learn bookkeeping online for free
The economic entity concept or business entity concept is one of the fundamental accounting principles, and states that a business is a separate entity from its owners. In practice this means that a business must keep separate financial records, which only include accounting transactions relating to the business.
Chain discounts are sometimes called multiple discounts, and refer to a of discounts which are applied to an original selling price (list price) to arrive at a net sales price. The discounts are applied in sequence and are calculated using the series discount formula.
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 operating a perpetual inventory system needs to record goods received into inventory even if it has not yet received an invoice from its supplier. Since the liability cannot be posted to the accounts payable account, a temporary posting is made to the goods received not invoiced account.
A business will often purchase a number of long term assets for a single combined purchase price. In order to record the assets in the accounting records and to allow depreciation to be correctly calculated, the basket purchase price needs to be allocated in proportion to the fair market value of the assets.
The allowance for uncollectible accounts method is used to estimate the bad debt expense required to reflect uncollectible accounts receivable at the end of an accounting period. The method complies with the matching principle and for this reason is preferred over the direct write off method.
The direct write-off method of accounting for uncollectible accounts is used to remove specific uncollectible amounts from the accounts receivable balance when they are identified. This debt write off method does not comply with the matching principle and can only be used for immaterial amounts.
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.
