Business Accounting Blog

Definition

A credit memo is a written notification or a document that contains a notice sent by one of the parties in the settlement relationship (supplier) to the other party (buyer) about the credit entry to their account for a certain amount due to the fulfillment by the buyer of the special conditions provided for in the initial contract. In other words, a credit memo means a reduction by the supplier of the buyer’s debt.

There are two types of credit memos that one can come across:

• An adjustment credit memo. This type of note is used when you have an invoice that is not paid yet or only partially paid, and you need to change the amount owed by the customer. It is usually created when you want to provide a discount and need to Continue reading “Credit Memo in Accounting”

Overview

The high level of cost management effectiveness is directly related to the cost accounting and control methodology. There is a variety of costing systems, but the cost management process in each of the systems is based on concepts such as planning, accounting, calculation of costs, and control.

The efficiency of the cost management system of the enterprise influences the efficiency of the entire management system of the company and its competitiveness in the market. Currently, the standard costing management system has been used by some companies.

At the beginning of the 20th century, the standard costing system appeared in the United States, and then in Europe, as a method to prevent unjustified costs. Standard costing is Continue reading “Simple Explanation of Standard Costing Basics”

Whether necessary, for pleasure or any other reason, shopping is part of our everyday life. When making any purchase in the United States, remember that in addition to its declared value, the buyer will also have to pay sales tax. The fee is not initially added to the price of the item and is collected by the seller at the time of final settlement, which is why you should double-check your final price before purchasing.

If the purchase is made at a brick-and-mortar store, funds go to the state of the physical location of the outlet. If the goods are ordered online, then the money will go to the state in which the person receives the package. The good news is that sales tax is only levied on new goods and services. If you buy a used Continue reading “Learn How to Calculate Sales Tax”

The most common methods for assessing the financial situation are vertical and horizontal analysis of the financial statements. These methods allow you to increase the company’s revenues, reduce risks and prevent possible negative consequences from improper accounting, reporting, and management decisions.

As you know, vertical means up and down. The vertical analysis compares all items up and down in a column. In other words, it compares each item with the base value, which is presented as 100%. Accordingly, the sum of all items as a percentage is also equal to 100%. Financials in this form are also called common-size financial reports. Unlike the horizontal, you only need to look at one year to calculate the vertical analysis.

This Continue reading “Vertical Analysis of Financial Statements”

What belongs to fixed assets

Fixed asset accounting involves assets that belong to the company and meet these specifications:

• The object is intended for use in production, when performing work or providing services, for management needs, or rent.
• The asset is intended to be used over an extended period of time.
• Subsequent resale of the property is not expected.
• The object can bring economic benefits in the future.

A company’s capitalization policy greatly affects what is considered a fixed asset. For example, if you buy a stapler that costs $20, it is not considered to be a fixed asset. However, your company can set a rule that everything that costs over $2,000 will be considered a fixed asset.

Fixed asset accounting is done for Continue reading “What Is Fixed Asset Accounting?”

Overview

One of the basic concepts in the analysis of the economic activity of an enterprise is working capital. This indicator illustrates the firm’s ability to independently carry out current production processes. It is also used in the fundamental analysis of securities, helping to assess the efficiency and profitability of the issuer.

From the economic point of view, working capital is a set of assets that transfer their value to finished products immediately, in one cycle, and not gradually, like fixed assets (buildings, equipment). Working capital is turned over at least once during the year or one production cycle if the last one exceeds a year. In financial analysis, working capital means the difference between the amounts Continue reading “Working Capital: Definition and Formula”

Why keep financial records?

In business, there are numerous reports. Accounting reports are created to be submitted to the tax office and help to see the real situation with money in business and make decisions. Often, the owner prepares financial statements independently or together with a bookkeeper.

An entrepreneur always has tasks more important than reporting. You need to sign a new contract, negotiate with a supplier or go to production. Therefore, reporting is often carried out on case-to-case basis, expenses and revenues are forgotten, indicators are not calculated, and costs are not classified.

This approach works as long as the entrepreneur does not face serious financial problems – a cash gap, unprofitable key customers, Continue reading “Income Statement Basics and Importance”

Overview

Every business owner and investor place their money into the business to receive a return on their investment. If the money is used successfully, a company makes a profit. Net income is what is left from the profit after all the costs and taxes are paid. These funds remain at the disposal of the business owners. When the company receives a net income (loss), it is reflected in the corresponding line in the Statement of financial results as well as the Balance sheet.

Retained earnings (RE) is a monetary indicator of income that remains with a firm (company, enterprise, organization) after all obligations, including tax liabilities to the government, have been paid and after the distribution of dividends among the shareholders. Continue reading “Retained Earnings on the Balance Sheet”

As a result of its activities, any enterprise carries out some kind of business operations, makes certain decisions. Each such action is reflected in the accounting records. In accounting, reporting is its final stage, at which the accumulated bookkeeping information is generalized and presented in a form convenient for interested parties. Every business is obliged to draw up financial statements based on data from its bookkeeping records.

Reports are used for the management of the activities of organizations, its data is necessary for the analysis of production and financial activities. With its help, the reasons for deviations from the specified parameters are revealed, so appropriate actions can be taken to avoid losses and maximize Continue reading “What Is Statement of Comprehensive Income?”