Where is the discount on the purchase of office furniture recorded?

The discount received on the purchase of office furniture that will be used by a company is recorded in the same asset account in which the office furniture is recorded. That account might be Furniture and Fixtures or Office Furniture. (The discount is not recorded in Purchase Discounts as this account is only for the discounts on the purchase of merchandise that will be sold.)

To illustrate, let’s assume that a company purchases furniture for the office of a newly appointed executive. The cost of the furniture is $10,000 and the invoice allows a discount of 1% if it is paid within 10 days. If the company pays the invoice within 10 days, the Furniture and Fixtures account will increase by $9,900 ($10,000 minus the discount of $100). The depreciation calculations will be based on the cost of $9,900.

Learn more about Accounting Principles.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.

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What does understated mean?

When an accountant says that an amount is understated, it means two things:

1. The amount is not the correct amount, and

2. The amount is less than the true amount.  In other words, the amount is too small.

To illustrate the term understated, let’s assume that a company is reporting its accounts payable as $21,000. Let’s also assume that the correct or true amount of accounts payable is $23,000. An accountant will say that the reported amount of $21,000 is understated by $2,000.

Because of double-entry bookkeeping or accounting there will also be a second general ledger account with an error for the same amount.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.

View the original article here

What is a comparative income statement?

A comparative income statement will consist of two or three columns of amounts appearing to the right of the account titles or descriptions. For example, the income statement for the year 2010 will report to the right of the word Revenues the amounts for each of the years 2010, 2009, and 2008. As a courtesy to the reader, the amounts from the most recent period are in the column closest to the titles. The older amounts are deemed to be less significant and thus appear furthest from the titles.

A comparative income statement gives the reader a frame of reference for comparing the current year amounts.

Learn more about the Income Statement.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.

View the original article here

What is the difference between a balance sheet of a nonprofit organization and a for-profit business?

One difference in the balance sheets of a nonprofit or not-for-profit organization and a for-profit business is the name or title shown in its heading. In a nonprofit, the name of this financial statement is the statement of financial position. In the for-profit business this financial statement is the balance sheet.

Another difference is the section that presents the difference between the total assets and total liabilities. The nonprofit’s statement of financial position refers to this section as net assets, whereas the for-profit business will refer to this section as owner’s equity or stockholders’ equity. The reason for this difference is the nonprofit does not have owners. This means that the nonprofit organization’s statement of financial position will reflect this equation: assets - liabilities = net assets.

The net assets section will consist of the following parts: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. The amounts reported in each of these parts are based on the donor’s stipulations.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.

View the original article here

What is the statement of activities?

The statement of activities is one of the main financial statements of a nonprofit or not-for-profit organization.

A nonprofit’s statement of activities is issued instead of the income statement which is issued by a for-profit business.

The statement of activities focuses on the total organization (as opposed to focusing on funds within the organization) and reports the following:

1. Revenues such as contributions, program fees, membership dues, grants, investment income, and amounts released from restrictions.

2. Expenses reported in categories such as major programs, fundraising, and management and general.

3. The change in net assets resulting from items 1 and 2.

The statement of activities will have multiple columns in order to report the amounts for each of the following classes of net assets: unrestricted, temporarily restricted, permanently restricted, and total.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.

View the original article here

How do you balance a checkbook?

You balance a checkbook by comparing the amounts on your bank statement or in your bank account to the amounts you have in your checkbook or check register. Accountants refer to this as reconciling the bank statement or doing a bank reconciliation or bank rec (pronounced as “wreck”).

You can find a free explanation and a complete illustration of how to balance your checkbook at Bank Reconciliation.

If you would like a form with instructions to guide you, AccountingCoach.com offers a bank reconciliation form (both blank and completed) as part of its Master Set of 80 Business Forms.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.

View the original article here

How do you calculate the payroll accrual?

The payroll accrual is the amount that needs to be entered into a liability account in order for the credit balance in the liability account to be the amount owed to employees. The amount owed is the amount the employees have earned from working, but as of the date of the balance sheet this amount has not been paid to the employees.

To illustrate the payroll accrual, assume that a company’s employees were paid on September 30 for their work through September 25. The credit balance needed in the liability account as of September 30 is the amount that the employees earned for the days of September 26 through September 30.

Learn more about Adjusting Entries.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.

View the original article here