Accounting Category: Expenses

Accounting Articles

December 22, 2013

“Closing the books” is an important process in the life cycle of any company. It is necessary for both reporting and tax purposes and helps management assess the health and well-being of the business. In this article, we will look at why the process is necessary and discuss the role played by the Income Summary account at the end of a fiscal year.

October 31, 2013

Companies often provide warranties to their customers. There may be standard warranties and extended warranties. Standard warranties are provided when a product is sold and may cover periods from a few months to multiple years. Extended warranties usually require a separate payment and cover periods in addition or after standard warranties. Companies need to account for standard and extended warranties appropriately. We will discuss such accounting in this article.

August 13, 2013

Organizations purchase insurance to obtain protection from unforeseen events and to “share” the cost of potential losses with other entities. Insurance can cover business, auto, health and workers’ compensation losses, among others. In this article, we will look at situations when insurance companies quote an annual premium for coverage and how this is accounted for.

April 23, 2013

In a classified balance sheet, current (short-term) and non-current (long-term) assets and liabilities are presented separately. In most cases current assets and liabilities are easy to distinguish and don’t present any issues with their classification and presentation on a balance sheet. However, there are certain items which may require special treatment because they need to be separated into the current and non-current portions. In the second part of this article we will discuss two items: deferred rents and notes payable.

April 17, 2013

In a classified balance sheet, current (short-term) and non-current (long-term) assets and liabilities are presented separately. In most cases current assets and liabilities are easy to distinguish and don’t present any issues with their classification and presentation on a balance sheet. However, there are certain items which may require special treatment because they need to be separated into the current and non-current portions. In the first part of this article we will discuss one of such items: prepaid insurance.

March 30, 2013

Quite often rent agreements classified as operating leases include uneven rent payment terms (e.g., escalating rent payments or rent holidays). For example, a 5-year building rent agreement may specify that rents will go up 5% every year after the first year. Some companies assume that the rent expense should be recognized based on the rent payments. However, under US GAAP this most probably won’t be true. In this article, we review accounting for lease agreements with uneven rent payments.

February 21, 2013

Most companies purchase and use fixed assets (also called property, plant and equipment). Fixed asset costs are allocated to multiple accounting periods by recording depreciation expense. What is the impact of not depreciating fixed assets?

February 16, 2013

Learn about sunk costs and how they impact investment decision-making.

November 29, 2012

Declining balance methods of depreciation, specifically the double-declining balance method, do not take into consideration the salvage value of an asset when determining the depreciable basis. Some people wonder why that is the case. This article provides the answer.

July 21, 2012

Should the useful life of a newly acquired fixed asset be the same as its physical life? This and other questions related to fixed asset useful lives are answered in this article.

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