What is Bookkeeping? Overview and Why It Matters Bookkeeping involves the recording, on a regular basis, of a company’s financial transactions. With proper bookkeeping, companies are able to track all information on their books to make key operating, investing, and financing decisions. Bookkeepers are individuals who manage all financial data for companies. Without bookkeepers, companies…
Taxation of Partnerships (754) The analysis of inside basis vs. outside basis affects the taxation of a partnership. A partnership occurs when two or more parties cooperate to advance their mutual interests. This is done when each party contributes to carrying on a trade or operation of a business and divides its assets according to…
What is the Consolidation Method? The consolidation method is a type of investment accounting used for incorporating and reporting the financial results of majority-owned investments. This method can only be used when the investor possesses effective control of the investee or subsidiary, which often, but not always, assumes the investor owns at least 50.1% of…
How is a Deferred Tax Liability or Asset Created? A deferred tax liability (DTL) or deferred tax asset (DTA) is created when there are temporary differences between book (IFRS, GAAP) tax and actual income tax. There are numerous types of transactions that can create temporary differences between pre-tax book income and taxable income, thus creating…
What is Last-In First-Out (LIFO)? Last-in First-out (LIFO) is an inventory valuation method based on the assumption that assets produced or acquired last are the first to be expensed. In other words, under the last-in, first-out method, the latest purchased or produced goods are removed and expensed first. Therefore, the old inventory costs remain on…
What is First-In First-Out (FIFO)? The First-in First-out (FIFO) method of inventory valuation is based on the assumption that the sale or usage of goods follows the same order in which they are bought. In other words, under the first-in, first-out method, the earliest purchased or produced goods are sold/removed and expensed first. Therefore, the…
What is Interest Payable? Interest Payable is a liability account, shown on a company’s balance sheet, which represents the amount of interest expense that has accrued to date but has not been paid as of the date on the balance sheet. In short, it represents the amount of interest currently owed to lenders. For example,…
What is the Double Declining Balance Depreciation Method? The double declining balance depreciation method is a form of accelerated depreciation that doubles the regular depreciation approach. It is frequently used to depreciate fixed assets more heavily in the early years, which allows the company to defer income taxes to later years. This guide will explain…
What is a Contra Account? In bookkeeping, a contra asset account is an asset account in which the natural balance of the account will either be a zero or a credit (negative) balance. The account offsets the balance in the respective asset account that it is paired with on the balance sheet. Normal asset accounts…
What is Payroll Accounting? Payroll accounting is essentially the calculation, management, recording, and analysis of employees’ compensation. In addition, payroll accounting also includes reconciling for benefits, and withholding taxes and deductions related to compensation. The calculation of payroll is highly influenced by each country’s legal requirements (it may also depend on state or local city…
