Basically, it means that the proper books and records of accounting are not kept by the person. As a result, information is not properly set. We need to get this information sorted to ensure that proper books, records and statements …
Direct Expense A direct expense is one that is directly related to the making of the good. It can be identified individually for each unit produced Includes direct labor cost and direct material cost. Direct material is the actual raw …
A partnership is between 2 and 20 people coming together to form an organization It is usually unincorporated, but can become a limited liability partnership In a limited liability partnership, there is at least 1 partner with unlimited liability. Advantages …
Advantages of Operating as Sole Trader Complete control over the business Not answerable to anyone. You are your own boss Can determine your own work hours, work conditions and timing All profits are for you. The sole trader does not …
Matching Also called accrual principle Revenues that are generated in a period should be matched to the expenditure incurred during that period to generate revenue. Therefore, this principle considers that payment itself is not important: when payment for an expense …
Cost is the amount for which an inventory was purchased Net realizable value is the amount for which the inventory will sell today. When doing inventory valuation, we select the lower of cost and net realizable value. The reasons net …
Irrecoverable Debts At times, when we have an accounts or notes receivable, the customers are not able to pay It could be in bad faith The customer may go broke as well. Or we may anticipate that the customer may …
Importance of matching costs and revenue Accruals/ matching principle Revenues of a period should be matched against the expenses that are incurred during that period to generate those revenues. Prudence Principle We do not understate losses or overstate profits Without …
Depreciation Gradual decrease on the value of an asset due to use, wear and tear, obsoletion and time. For non-current assets We can not see this in actual terms of numbers Instead, we approximate it every periods The reason is …
Capital Expenditure Any expense that bears the benefit for more than 1 year. Usually, such expenses are those that are one-time or one-off, and they bring a permanent improvement in a long-term asset. It also includes initial expenses to bring …