Category Archives: 1 Basic Accounting

PPE components – what if something is consisting of components?

A property, plant and equipment (from hereon “PPE”) item, a tangible asset can consist of components rather than being one unit. Sometimes it can be apparent, however often enough it’s just forgotten.

When it comes to PPE items and their components – think useful lives and replacement. If something of something that’s exceeding the threshold for being recognized as an asset on its own will be replaced sooner than the something itself, than this something of something should be accounted as a component of this something.   Continue reading →

Tangible and intangible assets

Assets are something you use in your business – either for production, supporting your business, housing your office etc.

For production purposes you may have machinery, equipment, for supporting your business you would use printers, computers and so on. Obviously another thing you may have for your business is an office, which if not being rented, is most probably also your asset. Now those are tangible assets. Tangible means that you can physically touch them since they do have a physical form.  Continue reading →

Decision to start selling on credit – what to watch out for

A client using credit cards or loans means that you still get your money and this “loan” or “credit risk” is someone else’s problem. Selling directly on credit means that you’re this “someone” whose risk it is. Deciding to give your client credit means that you get more business, you make more sales, but it also means you need think of various extra bits you normally wouldn’t.

First thing first, you need to establish your own credit policy, conditions under which someone would get credit. Important bits need to be written down, agreed and signed by both parties. Conditions and standards regulate approval process, credit types, various charges applied etc.  Continue reading →

How do you treat Accounts Receivable?

Accounts receivable on your balance sheet are more or less your main asset. Well, obviously your cash and bank accounts are fairly close too, but as receivables are direct result from your sales revenue, they are to be treated with utmost accuracy and care – have the amounts correct, due dates monitored and clients kept happy and satisfied. It’s all what receivables are about.  Continue reading →

What are accounts receivable exactly?

A huge part of your business, I’d even say the main focus of your business, should be making sales happen. When it’s the sales you’re doing, you’re also as a result of it, encountering accounts receivable balances. Yes, if you’re selling and receiving money right away, you don’t have receivables, but matter of fact is that most of the businesses nowadays do have receivables on their balance sheet.

As I mentioned, if you’re selling on spot and receive money right away, you won’t have receivables. Why is that? It’s the nature of the receivable really and it’s already apparent from the name itself – receivable, i.e. something is to be received. This “something” is money that you’re about to receive at a determined date from your client, the party that got the goods or services the money is to be received for.  Continue reading →

How is capital payments treated in general?

Every so often you may find yourself in a position where you need to make payments into your company’s equity. Those payments are called capital payments or capital investments. Situations which impose the need can be different – need for extra capitalization from outside parties, i.e. banks for approving new loans, periodic losses that decrease the equity to lower level than accepted by regulators, etc.  Continue reading →

What is “fair value”?

Often times you can hear someone mention “fair value” of this and that. With this “this and that” being an asset of any kind that could be measured in fair value, we’ll focus on the term itself.

The term fair value is used for assets which are measured not at cost or at depreciated value, but precisely at fair value. Fair value by definition is an estimate, an unbiased and rational estimate of a potential market price for the said asset. It does take into consideration the characteristics of the asset in the sense that it’s the price willing parties would buy-sell the asset with. More so the sale should be a regular sale and not something done under abnormal circumstances, i.e. a liquidation sale.  Continue reading →