Another important factor in a business' financial well-being is the issuing of bonds. Investors purchase bonds with cash after they are issued by a corporation. Essentially, a bond creates a long-term debt for a company as they borrow money. Those who purchase the bonds are considered lenders and/or bondholders.
As with most transactions, the issuing and paying off of bonds requires accurate accounting of interest that accrues throughout the bond's life until maturity. Interest is typically paid every six months (semiannually). Thus, if a corporation issues a bond to be paid at maturity in three years, it will make a total of six interest payments. Upon the maturity date of the bond, the issuer will pay the investor its final interest payment as well as the bond's principal amount.
A bondholder's claim to these interest payments is NOT a form of equity; the investor is not granted any form of the corporations ownership. Thus, the corporation that issues the bond does not make any entry to the equity accounts. Rather, upon issuing the bond, it will debit the amount of cash received and debit 'Bonds Payable'. This establishes a liability that will be paid at the bond's maturity date. When interest payments take place, the journal entry will be recorded as such with 'Bond Interest Expense' and 'Bond Interest Payable'.
Bonds can be issued with a Premium or Discount. A Premium is issued when the investor is willing to pay more than the principal amount proposed by the corporation. A discount, therefore, is issued when the investor purchases the bond at a price lower than par value. Both Discounts and Premiums are amortized accordingly at each semiannual interest payment and at the date of maturity.
Straight-Line Amortization and Effective Interest are two useful methods that effectively compute the reduction of a premium or discount throughout the life of the bond.
There is so much more to discuss regarding bonds and why they are so vital to the success of a business. As an aspiring entrepreneur, I have taken significant interest (no pun intended) in the importance of bonds. Lenders and investors are especially important to the success and survival of a start up industry. I have no interest in becoming an accountant, but I have definitely learned a lot of vital information regarding the financial endeavors and management for a business.
As of November 13, we have a new president and 42 days till Christmas.
Sunday, November 13, 2016
Sunday, November 6, 2016
Working on the worksheet
A few weeks ago, my professor assigned us a scenario from our workbook and instructed us to complete a worksheet with it. In the worksheet, we are to provide all of the account titles, an unadjusted trial balance, adjustments, an adjusted trial balance, the income statement, and a balance sheet. At the beginning of this semester, I would have looked at this assignment and notified my parents of my immediate withdrawal from the university. However, I took this project on with great confidence for a few reasons:
1. Accounting is easy.
Yeah. I said it. The stereotype of this career being easy is absolutely true. Literally, all it's about is remembering a few little tips and tricks about manipulation of transactions, grabbing a calculator (or abacus if you prefer), and crunching away at some numbers until you can produce a valid number of statements regarding the business for which you account. In fact, all you really need to do is play around with Microsoft Excel until you've produced a professional looking report with some numbers and lines, and maybe even colors.
I completed this assignment, due at the end of the semester, in a matter of roughly 30 minutes. I spent more time making style adjustments than I did actually computing and organizing data. What's magic about Excel is that it does the work for you.
2. Accounting is fun...relatively speaking.
Who doesn't love playing with numbers. As lame as it sounds, accounting is just a matter of making sure everything matches up (or at least makes sense). This is really cool, especially in that this concept is vital in the coherency and accuracy of a worksheet. For example the debits and credits on the unadjusted and adjusted trial balances had to equal; the difference between total debits and credits on the income statement gives you the net income or loss; and the difference between debits and credits on the balance sheet also gives you net income or loss. [The contrast between balance sheet and income statement net income or loss is that the balance sheet is a reflection of that business' current financial standing as an aggregative report of previous periods' retained earnings and other permanent accounts (see previous posts) while the income statement is more often referred to as the observed result from a period's revenues and expenses.]
So yes, accounts are just professional number crunchers, but I think that's totally cool. Numbers don't make sense to everyone, so if you can get the rules and regulations of accounting down, you can easily earn your CPA and PEOPLE WILL GIVE YOU MONEY to, if relative, have fun playing with numbers!
3. I have confidence in what I have learned about accounting thus far.
I have recently been able to say with complete honesty that I have learned more from this class and my economics class than I did in my four years of high school combined. I'm not just saying this as a typical teen who said "screw high school"; I have legitimately learned so much and feel like the world of business is the place for me and my career. In fact, I have become so eager and excited to take on my own business, that I have neglected to focus on my other, far less important classes such as biology and French culture (in both of which I have an A...no worries) and have immersed myself as fully as I can in everything business.
That being said, this passion that I have developed has made learning very easy. I wouldn't say it's very fun reading my accounting textbook, but I always feel so satisfied when I can put what I've learned into practice and build upon it over time. And because everything builds on everything else, I am pretty much always confident in what I am doing.
So, I'm not telling my group that I've already done the project because I don't want them just taking the answers. But I'll be a good sport and help them out.
The next time I write, we will have a new president. If you read this before November 8, let's vote to make America great again, for the sake of the business world if nothing else.
FYI....49 days till Christmas.
1. Accounting is easy.
Yeah. I said it. The stereotype of this career being easy is absolutely true. Literally, all it's about is remembering a few little tips and tricks about manipulation of transactions, grabbing a calculator (or abacus if you prefer), and crunching away at some numbers until you can produce a valid number of statements regarding the business for which you account. In fact, all you really need to do is play around with Microsoft Excel until you've produced a professional looking report with some numbers and lines, and maybe even colors.
I completed this assignment, due at the end of the semester, in a matter of roughly 30 minutes. I spent more time making style adjustments than I did actually computing and organizing data. What's magic about Excel is that it does the work for you.
2. Accounting is fun...relatively speaking.
Who doesn't love playing with numbers. As lame as it sounds, accounting is just a matter of making sure everything matches up (or at least makes sense). This is really cool, especially in that this concept is vital in the coherency and accuracy of a worksheet. For example the debits and credits on the unadjusted and adjusted trial balances had to equal; the difference between total debits and credits on the income statement gives you the net income or loss; and the difference between debits and credits on the balance sheet also gives you net income or loss. [The contrast between balance sheet and income statement net income or loss is that the balance sheet is a reflection of that business' current financial standing as an aggregative report of previous periods' retained earnings and other permanent accounts (see previous posts) while the income statement is more often referred to as the observed result from a period's revenues and expenses.]
So yes, accounts are just professional number crunchers, but I think that's totally cool. Numbers don't make sense to everyone, so if you can get the rules and regulations of accounting down, you can easily earn your CPA and PEOPLE WILL GIVE YOU MONEY to, if relative, have fun playing with numbers!
3. I have confidence in what I have learned about accounting thus far.
I have recently been able to say with complete honesty that I have learned more from this class and my economics class than I did in my four years of high school combined. I'm not just saying this as a typical teen who said "screw high school"; I have legitimately learned so much and feel like the world of business is the place for me and my career. In fact, I have become so eager and excited to take on my own business, that I have neglected to focus on my other, far less important classes such as biology and French culture (in both of which I have an A...no worries) and have immersed myself as fully as I can in everything business.
That being said, this passion that I have developed has made learning very easy. I wouldn't say it's very fun reading my accounting textbook, but I always feel so satisfied when I can put what I've learned into practice and build upon it over time. And because everything builds on everything else, I am pretty much always confident in what I am doing.
So, I'm not telling my group that I've already done the project because I don't want them just taking the answers. But I'll be a good sport and help them out.
The next time I write, we will have a new president. If you read this before November 8, let's vote to make America great again, for the sake of the business world if nothing else.
FYI....49 days till Christmas.
Tuesday, November 1, 2016
Economists vs Accountants (profit)
I am an economics student at the University of Louisville. Why? Because I love business. Well, actually, because I disliked the idea of becoming an engineer. See, I originally went to UL as a mechanical engineer major, but about 2 months before classes started, I gave my future a little thought and decided that these hands weren't made to be an engineer. Rather, I have been given the mind to pursue business and entrepreneurial endeavors. That being said, understand that although I have a bias towards the practice of economics, the following is not a persuasive argument about which practice is better. Instead, I am just going to give you a few examples of how they are slightly (very) different in their ways of analyzing business.
Profit is calculated in a way that yield very different results, usually with accounting recognizing an overstatement of profit due to an understatement of expense. Expenses can be broken down into two primary categories: EXPLICIT and IMPLICIT. Explicit costs are the more obvious, cash/asset-related expenditures that the company partakes in order presumably to increase revenue. Implicit costs, however, is generally known as OPPORTUNITY COST, what you give up in order to produce x number of units. If you have looked into either accounting or economics at least a little, it should be clear based on these definitions which practice analyzes which costs. Well, accounting only uses explicit, monetary, costs in their computation of profit. Economics uses both explicit and implicit. Profit in general is computed by subtracting expenses from your total revenue. The processes for both practices are as follows:
Economics Profit = Total Revenue - Explicit Costs - Implicit Costs
Accounting Profit = Total Revenue - Explicit Costs
This difference will, more often than not, produce recorded profits that are strikingly different. For example, assume Company A had a good year of sales and made $200,000 in total revenue. Throughout the year, they purchased $150,000 worth of equipment (an explicit cost), but had observed an opportunity cost of $60,000 (an implicit cost). Well, the accounting profit would be $50,000 and the economic profit would be -$10,000. As you can see, these numbers are totally different, as the economic profit was actually negative, meaning the company lost money.
Here's another example, assume Company A had total revenue of $200,000 and that they noted $170,000 worth of explicit costs and $30,000 of implicit costs. The accounting profit would be $30,000 while the economic profit would be $0. Typically, a profit of $0 seems bad, but this is actually considered a success in the business world and is known as NORMAL PROFIT, meaning you didn't lose anything. Good job, Company A.
Many other differences exist, but when it comes down to it, comparing accountants and economists is like comparing apples to oranges; they both provide a way to examine and manipulate business strategies based on statistics and trends over a certain financial period. Both are important (utterly vital) to the life of a company and must be utilized efficiently in order to guarantee survival in the world of business.
To close, I'd like to note that Christmas is only 54 days away as of November 1.
Profit is calculated in a way that yield very different results, usually with accounting recognizing an overstatement of profit due to an understatement of expense. Expenses can be broken down into two primary categories: EXPLICIT and IMPLICIT. Explicit costs are the more obvious, cash/asset-related expenditures that the company partakes in order presumably to increase revenue. Implicit costs, however, is generally known as OPPORTUNITY COST, what you give up in order to produce x number of units. If you have looked into either accounting or economics at least a little, it should be clear based on these definitions which practice analyzes which costs. Well, accounting only uses explicit, monetary, costs in their computation of profit. Economics uses both explicit and implicit. Profit in general is computed by subtracting expenses from your total revenue. The processes for both practices are as follows:
Economics Profit = Total Revenue - Explicit Costs - Implicit Costs
Accounting Profit = Total Revenue - Explicit Costs
This difference will, more often than not, produce recorded profits that are strikingly different. For example, assume Company A had a good year of sales and made $200,000 in total revenue. Throughout the year, they purchased $150,000 worth of equipment (an explicit cost), but had observed an opportunity cost of $60,000 (an implicit cost). Well, the accounting profit would be $50,000 and the economic profit would be -$10,000. As you can see, these numbers are totally different, as the economic profit was actually negative, meaning the company lost money.
Here's another example, assume Company A had total revenue of $200,000 and that they noted $170,000 worth of explicit costs and $30,000 of implicit costs. The accounting profit would be $30,000 while the economic profit would be $0. Typically, a profit of $0 seems bad, but this is actually considered a success in the business world and is known as NORMAL PROFIT, meaning you didn't lose anything. Good job, Company A.
Many other differences exist, but when it comes down to it, comparing accountants and economists is like comparing apples to oranges; they both provide a way to examine and manipulate business strategies based on statistics and trends over a certain financial period. Both are important (utterly vital) to the life of a company and must be utilized efficiently in order to guarantee survival in the world of business.
To close, I'd like to note that Christmas is only 54 days away as of November 1.
Sunday, October 23, 2016
Liabilities: accounting yourself accountable
In the world of business, many companies will accept payments before providing service or delivery. Likewise, some may accept a good or service before they submit a payment. In both of these cases, the party acquiring unfulfilled obligations would partake in the recording of what is known as a LIABILITY.
A liability is basically obligations held by a company. It can also be referred to as a creditor's claim on an asset; a source of the company's assets; or even a creditor's claim against the assets currently held by the company. Nonetheless, a company must record each liability acquired within an accounting period as it directly affects the balance sheet at any point in time. It is relevant now to refer to the accounting equation:
Assets = Liabilities + Equity ----------> Liabilities = Equity - Assets
Note that an increase in liabilities yields an increase in assets as is reflected in the balance sheet.
Liabilities have a normal credit balance, thus are decreased when recorded as a debit. There are many different forms of liabilities, but many can be spotted by two key words: "UNEARNED" and "PAYABLE". Other common liability accounts include, but are not limited to, the following:
Notes Payable
Accounts ""
Wages ""
Salaries ""
Notes ""
Interest ""
Unearned Revenue
Fees Unearned
It is pretty easy to spot a liability on a balance sheet, and this is to the benefit of all entities involved in a particular transaction. The sooner one party fulfills its obligations/liabilities to another, the sooner both can resume normal business practices.
As liabilities are accrued, they are recorded as a credit. Inversely, as they are fulfilled, they are reduced by being recorded as a debit. An example of this is provided:
Assume that on May 4, Company X buys a TV at a cost of $500 on credit from Tele Co. Company X would record the transaction in the journal as follows:
May 4 Television 500
Accounts Payable - Tele Co 500
Now assume that on June 1, Company X pays the $500 in cash to Tele Co. (and that Tele made this sale in on Craigslist where no sales tax or interest rates applied). Company X would record the transaction as follows:
June 1 Accounts Payable - Tele Co. 500
Cash 500
The ledger for the ACCOUNTS PAYABLE account would appear as follows:
Accounts Payable In this case, since the account payable is completely fulfilled, the balance
500 | 500 in the account as of June 1 is $0.
| 0
On the flip side, a company can receive payment before providing service. This case is presented below:
Assume that on Jan. 1, Company X receives $500 cash for a tutoring service that is to take place over the next 5 months ($100/month) and is to start immediately. Company X would prepare this journal entry on Jan. 1:
Jan. 1 Cash 500
Unearned Tutoring Fees 500
On March 1, Company X has provided 2 months of service (worth $200) and will record the following journal entry:
March 1 Unearned Tutoring Fees 200 Note that revenue is recorded
Tutoring Revenue 200 when earned!!!
As a result of this entry, the company can recognize that 2 months' worth of tutoring revenue has been earned. Also, by analyzing an u[dated ledger, it will assure that 3 more months of service must be provided in order to earn the full revenue of $500.
A final note, business would not exist without liabilities... think about that this week.
Another final note...63 days till Christmas!
A liability is basically obligations held by a company. It can also be referred to as a creditor's claim on an asset; a source of the company's assets; or even a creditor's claim against the assets currently held by the company. Nonetheless, a company must record each liability acquired within an accounting period as it directly affects the balance sheet at any point in time. It is relevant now to refer to the accounting equation:
Assets = Liabilities + Equity ----------> Liabilities = Equity - Assets
Note that an increase in liabilities yields an increase in assets as is reflected in the balance sheet.
Liabilities have a normal credit balance, thus are decreased when recorded as a debit. There are many different forms of liabilities, but many can be spotted by two key words: "UNEARNED" and "PAYABLE". Other common liability accounts include, but are not limited to, the following:
Notes Payable
Accounts ""
Wages ""
Salaries ""
Notes ""
Interest ""
Unearned Revenue
Fees Unearned
It is pretty easy to spot a liability on a balance sheet, and this is to the benefit of all entities involved in a particular transaction. The sooner one party fulfills its obligations/liabilities to another, the sooner both can resume normal business practices.
As liabilities are accrued, they are recorded as a credit. Inversely, as they are fulfilled, they are reduced by being recorded as a debit. An example of this is provided:
Assume that on May 4, Company X buys a TV at a cost of $500 on credit from Tele Co. Company X would record the transaction in the journal as follows:
May 4 Television 500
Accounts Payable - Tele Co 500
Now assume that on June 1, Company X pays the $500 in cash to Tele Co. (and that Tele made this sale in on Craigslist where no sales tax or interest rates applied). Company X would record the transaction as follows:
June 1 Accounts Payable - Tele Co. 500
Cash 500
The ledger for the ACCOUNTS PAYABLE account would appear as follows:
Accounts Payable In this case, since the account payable is completely fulfilled, the balance
500 | 500 in the account as of June 1 is $0.
| 0
On the flip side, a company can receive payment before providing service. This case is presented below:
Assume that on Jan. 1, Company X receives $500 cash for a tutoring service that is to take place over the next 5 months ($100/month) and is to start immediately. Company X would prepare this journal entry on Jan. 1:
Jan. 1 Cash 500
Unearned Tutoring Fees 500
On March 1, Company X has provided 2 months of service (worth $200) and will record the following journal entry:
March 1 Unearned Tutoring Fees 200 Note that revenue is recorded
Tutoring Revenue 200 when earned!!!
As a result of this entry, the company can recognize that 2 months' worth of tutoring revenue has been earned. Also, by analyzing an u[dated ledger, it will assure that 3 more months of service must be provided in order to earn the full revenue of $500.
A final note, business would not exist without liabilities... think about that this week.
Another final note...63 days till Christmas!
Sunday, October 16, 2016
Holding Accounting Accountants Accountable
To all accountants out there: why?
As if you haven't gotten this question before, right? "Why would you want to be an accountant? All you do is add and subtract? ...debits and credits... It's so boring ...overpayed..." As a freshman Economics student who has no desire of becoming an official accountant, I cannot provide a reasonable reasonable response to the public onslaught of attacks against the career of accounting. What I can do, however, is heap some more unbiased coals onto the fire of the debate.
The following information is meant to provide some insight as to how important accounting is and how a few legal mixups can really screw things up.
Many laws and acts have been implemented to make sure that companies prepare and present financial information in a certain manner so that no party can, in a prefect world, utilize loop holes in the accounting process. The Sarbanes-Oxley Act (SOX) and Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as the GAAP, SEC, IASB, IFRS, and FASB (whose names are easy to find with a quick web search) are all proponents and enforcement acts/organizations that assure the clear objective of maintaining valid and consistent measurements in transactional recognitions across businesses as they adhere to a full-disclosure model of financial records presentation. Simply put, businesses - both service and not-for-profit organizations - must follow an extensive set of rules and guidelines regarding to the ways in which they prepare and present their financial statements. For more information on specific principles on this matter, consider visiting IFRS.com, FASB.org, and ifrs.org.
Now, these rules are important for a few reasons:
1. Making a mistake at any point in time - be it a legal or mathematical or logistical error - can be costly in a future financial period.
2. Financial fraud can result in disputes that ultimately destroy a company if not resolved quickly.
3. Failure to account for certain transactions correctly can result in an incorrect adjustment of management that may not benefit the business.
4. YOU WILL LOSE MONEY IF YOU CAN'T PLAY BY THE RULES! People are out looking to sue; that's where the real business is.
5. CEOs and CFOs will look to YOU (the accountant) if a financial mishap is afoot.
6. Most of all, these rules prevent accountants from being in the wrong...because accountants hate nothing more than the mere possibility of being wrong; they are the elite statisticians who can manipulate addition and subtraction like no other, and should be recognized as such. Math is never wrong, and neither are accountants.
I know this isn't much, but one cannot deny the risks of being an accountant. Accounting is the backbone of a business's financial status in the world and the organization that allows for innovation and implementation. Moreover, when proficient accounting is not part of the picture, the business will undoubtedly fall apart.
Accounting aside, there are now 70 days until Christmas as of October 16.
Sunday, October 9, 2016
"It is what it is...that's why."
So there I was, sitting in my first accounting class, and the professor comes in and start talking about debits, credits, journal entries, ledgers, Spongebob, and Amish cookies. I sat in complete and utter confusion at the very mention of these seemingly foreign accounting terms. Previously, I had assumed debits were good and credits were bad. Why? I don't know. I left the class with a stark realization: I was ignorant. I went back to my dorm and stared at the wall, remarking to my roommate that I would be committing the coming months to learning a third language: that of the accountant. Thus my endeavor began...
Debits and credits.
I open my textbook and thumb through a few pages, writing down what I found to be important terms. After what seemed like hours of reading, I attempted a practice question - I believe it was just a simple journal entry. Anyways, despite the time I had spent reading, I had missed the most basic concept in accounting: debits vs. credits. I remember my professor stressing these terms in class, labeling them as simply "left" and "right", respectively, but I still couldn't grasp why they are the way they are. The professor dressed this in what I legitimately believe to be the most accurate description of accounting possible: "It is this way, because somebody said it was to be, so we accepted it" (paraphrased). That's about right.
To be more specific, debits and credits comprise the general method by which transactions are recorded in a way that increases or decreases an account. Common types of accounts are as follows:
ASSETS, DIVIDENDS, and EXPENSES (which are increased by a debit) as well as LIABILITIES, EQUITY, and REVENUE (which are increased by a credit). When something is considered to be increased by either a debit or credit, it's normal balance will be considered what it is increased by (a Dr. or Cr.). This trend also works inversely, a credit will decrease the accounts that are increased by a debit, and vice versa. This may seem confusing if you've never seen these terms matched with an actual representation of the action. Here is a simple example of a debit and credit involving assets.
Company X buys a truck, which is considered an asset. To record this transaction, the company will state that the asset account was increased in the debit column by the value of the truck, also including a decrease in cash (also an asset) used to buy the truck to be recorded as a credit. The journal entry is as follows:
Dr. Cr.
TRUCK 20,000
CASH 20,000
You will notice that there were two entries recorded above; this is known as a DOUBLE-ENTRY. A double-entry system requires that any transaction be recorded in at least two accounts. As exemplified, one account will be debited while the other(s) being credited, so as to either increase or decrease the accounts accordingly.
For those who are new to accounting, like myself, I would recommend diving into a textbook and watching YouTube videos. Simple repetition of terms will also be an effective method of remembering how to go about handling the recording of transactions with debits and credits. I have read about 350 pages of my textbook in just a few short weeks, and plan on reviewing and reading more so that I may no longer be ignorant of the art of accounting.
A final note, this stuff is pretty easy, and as my professor reminds us weekly, "people will give you money...and lots of it" if you learn to love accounting. Let's just say I'm still learning (I'm and ECON major with no clue what I can do with it. Accounting might be calling my name...).
Here's a haiku I wrote:
Debits and credits.
I open my textbook and thumb through a few pages, writing down what I found to be important terms. After what seemed like hours of reading, I attempted a practice question - I believe it was just a simple journal entry. Anyways, despite the time I had spent reading, I had missed the most basic concept in accounting: debits vs. credits. I remember my professor stressing these terms in class, labeling them as simply "left" and "right", respectively, but I still couldn't grasp why they are the way they are. The professor dressed this in what I legitimately believe to be the most accurate description of accounting possible: "It is this way, because somebody said it was to be, so we accepted it" (paraphrased). That's about right.
To be more specific, debits and credits comprise the general method by which transactions are recorded in a way that increases or decreases an account. Common types of accounts are as follows:
ASSETS, DIVIDENDS, and EXPENSES (which are increased by a debit) as well as LIABILITIES, EQUITY, and REVENUE (which are increased by a credit). When something is considered to be increased by either a debit or credit, it's normal balance will be considered what it is increased by (a Dr. or Cr.). This trend also works inversely, a credit will decrease the accounts that are increased by a debit, and vice versa. This may seem confusing if you've never seen these terms matched with an actual representation of the action. Here is a simple example of a debit and credit involving assets.
Company X buys a truck, which is considered an asset. To record this transaction, the company will state that the asset account was increased in the debit column by the value of the truck, also including a decrease in cash (also an asset) used to buy the truck to be recorded as a credit. The journal entry is as follows:
Dr. Cr.
TRUCK 20,000
CASH 20,000
You will notice that there were two entries recorded above; this is known as a DOUBLE-ENTRY. A double-entry system requires that any transaction be recorded in at least two accounts. As exemplified, one account will be debited while the other(s) being credited, so as to either increase or decrease the accounts accordingly.
For those who are new to accounting, like myself, I would recommend diving into a textbook and watching YouTube videos. Simple repetition of terms will also be an effective method of remembering how to go about handling the recording of transactions with debits and credits. I have read about 350 pages of my textbook in just a few short weeks, and plan on reviewing and reading more so that I may no longer be ignorant of the art of accounting.
A final note, this stuff is pretty easy, and as my professor reminds us weekly, "people will give you money...and lots of it" if you learn to love accounting. Let's just say I'm still learning (I'm and ECON major with no clue what I can do with it. Accounting might be calling my name...).
Here's a haiku I wrote:
I debited cash,
What a joyous transaction.
Then, 'twas credited.
Tuesday, October 4, 2016
It's beginning to look like...the end of a fiscal year.
For some reason, a typical accounting textbook will consider a natural business year to consist of 360 days. This just doesn't make sense. Since I am not going to be an accountant, I will not accept this notion of taking away days from my year. However, the number of days in a year is very important to the accounting process at the end of a fiscal year for a business. Typically, December 31 is the end of a fiscal year/period, although a business may choose whatever day it so desires. They may also break the year up into different accounting periods, normally being broken into quarters. No matter, the end of a period or fiscal year is a very exciting time for a business because this is when they can truly analyze their success or progress over time. When this time rolls around, accountants isolate themselves into a confined area, lit only by a computer screen displaying Microsoft Excel, where they will spend a few hours, days, or weeks closing out accounts to prepare various financial statements. Temporary accounts, such as revenues, sales, expenses, and dividends, are closed out so that they may start the next period with a balance of zero ($0). The income statement account is closed to retained earnings.
Some accounts are carried over into the next period and to be taken into consideration throughout future financial transactions and other endeavors. The balance sheet will obviously not be closed out to be zero because a company will typically continue to possess certain accounts of cash, inventory, liabilities, retained earnings, and others. These are referred to as permanent accounts. These account balances at the end of the year are carried over and documented as the beginning balance for the next period.
Sometimes, adjusting entries must be made to ensure that the financial statements accurately represent the revenues and expenses accumulated over the period. The most common reasons for adjusting reasons involve unearned revenues and expired assets (such as prepaid insurance). I will also note that there are so many reasonable hypothetical situations of unrecorded expenses and earned revenues that are often unavoidable for large, and small, businesses. This is why adjusting entries are a commonality of end of year accounting.
I As a final note, I want to let all of my readers know that, as of October 4, there are only 82 days until Christmas, the best day of the year. I will begin playing Christmas music, unapologetically, starting at 80 days remaining. So to all who have read this far, I want to wish you a very Merry Christmas!
Some accounts are carried over into the next period and to be taken into consideration throughout future financial transactions and other endeavors. The balance sheet will obviously not be closed out to be zero because a company will typically continue to possess certain accounts of cash, inventory, liabilities, retained earnings, and others. These are referred to as permanent accounts. These account balances at the end of the year are carried over and documented as the beginning balance for the next period.
Sometimes, adjusting entries must be made to ensure that the financial statements accurately represent the revenues and expenses accumulated over the period. The most common reasons for adjusting reasons involve unearned revenues and expired assets (such as prepaid insurance). I will also note that there are so many reasonable hypothetical situations of unrecorded expenses and earned revenues that are often unavoidable for large, and small, businesses. This is why adjusting entries are a commonality of end of year accounting.
I As a final note, I want to let all of my readers know that, as of October 4, there are only 82 days until Christmas, the best day of the year. I will begin playing Christmas music, unapologetically, starting at 80 days remaining. So to all who have read this far, I want to wish you a very Merry Christmas!
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