Account Receivable

How to Account for Uncollectible Accounts? Step by Step Guidance with Example

When a company sells goods or services on credit, there is always a risk that some customers will not pay their bills. As a result, companies need to account for the possibility of uncollectible accounts, which are also known as bad debts. Accounting for uncollectible accounts involves estimating the amount of uncollectible accounts and creating …

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How to Account for Discontinued Operations on an Income Statement?

Financial Accounting

Discontinued Operations are parts of a business that have been sold, disposed of, or abandoned and are no longer considered a part of the company’s ongoing operations. These operations are reported separately in the financial statements due to the significant impact they can have on a company’s financial results. Why do Discontinued Operations matter? Discontinued …

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How Do You Calculate Cash Coverage Ratio?

Financial Accounting

Companies use two forms of finance to fund their operations. These include equity and debt finance. Equity finance is straightforward and comes from the company’s shareholders. Usually, this finance does not carry any interest. However, companies have to pay dividends to shareholders. But these dividends are only applicable when the company is profitable. When it …

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Does a Dividend Reduce Profit? (The answer is “No”)

Dividends, Retain earnings

What Are Dividends? Dividends are a share in a company’s profits paid to shareholders. These payments may come directly from its profits during a year or from retained earnings. Usually, dividends come in the form of cash. But it may also cover share distribution or other benefits. Regardless of how investors get paid, dividends include …

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Accounts Receivable Vs. Accounts Payable: What are the Key Different?

Account Payable, Account Receivable

No business entity operates without having credit purchases and credit sales. Credit purchases and credit sales give rise to account payables and account receivables. Both accounts are recorded on the balance sheet of the business entity and are integral to the business operations. Account receivables(AR) and account payables(AP) are significant for internal accounting and external …

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What is a Note Receivable? (Definition, Explanation, and Journal entry)

Account Receivable

Definition: Notes receivables describe promissory notes that represent loans paid from a company or business to another party. The note comes with a promise from the borrower that it will repay the lender in the future. Similarly, a note receivable gives the holder, or the lender, the right to receive the amount from the borrower. …

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Rull of Debit and Credit in Accounting for Beginner (Ultimate Guide)

Financial Accounting

Accounting can be defined as the recording, summarizing, analyzing, classifying, presenting, and reporting of financial information. Financial information is mainly obtained when business transactions take place. Once financial information about business transactions is obtained, it is entered into the accounting system, mainly the general ledgers of a business. At the end of every period, this …

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What Are the Variable Costs? – Definition, Formula, Example, And More

Cost of goods sold

Definition: A variable cost is a direct cost that the total costs or expenses change when the total volume of goods and services that the company produces. A company’s total variable cost increases and decreases with the amount of production, but the variable cost per unit is not changing. If production goes up, variable costs …

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Capital Leases – Accounting Treatment and Example

Financial Accounting

Under the Generally Accepted Accounting Principles(GAAP) and Financial Accounting Standards Board(FASB), leases are treated as a special liability. In general, the lease is a rental agreement between two parties. The lessor gives the lessee right to use a certain property or asset for a specific period. The lessee, in return, has to pay rental payments …

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Why is Working Capital Negative? (Explanation With Example)

Working Capital

Introduction: Working capital is the amount of a company’s current assets less current liabilities. This capital of a business is required to fulfill the daily trading operation of a business. Net working capital is normally positive when total current liabilities are less than total current assets. Negative working capital occurs when the current liabilities exceed …

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