Accelerated Depreciation

Accelerated depreciation is a method to calculate the book value of a fixed asset over the years. In this method, the relative asset incurred higher expenses than last remaining years, unlike straight-line method.

There are two methods two calculate accelerated depreciation i.e. double declining balance method and Sum of the years’ digits method.

Double declining balance method formula

Annual Depreciation Expenses = Net Book Value x 2/Useful life in years

Sum of the years’ digits method formula

Depreciation Expense = Remaining useful life of asset / Sum of the years digits x Depreciable Cost

Why Cloud Accounting is better than traditional accounting?

Cloud accounting is widely accepted by small businesses. Cloud Accounting is termed as online accounting and manual accounting called as traditional accounting. Why we need cloud accounting? The best answer would be to save time, money and to reduce accounting errors. Also, cloud accounting is the best way to do accounting as you can save & edit all your data at any time and anywhere as data will be saved on server. These are some features which attract small businesses to use accounting software.

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Accounting Equation

The accounting equation is a rule or you can say formula to calculate the total asset of a company/entity. There are there accounting equations.

  • Assets = Liabilities + Owner’s Equity
  • Assets = Liabilities + Shareholder’s Equity (For Corporation )
  • Assets = Liabilities + Net assets (For Non-Profit Organizations like NGO)

The Balance sheet prepared using this rule. Double entry bookkeeping system formed on the basis of the accounting equation.

Accrued Liabilities

Accrued liabilities usually referred to those transactions which are incurred by an entity but yet not have been paid or receive an invoice.

There are two types of accrued liabilities i.e. short-term accrued liability and long-term accrued liability. Short term accrued liabilities are daily basis transactions which happen on a regular basis. Long-term accrued liabilities which happen very rarely but for a longer period of time.

Examples: Accrued wages, accrued pension liability, accrued interest on loan payable etc.

Balance Sheet

A balance sheet is an important financial statement prepared by a company at a specific date on a regular basis to showcase its financial situation.

The balance sheet includes cash-flow statement, income & expense statement, asset and liability details. In short, it shows all transaction details.

A balance sheet is the main point interest for a shareholder, company advisor, business partner etc.

The Balance sheet abides by the following rule:

Assets = Liability + Shareholder’s Equity

Financial Accounting

Financial accounting is the process of preparing financial reports for both internal and external use of a business. Financial report includes balance sheet, cash flow & income & expense, equity & liability statement.

This kind of report needs at the time of tax filing, company valuation etc.

Trial Balance

Trial balance is a way of bookkeeping to ensure all ledger inputs are correct. In trail balance all credit balances entry under credit balance head and debit inputs under ledger balance head. If credit and debit balance found to be identical then we could conclude that there is no error in accounting entries.

Trail balance prepared in a regular period to minimise accounting error. In companies point of view, it’s an important task needs to do regularly. It would help to prepare company’s financial statements with zero error.

Factory overhead costs

Factory overhead is also named as manufacturing overhead. Factory overhead cost is the total operational cost used for production or manufacturing in a factory. It’s not the direct cost associated with raw material and labor. Its also called an indirect cost.

Factory overhead includes in manufacturing cost category.

Bank Reconciliation

Accounting software, Small business accounting software

Bank reconciliation is a process of comparing company’s own financial record with bank record to maintain the accurate figure.

Bank reconciliation is very necessary as it helps to avoid any overdraft payments, duplicate charges etc. Double entry bookkeeping is one way to perform reconciliation. Bank reconciliation needs to be prepared for every month. Bank reconciliation is a way of finding errors in bank account and company’s ledger account.

Endowment Fund

Endowment fund is always held by a non-profit organization as invested capital in this fund need to use for only non-profit works. In endowment fund the principal amount must be retained and earnings from this fund only can use for operational works.

This fund integrated with non-profit organizations like collage, universities, NGO, hospitals, church etc.

Liquidity Ratio

Liquidity ratio measures the ability of a company to pay its current and long term liabilities. It’s the easiest way to know how much fund a company can raise and how much asset can convert into cash?

Liquidity ratio can be categorized into various types such as: Acid ratio, Cash ratio & current ration. 

Acid Ratio:  Acid ratio also called as quick ratio. Acid ration defines the ability of a company to meet its current and short term obligations with the use of its most liquid assets.

Calculation method:   Cash & cash equivalents + Accounts receivable + Short term investments / Current liabilities

Accounting Period

 

 

It’s the period for which financial statements prepared of an entity. One accounting period consists of 12 months. This time period can be from January to December (calendar year) or April to March (Fiscal Year).

Accounting period varies according to type of business. For example, if a business set forth on February 12 then its first accounting period would be from February 12 to February 28/ 29.

Again, if a business shut down on March 25 then its final accounting period would be from March 1 to March 25.  Accounting period pertain to only income and cash flow statements as balance sheet prepared on a specific date.

 

 

Dividends

Dividend is the share of profits of a company / entity with shareholders. After paying to its creditors company can share some or whole profit with its shareholders. Company can also skip paying dividends if it needs funds for reinvestment or any other business work.  Company also can decide the date and rate for dividend pay. Normally, dividend paid quarterly and monthly.

 

Decentralization

Decentralization refers to the delegation of the decision making and other powers of higher authority to the lower units or sub units.

Decentralization allows higher authority to invest their time in other areas for expand and growth of the business.

Sometimes this became sub-units took decision which is better for them not for the business.

Accumulated Depreciation

It’s the total cost of depreciation of an asset in a regular period of time till it exists. It shows the decreasing value of an asset over the period of time. Accumulated depreciation reflects in the balance sheet under accumulated account and this amount never ends at the end of a financial year, it carry forward to the next year.

Calculation: 

We can calculate the depreciation amount in three different ways mentioned below:

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Annuity

Annuity:  

Annuity is an amount of fund invested by an individual or a financial institution in order to receive equal amount of money at equal time intervals. It can be defined as a fixed income source for an individual.

It’s an opportunity for an individual to raise a huge amount by investing less. Continue reading “Annuity”

What is Capital?

Capital is the total financial asset of a business. It includes cash-in-hand, cash-at-bank, building, furniture, machinery, land etc. Capital is categorized into two different types i.e. working capital, fixed capital.

Working Capital: Those assets or capital used or available for day-to-day operations are called as working capital.

To calculate working capital: working capital = current assets – current liabilities

Fixed Capital: Capital or assets like furniture, machinery is termed as fixed capital. Fixed capital is the biggest advantage for a business as these can be used in bad times to pay debts.