Friday, May 29, 2009

What is Matching Principle?

What is the matching principle and what is its importance in accounting?

The matching principle concept states that expenses incurred in a period must be matched against incomes earned in that same period in order to correctly evaluate the financial performance of the business. The matching principle is fundamental to the correct preparation of financial statements.

The matching concept, alongside the accrual concept, justifies end-of-year adjustments prior the preparations of final accounts and the preparation of financial statements.

Importantly, underlying the matching principle and GAAP is the idea that the market system needs quality financial information for decision taking and profitability is the major indicator of economic performance. It is vital for the health and wealth of nations that businesses can be reliably compared both nationally and internationally using the same measuring standards. Thus, there is a great need for the matching principle in accounting.

Tuesday, May 19, 2009

What are Capital Structure Decisions?

Management makes a capital structure decision when it decided the appropriate mix of debt and equity capital that its company uses to finance its assets and operations.

An example of a capital structure decision would be for a firm to issue new debt to finance a new factory instead of common stock.

Additional Accounting Examples and Tutorials:

Definition of Treasury Stock
Reasons Companies Issue Preferred Stock

Thursday, May 7, 2009

Petty Cash Fund Balances

What is the accounting treatment if the expenses to be replenish the petty cash funny is higher than the petty cash fund balance?

Accounting primarily concerns the logical flow of funds. If the petty cash fund is $300 at the end of an accounting period, and the petty cash vouchers account equals $350, then petty cash owes someone $50.

You cannot have negative cash in accounting journal account. In this situation with the petty cash account, someone took cash out of their own pocket, and put a voucher in the petty cash boxes with the intention of being repaid by the company.

Wednesday, May 6, 2009

What is Capital Budgeting?

In accounting, capital budgeting is about how a firm will utilize its fixed assets, such as a factory, to make use and make returns off of long-term investments.

A good example of this is a decision made by management to construct a new factory with machinery in order to meet demand for a new product. This is a capital budgeting decision

More Accounting Links:
Average Accounting Return

Tuesday, May 5, 2009

Contract Costing Business Need

There are various methods of computing costs that are available to an accountant to suit the business needs of a company. However, the basic principles are the same in every method of job order costing. Primarily, the choice of a particular method of costing depends on the nature of business and personal preferences of the accountant.

Contract costing is the form of specific order costing.

Accountants will use contract often most often where the work is undertaken to customer’s special requirements. Further, it is generally used when each order is of long duration, such as building construction, ship building, structural for bridge, constructions projects, etc.

It is not use often in the manufacturing or retail settings.

Monday, May 4, 2009

Tax vs. Financial Accounting Differences

What are the main differences between Tax and Financial Accounting?

One of the biggest differences between tax and financial accounting is that they both have results from a treatment that does not reverse over time. For example, the difference remains imbedded in their respective net incomes permanently.

A temporary or timing difference is one that will reverse itself in a later accounting period. This generally occurs over two or more periods. One example is the income or deductions for financial accounting will equal the income or deductions for tax accounting purposes. More examples of timing differences include differences in depreciation schedules, bad debt deductions vs. allowances for bad debt, and prepaid expenses.

Examples of more permanent differences between tax and financial accounting include tax-exempt interest income on municipal bonds, life insurance proceeds, tax credits, and nondeductible fines that are incurred by a company.

Saturday, May 2, 2009

What causes a Liability?

Liabilities can result from certain types of contractual relationships with lenders, suppliers, customers, employees, governments, and other companies.

Popular Accounting Problems

The information on this site is for informational purposes only and should not be used as a substitute for the professional advice of an accountant, tax advisor, attorney, or other professional.