Category: Bookkeeping 101

Accrual Accounting & Prepayments

May 15, 2020 Bookkeeping 101 by ann
This liability may be recorded as a repair expense or a credit to “accrued expenses payable” in the amount of $12,500. The accrued expense may then be adjusted when the company receives the actual invoice, and it could reflect a value lower or higher than the estimated expense. They are considered to be current liabilities
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Accrued Income

May 15, 2020 Bookkeeping 101 by ann
The offset entry to the debit entry of accrued payroll is a credit entry of either cash payments or payroll-related liabilities. A business that uses the accrual basis of accounting recognizes revenue and expenses in the accounting period in which they are earned or incurred, regardless of when payment occurs. This differs from the cash
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Accrual Accounting

May 15, 2020 Bookkeeping 101 by ann
A company that incurs an expense that it is yet to pay for will recognize the business expense on the day the expense arises. Under the accrual method of accounting, the company receiving goods or services on credit must report the liability no later than the date they were received. The accrued expense will be
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The contents of a cash basis balance sheet

May 14, 2020 Bookkeeping 101 by ann
A downside of accrual accounting is the lack of visibility into the company’s cash flow. Companies typically offset this issue by preparing a monthly cash flow statement. Although the IRS requires (and can only audit) all companies with sales exceeding over $5 million dollars, there are other reasons larger companies use the accrual basis method
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Why Does GAAP Require Accrual Basis Accounting?

May 14, 2020 Bookkeeping 101 by ann
In general, most businesses use accrual accounting, while individuals and small businesses use the cash method. The IRS states that qualifying small business taxpayers can choose either method, but they must stick with the chosen method. The chosen method must also accurately reflect business operations. What is difference between cash and accrual basis? The difference
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