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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…]
Present Value of an Annuity
The present value of an annuity shows you the single sum you need to invest at compound interest now in order to provide a series of payments back to you in the future. Sound like the type of information [more…]
What Happens to an Annuity Deferred?
Deferred annuities are a type of annuity contract that delays payments to the investor until the investor elects to receive them. When the investor is in savings mode, he makes payments into some sort [more…]
Different Types of Cash Accounts
The definition of cash goes beyond paper bills and coinage. Any sort of account that’s backed by cash is deemed a cash account. For example, when you go to the college bookstore and write a check to pay [more…]
What Are Cash Equivalents in Accounting?
In the accounting world of cash, cash equivalents are close but no cigar! Now, the basic premise of cash equivalents is that they’re just a hair away from being available for withdrawal on demand. They’re [more…]
How to Control Cash and Restricted Cash
The big deal about controlling cash for your intermediate accounting class is making sure the balance sheet presentation doesn’t mislead users with the amount of cash available to meet day-to-day expenses [more…]
The Origin of Accounts Receivable
Accounts receivable (A/R) is the amount of money a customer owes the business for merchandise it purchases from a company or services a company renders. Just about all types of businesses can and probably [more…]
Trades and Sales Discounts Affect Customer Balances
It’s not unusual for the list price of the goods available for sale or the total amount of the invoice to not be what the customer eventually ends up paying. The amount the customer pays may be subject [more…]
How to Estimate Uncollectible Accounts
It’s a sad fact of life that businesses extending credit to their customers will probably have at least one or more deadbeat customer who just won’t pay the bills. Under generally accepted accounting principles [more…]
How to Recognize a Face Value Notes Receivable
For the current asset section of the balance sheet, a note receivable is a short-term (coming due within 12 months of the balance sheet date) debt someone owes you. In many cases, this current asset arises [more…]
Accounting Basics of Inventoried Goods
Three types of businesses operate: service, manufacturing, and merchandising. Breathe a sigh of relief, because you have to worry about only two (manufacturing and merchandising) here. Service businesses [more…]
Last In, First Out Inventory Carrying Valuation Method
With the last in, first out (LIFO) method, the company assumes that its newest items (the ones most recently purchased) are the first ones sold. LIFO is not codified in GAAP but is a tax concept that Internal [more…]
How to Handle Special LIFO Issues
Figuring COGS and valuing ending inventory using all the cost flow assumptions is pretty easy when you get the hang of it. Plus, larger companies have software tailored to the task, which makes the undertaking [more…]
How to Use Lower of Cost or Market
Using the lower of cost or market means comparing the market value of each item in ending inventory with its cost and then using the lower of the two as its inventory value. [more…]
