There are two things one can buy from a supplier – an item of inventory or an item of expense (be it service or an item charged directly to expenses). Whilst items of inventory are a topic on their own, with this post we’ll focus on expenses.    Continue reading →

The thing with changes is that whilst they’re allowed under certain circumstances, it’s always the question of whether something really counts for a change in principle or it’s just a change in an estimate. An accounting estimate also results in a change sort of, either an impairment, a new model for calculating an allowance etc. As you’re using new methods for accounting in certain areas, it’s easy to get things mixed between change in an accounting principle and accounting estimate.  Continue reading →

Your everyday accounting routines are essentially driven from your locally accepted accounting policies. Your local accounting policies lay the framework on which you base your reporting, your policy choices and how things ought to be.  Continue reading →

An intangible asset is, to put it simple, an asset without physical substance. You cannot touch it. An intangible asset is something you only recognize within your accounts if your company can control the asset and you can determine the cost reliably.  Continue reading →

To define the term ‘non-current assets’ requires that we address the concept of liquidity. An asset is liquid if it can be realized within a short period of time and with ease without losing any of its value (normally assumed within a year). Liquid assets comprise your company’s ‘current assets’. However if an asset is not as liquid due to its nature and its use for your company, it’s treated as a ‘non-current asset’ on your company’s balance sheet.  Continue reading →

Accounting in most countries and for most companies is based on subject matter of the transaction and not actual cash movement. Yes, there are certain forms of business which are allowed to still record transactions as the money is received or paid, however there are just a few of them.  Continue reading →

The importance of closing accounts for a determined period derives from understanding the importance of financial reporting in the first place. Financial reporting is for having accurate accounts about a company and it’s performance. Without those the business could possibly go into bankruptcy since it’s not in compliance with regulations (i.e. not paying taxes in due time, in required amounts), it would be unable to meet it’s creditors demands due to insufficient cash flows and liquidity problems (since the accounts didn’t reflect accurate demand of raw material for an example and the company kept purchasing more when it didn’t need this much goods). These effects in turns impact people, they would lose their jobs and so on.  Continue reading →