As you know, an expense arises when the obligation to transfer economic benefits arises, not when the expenditure actually incurred. That’s called accrual based accounting and as such it’s important to understand all conditions of certain agreements and transactions. It’s crucial to see those moments the obligation actually arises. Continue reading
Category Archives: 1 Basic Accounting
How to deal with prepayments made for an operating lease?
Renting assets is part of everyday business and as it happens, with operating leases there are often enough prepayments required. Question than to the one renting the asset and making the payment should be how this prepayment should be recognized on the accounts. Continue reading
An assets, that’s usually a non-current, is going to be sold within next 12 months
Every now and then it happens that you’re going to get rid off one or some of your equipment or machinery. It could be even buildings or rooms that you own which are part of your property. Regardless of what it is exactly, matter of fact is that there comes a time you’re going to sell some of those items. Continue reading
Start-up expenses of a starting business
Starting the business always incurs some expenses in itself – registration, analysis, business plans etc. There’re various expenses, which depend on the business, and the situation business is started within however one thing is certain when it comes to accounting for those expenses. Those “start-up” expenses as they are called, are never capitalized as assets, as expenses you’ve made to earn future profits. Continue reading
Accrual basis of accounting – expense
Expenses are recognized when they’re “made” and not when they’re paid for. Well, unless you’re using cash basis of accounting when all you really do is account for all your transaction just when the money is moving from hand-to-hand. Presuming this is not the case, the other method of accounting, called “accrual basis of accounting” asks you to account for expenses when they’re incurred and not when they’re finally paid for. Continue reading
Accrual basis of accounting – revenue
Under the accrual basis of accounting, revenue is recognized when it’s earned. That’s the fundamental in short when it comes to accounting for revenue in a business that’s using accrual basis of accounting. A fundamental which has a little exception in the form that if you’ve got serious doubt you’ll receive money for the sale, you should account for it only when the money is received. But that’s an exception. Continue reading
I got services – should I account for this? How?
The accounting for receiving services doesn’t differ much from the entry made when purchasing something. You essentially still bought something, but this something isn’t an item and you shouldn’t put it into your inventory hence there’s just one place to charge it – into expenses as you got the service or split over the period the service is received (i.e. if it’s a commercial that’s shown two months in a row, the expense should be accounted 50% in one month and 50% in another month making it a prepaid expense on your balance sheet at the end of the first month). Continue reading