account

Examples of account in the following topics:

• Closing the Cycle

  • Closing the revenue accounts—transferring the balances in the revenue accounts to a clearing account called Income Summary.
  • Closing the expense accounts—transferring the balances in the expense accounts to a clearing account called Income Summary.
  • Closing the Income Summary account—transferring the balance of the Income Summary account to the Retained Earnings account (also known as the capital account).
  • Closing the Dividends account—transferring the balance of the Dividends account to the Retained Earnings Account
  • The Dividends account is also closed at the end of the accounting period.

• Write-Offs

  • When a sale is made on account, revenue is recorded along with account receivable.
  • The portion of the account receivable that is estimated to be not collectible is set aside in a contra-asset account called Allowance for Doubtful Accounts.
  • The credit is to the Accounts Receivable control account in the general ledger and to the customer's account in the accounts receivable subsidiary ledger.
  • Debiting the allowance account and crediting Accounts Receivable shows that the firm has identified Smith's account as uncollectible.
  • If the company wrote off any uncollectible accounts during 2009, it would debit Allowance for Uncollectible Accounts and cause a debit balance in that account.

• Valuing Accounts Receivable

  • These uncollectible accounts are called bad debts.
  • Recognizing the bad debt requires a journal entry that increases a bad debts expense account and decreases accounts receivable.
  • Under the allowance method, an adjustment is made at the end of each accounting period to estimate bad debts based on the business activity from that accounting period.
  • Accounts receivable is a control account that must have the same balance as the combined balance of every individual account in the accounts receivable subsidiary ledger.
  • Since the specific customer accounts that will become uncollectible are not yet known when the adjusting entry is made, a contra-asset account named allowance for bad debts, which is sometimes called allowance for doubtful accounts, is subtracted from accounts receivable to show the net realizable value of accounts receivable on the balance sheet.

• Objectives of Accounting

  • The Financial Accounting Standards Boards Statements of Financial Accounting Concepts No. 1 states the objective of business financial reporting, which is to provide information that is useful for making business and economic decisions.
  • With these objectives in mind, financial accountants produce financial statements based on the accounting standards in a given jurisdiction.
  • Generally Accepted Accounting Principles refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards or Standard accounting practice.
  • They are progressively replacing the many different national accounting standards.The rules to be followed by accountants to maintain books of accounts which is comparable, understandable, reliable and relevant as per the users internal or external.
  • Describe the objectives of accounting, distinguishing between Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS)

• Recognizing Notes Receivable

  • In accounting, notes receivables are accounts to keep track of accrued assets that have been earned but not yet received.
  • In accounting, notes receivables are accounts to keep track of accrued assets that have been earned but not yet received.
  • To record a journal entry for a sale on account, one must debit a receivable and credit a revenue account.
  • Companies have two methods available to them for measuring the net value of accounts receivable, which is generally computed by subtracting the balance of an allowance account from the accounts receivable account.
  • The first method is the allowance method, which establishes a contra-asset account, allowance for doubtful accounts, or bad debt provision, that has the effect of reducing the balance for accounts receivable.

• Expense Recognition

  • Expense recognition is an essential element in accounting because it helps define how profitable a business is in an accounting period.
  • In terms of the accounting equation, expenses reduce owners' equity.
  • An important issue in accounting is when to recognize expenditures.
  • Generally, cash basis accounting is reserved for tax accounting, not for financial reports.
  • Most financial reporting in the US is based on accrual basis accounting.

• Activities to Manage Receivables

  • The accounts receivable departments use the sales ledger.
  • Collections and cashiering teams are part of the accounts receivable department.
  • To record a journal entry for a sale on account, one must debit a receivable and credit a revenue account.
  • The first method is the allowance method, which establishes a contra-asset account, allowance for doubtful accounts, or bad debt provision, that has the effect of reducing the balance for accounts receivable.
  • The entry would consist of debiting a bad debt expense account and crediting the respective accounts receivable in the sales ledger.

• Dealing with Foreign Currency and Bad Debts

  • To deal with foreign currency and bad debts, we have a "gain or loss" account and methods to measure the net value of accounts receivable.
  • To deal with bad debts, companies have two methods available to them for measuring the net value of accounts receivable, which is generally computed by subtracting the balance of an allowance account from the accounts receivable account.
  • The first method is the allowance method, which establishes a contra-asset account, allowance for doubtful accounts, or bad debt provision, that has the effect of reducing the balance for accounts receivable.
  • The allowance for bad debt/doubtful accounts is a permanent account.
  • While the corresponding bad debt expense account is a temporary account that is zeroed out annually.

• The Role of Accounting in the Business

  • Accounting is often called “the language of business.”
  • Actually, collecting all the numbers is the easy part—today, all you have to do is start up your accounting software.
  • Management accountants provide information and analysis to decision makers inside the organization in order to help them run it.
  • In other words, management accounting helps you keep your business running while financial accounting tells you how well you’re running it.
  • Management accounting plays a key role in helping managers carry out their responsibilities.

• Debits and Credits

  • Whether a debit increases or decreases an account depends on what kind of account it is.
  • In the accounting equation Assets = Liabilities + Equity, if an asset account increases (by a debit), then one must also either decrease (credit) another asset account or increase (credit) a liability or equity account.
  • When we deposit money into our accounts, the bank's liability increases, which is why the bank credits our account.
  • In summary: An increase (+) to an asset account is a debit and an increase (+) to a liability account is a credit; conversely, a decrease (-) to an asset account is a credit and a decrease (-) to a liability account is a debit.
  • In accounting, these are divided into three types of accounts.