Accounting Basics

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Calculating Cash Flow with the Current Ratio

In bookkeeping, the current ratio compares your current assets to your current liabilities. This ratio provides a quick glimpse of your company’s cash flow — its ability to pay its bills. The formula for [more…]

Testing Cash Flow with the Acid Test or Quick Ratio

In bookkeeping, the acid test or quick ratioevaluates your company’s current assets and liabilities, but it’s a stricter test of cash flow than the similar current ratio. Many lenders prefer the acid test [more…]

Important Differences between U.S. and International Accounting Standards

Your intermediate accounting textbook homes in on generally accepted accounting principles (GAAP) in the United States, but, where applicable, points out international perspectives for accounting for the [more…]

What Does Intermediate Accounting Cover?

Intermediate accounting delves into the more complex, more challenging aspects of accounting practices. It covers topics and accounting situations that go beyond the basics, including the following: [more…]

How to Calculate VAT

Calculating the VAT (Value Added Tax) element of any transaction can be a confusing sum at the best of times. Following these simple steps can help you get it right: [more…]

Can Your Business Make Money?

Can your business idea leave you rolling in used tenners? Even with the most thorough of market research and the best business plan in the world, you’re not on to a winner unless your business idea can [more…]

Main Tasks of Business Accounting

Getting your head around business finance is not easy. To help you get started, here’s a list of the most important tasks of business accounting and their meaning. [more…]

Exactly What Are Annuities?

Annuities are a series of payments paid or received over a period of time. A typical example is rent payments made to a property owner. Annuities also include bond payments — companies issue bonds when [more…]

What Is Financial Accounting?

Financial accounting involves the process of preparing financial statements for a business. This extravaganza involves three major components: accounting information, type of business entity, and user [more…]

What Is the Securities and Exchange Commission (SEC)?

In response to the stock market crash of 1929 and the ensuing Great Depression, the Securities Exchange Act of 1934 created the SEC. The SEC’s mission is to make sure publicly traded companies tell the [more…]

What Is the AICPA?

Although the SEC governs publicly traded companies, the American Institute of Certified Public Accountants (AICPA) has the responsibility for making sure privately traded companies toe the line. [more…]

What Is the Financial Accounting Standards Board (FASB)?

The Financial Accounting Standards Board (FASB) is one of three organizations primarily in charge of setting U.S. GAAP (Generally Accepted Accounting Principles). The other two are the Securities and Exchange [more…]

What Is the FASB Accounting Standards Codification?

As of July 1, 2009, the FASB Accounting Standards Codification (ASC) became the single source of authoritative generally accepted accounting principles [more…]

What Is Fair Value?

In fair value, a company presents certain assets and liabilities on the balance sheet at a price received or given in an orderly transaction between market participants. Goodness, what a mouthful! Need [more…]

How to Measure Fair Value

Fair value measurement involves some basic assumptions. For one, you can’t have an accurate measurement of fair value unless you figure it based on what the asset is worth or what the liability would transfer [more…]

Highest and Best Use Valuation Methods

Highest and best use applies to nonfinancial assets and takes place when considering the asset in such a way that maximizes its value. Two concepts are important in gaining at least a working knowledge [more…]

Markets for Assets and Liabilities Subject to Fair Value Accounting

ASC 820 outlines four potential markets for assets and liabilities subject to fair value accounting: active exchange, dealer, brokered, and principal-to-principal. Here’s a quick explanation of each: [more…]

What Is the Chart of Accounts?

A company’s chart of accounts is an index of the financial accounts that a business uses in its accounting system and that it posts to its general ledger [more…]

General and Special Accounting Journals

Accounting journals are a lot like that diary you may have kept as a child — or maybe still do keep! They’re a day-to-day recording of business transactions that take place within a company’s accounting [more…]

What Are Retained Earnings?

Retained earnings shows the company’s total net income or loss from its first day in business to the date on the balance sheet. Keep in mind, though, that dividends reduce retained earnings. [more…]

What Exactly Is Interest?

Interest is a type of passive income. Interest is revenue you earn from money on deposit. You take the earned income left over after you pay your bills, deposit it into a savings or money market account [more…]

How to Calculate Simple and Compound Interest

What’s the difference between simple and compound interest, anyway? It’s important to have at least a basic understanding of how a company or bank determines the interest rate you earn on your money on [more…]

How to Calculate Single Sums

Single-sum problems involve a single amount of money that you either have on hand now or want to have in the future. You use these two tables to figure single sums: [more…]

How Land Is Defined in Accounting Terms

Land, also called real property, is the earth on which the company’s office buildings or manufacturing facilities sit. The cost of the land plus any improvements the company has to make to the land to [more…]

Future Value of an Annuity

The future value of an annuity means that you compute the sum of all payments plus the accumulated compound interest on the payments. The amount of an annuity and the interval between receiving and paying [more…]

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