Accounting Category: Liabilities

Accounting Articles

March 2, 2014

In theory, bonds are easy to account for. A long-term liability is established on the balance sheet, and periodic interest expense is applied to the calculation of net income. When the bond is repaid, the liability is cleared from the balance sheet. Not all bonds, however, are that simple to handle.

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.

September 26, 2013

Most businesses have bank accounts. A number of situations can take place in relation to such accounts. For example, a company may have written checks in excess of a bank balance. Or a company may have a zero balance account and any checks that clear the company’s bank account are financed by a revolving line of credit. How should these transactions be recorded on the balance sheet? What about the statement of cash flows? In this article you will find answers to these questions.

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.

June 21, 2013

External financing often represents a significant or important part of a company’s capital structure. Companies obtain such financing to fund working capital, acquire a business, etc. The process of obtaining a loan or issuing debt securities involves costs. In this article, we will look at accounting requirements for debt issuance costs under US GAAP and an example of accounting for such costs using the effective interest rate method and the straight-line method.

May 30, 2013

In this article we will discuss special journals and provide an example of a purchases special journal.

May 9, 2013

In our computerized world most accounting records are maintained in accounting software databases or spreadsheets, and accountants don’t think much in terms of general ledger or subsidiary ledgers like they did when most accounting records were maintained on paper. However, such concepts still exist. In this second part of the two-part article we will look at examples of accounts payable subsidiary ledger (i.e., accounts payable aging), inventory subsidiary ledger, and fixed assets subsidiary ledger.

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.

January 31, 2013

From time to time accounting records may present unusual account balances. For example, a customer may have a credit balance in accounts receivable or a vendor may have a debit balance in accounts payable. This article provides examples of such situations and directions on how to approach them from the accounting standpoint. Offsetting assets and liabilities is also discussed.

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