Introduction to Financial Accounting Theory Financial accounting theory focuses on the “why” of accounting – the reasons why transactions are reported in certain ways. The majority of introductory accounting courses cover the “what” and “how” of accounting. These include hundreds of journal entries, gaining familiarity with all the common accounts that companies use, learning how…
What are Journal Entries in Accounting? In an accounting career, journal entries are by far one of the most important skills to master. Without proper journal entries, companies’ financial statements would be inaccurate and a complete mess. An easy way to understand journal entries is to think of Isaac Newton’s third law of motion, which…
What are Bonds Payable? Bonds payable are recorded when a company issues bonds to generate cash. As a bond issuer, the company is a borrower. As such, the act of issuing the bond creates a liability. Thus, bonds payable appear on the liability side of the company’s balance sheet. Generally, bonds payable fall in the…
What is the Allowance for Doubtful Accounts? The allowance for doubtful accounts is a contra-asset account that is associated with accounts receivable and serves to reflect the true value of accounts receivable. The amount represents the estimated value of accounts receivable that a company does not expect to receive payment for. Purpose of the Allowance For…
What are Credit Analyst Positions? There are a variety of credit analyst positions. Credit analysts – in general – are responsible for looking at the backgrounds of individuals and companies applying for loans or other types of credit. They examine financial and personal information about applicants and draw up figures that help them determine whether…
What is Operating Margin (Return on Sales)? Operating margin, also known as return on sales, is an important profitability ratio measuring revenue after the deduction of operating expenses. It is calculated by dividing operating income by revenue. The operating margin indicates how much of the generated sales is left when all operating expenses are paid off. In…
What is Depreciation Expense? When a long-term asset is purchased, it should be capitalized instead of being expensed in the accounting period it is purchased in. Assuming the asset will be economically useful and generate returns beyond that initial accounting period, expensing it immediately would overstate the expense in that period and understate it in…
What is Current Debt? Current debt includes the formal borrowings of a company outside of accounts payable. This appears on the balance sheet as an obligation that must be paid off within a year’s time. Thus, current debt is classified as a current liability. This is not to be confused with the current portion of…
What is Accounts Payable (AP)? Accounts Payable (AP) is generated when a company purchases goods or services from its suppliers on credit. Accounts payable is expected to be paid off within a year’s time or within one operating cycle (whichever is shorter). AP is considered one of the most current forms of the current liabilities…
