Accounting Basics

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Accounts Receivable and the External Balance Sheet

In its external balance sheet, a business reports just one summary amount for all its accounts receivable. However, this total amount is not nearly enough information for the business manager. [more…]

Fixed Assets less Accumulated Depreciation

Fixed assets is the all-inclusive term for the wide range of long-term operating assets used by a business — from buildings and heavy machinery to office furniture. Except for the cost of land, the cost [more…]

How to Report Accrued Expenses Payable

The controller should prepare a schedule for the manager that lists the major items making up the balance of the accrued expenses payable liability account. Many operating liabilities accumulate or, as [more…]

How to Report Income Tax Payable

It takes an income tax professional to comply with federal and state income tax laws on a business. The manager should make certain that the accountant responsible for its tax returns is qualified and [more…]

How to Report Interest-Bearing Debt

Interest bearing debt that is due in one year or less is included in the current liabilities section of the balance sheet. The reason is that financial reporting standards require that external balance [more…]

How to Report Owners’ Equity

External balance sheets report two kinds of ownership accounts: one for capital invested by the owners in the business and one for retained earnings (profit that has not been distributed to shareowners [more…]

Unreported Sales Revenue and Expenses

Some sales revenue and expense information that managers need is not reported in the external income statement of a business. Analyzing profit is a very open-ended process. There are many ways to slice [more…]

Are Costs Really That Important?

Without good cost information, a business operates in the dark. Cost concepts and cost measurement methods apply to all businesses. There’s no one-size-fits-all definition of cost, and there’s no one correct [more…]

How to Determine Manufacturing Costs Properly

Accountants for manufacturers have developed many methods for allocating indirect overhead costs, most of which are based on a common denominator of production activity. There are four basic types of manufacturing [more…]

Inventory as an Asset

For businesses that sell products, inventory is typically a major asset. It’s also typically the most problematic asset from both the management and accounting points of view. [more…]

Tax Obligations for the Micro-Entrepreneur

If you make a net profit in your entrepreneurial business, plan on paying taxes. A profitable home business certainly has tax obligations to be aware of. Here’s an explanation of the tax obligations you [more…]

How to Report Your Micro-Entrepreneurial Business Activities

Whether your micro-entrepreneurial business is operating under your name, a sole proprietorship (DBA), or LLC, you report your business activities (income, expenses, and the net gain/loss) on Schedule [more…]

How to Tax-Deduct Home-Office Expenses as a Micro-Entrepreneur

One of the most attractive deductions for micro-entrepreneurs is the home office deduction. Basically the home-office deduction allows micro-entrepreneurs to deduct a portion of their home [more…]

Tax-Deductible Expenses for Micro-Entrepreneurs

For tax purposes, micro-entrepreneurs can deduct “ordinary and necessary” expenses incurred on behalf of their business. An ordinary expense is any expense common to a particular type of business. An ordinary [more…]

The Relationship between Cash Flow and Profit in Business

Making profit generates cash flow — any business owner knows that. What may not be known, however, is that the actual increase in cash during a given period is invariably lower or higher than the profit [more…]

9 Must-Know Formulas for Cost Accounting

To reduce and eliminate costs in a business, you need to know the formulas that are most often used in cost accounting. When you understand and use these foundational formulas, you'll be able to analyze [more…]

Different Classes of Stock Shares

Before you invest in stock shares, you should ascertain whether the corporation has issued just one class of stock shares. A class is one group, or type, of stock shares all having identical rights; every [more…]

How to Determine Market Value of Stock Shares

When you consider selling your shares of stock in a company, you probably want to know the market value of each of your shares. There's a world of difference between owning shares of a public corporation [more…]

Dilution of Share Value

Watch out for developments that cause a dilution effect on the value of your stock shares — that is, that cause each stock share to drop in value. Specifically, [more…]

Conflicts between Stockholders and Managers

Stockholders are primarily concerned with the profit performance of the business; the dividends they receive and the value of their stock shares depend on it. Managers’ jobs depend on living up to the [more…]

What Are Partnerships?

Partnerships avoid the double-taxation feature that corporations are subject to, because all profits and losses “pass through” the business to its partners. Partnerships also differ from corporations with [more…]

What Is a Limited Liability Company (LLC)?

The LLC is an alternative type of business entity. An LLC is like a corporation regarding limited liability, and it’s like a partnership regarding the flexibility of dividing profit among the owners. An [more…]

What Are Professional Corporations and Limited Liability Partnerships?

Professional partnerships — physicians, CPAs, lawyers, and so on — may choose to become professional corporations (PCs), which are a special type of legal structure that state laws offer to professionals [more…]

How Partnerships and LLCs Distribute Profits

A partnership treats salaries paid to partners (at least to its general partners) as distributions from profit. In other words, profit is determined before [more…]

What Are Sole Proprietorships?

A sole proprietorship is basically the business arm of an individual who decides not to do business as a separate legal entity (as a corporation, partnership, or LLC). It’s the default when you don’t establish [more…]


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