Entry
Deferred revenue is generated when a business supplies its services to a customer and the services are invoiced in advance.
For example, suppose a business provides web design services and invoices for annual maintenance of 12,000 in advance. At the time of invoicing the service has not been provided and the service revenue has not been earned, it therefore needs to be credited to the deferred revenue account.
Last modified October 11th, 2022
Services on Account
Service revenue is generated when a business supplies its services to a customer. The services can either be provided for immediate cash payment or more usually the services are provided on account and invoiced to the customer at a later date.
The invoicing of services on account means that an amount of money will be owed by the customer to the business, and this is referred to as a trade accounts receivable or trade debtor.
Last modified November 25th, 2019
Adjusting Entries
Adjusting entries are accounting journal entries that are to be made at the end of an accounting period. Adjusting entries are made to ensure that income and expenditure is allocated to the correct accounting period, this means that the accounting records are completed on an accruals basis and are in compliance with the matching principle.
Last modified March 11th, 2020
Obsolete Inventory Allowance
In our example on inventory write downs, an allowance for obsolete inventory account is created when the value of inventory has to be reduced due to obsolescence.
The allowance for obsolete inventory account is in effect a reserve for expected future inventory write offs. It is maintained as a contra asset account, so that the original cost of the inventory can be held on the Inventory account until disposed of.
Last modified December 4th, 2019
Inventory Write Off
An inventory write off is the process of reducing the value of the inventory of a business to record the fact that the inventory is worth less than the value currently shown in the accounting records. The inventory write off can occur for a number of reasons such as loss from theft, deterioration, damage in transit, misplacement etc.
Last modified October 22nd, 2019
Inventory Write Down
An inventory write down is the process of reducing the value of the inventory of a business to record the fact that the inventory is estimated to be worth less than the value currently shown in the accounting records.
As an example, suppose a business has a product in inventory which cost 1,000, and has decided that due to a decline in the market for the product, its value is estimated to be worth 700.
Last modified January 9th, 2020
Net 30 Terms
Net 30 terms is an example of credit terms used on an invoice. Net 30 or n/30 means that payment in full is due 30 days after the date of the invoice.
Net 30 terms are often combined with a discount for early settlement. For example 2% 10 days, net 30 terms or 2/10, n/30 means that a 2% discount can be taken if payment is made with 10 days, otherwise the full amount is due within 30 days.
Last modified February 10th, 2023
What is a Contra Asset Account?
Contra means against. In bookkeeping terms, a contra asset account refers to an account which is offset against an asset account.
As an asset account is normally a debit balance, a contra asset account will normally be a credit balance. When the two balances are offset against each other they show the net balance of both accounts.
Last modified November 1st, 2022
Capital Lease Accounting
Capital lease accounting deals with the treatment of an asset rented by a business under the terms of a capital lease agreement.
A capital lease or finance lease is an agreement between the business (lessee) to rent an asset from a lessor. The lessor (lease company, finance company etc.) owns the asset, and the business rents the asset in return for a periodic rental payment. The business never owns the asset, at the end of the term it is returned to the lessor or a secondary period of rental is entered into.
Last modified January 8th, 2020
Debt vs Equity in Accounting
It is important for a business to maintain the correct level of debt vs equity. The ability of a business to take on debt is limited by it’s ability to pay the interest charges and make the repayments.
However, debt should not be considered a bad thing, if used correctly if can greatly improve the return to the owners of the business.
Last modified January 13th, 2020
