What are Permanent/Temporary Differences in Tax Accounting? As described in CFI’s income tax overview, the difference in accounting for taxes between financial statements and tax returns creates permanent and temporary differences in tax expense on the income statement. The financial statements will arrive at a tax expense, but the actual tax payable will come from…
What is Gross vs Net? Gross means the total or whole amount of something, whereas net means what remains from the whole after certain deductions are made. For example, a company with revenues of $10 million and expenses of $8 million reports a gross income of $10 million (the whole) and net income of $2…
What is a Homogeneous Cost Pool? A homogeneous cost pool is essentially an accounting term used by the management of a company to group together costs that show a similar cause and effect, or benefits received, or relationship in terms of the allocation base of costs. In short, homogeneous cost pools are a way of…
What are Equity Accounts? There are several types of equity accounts that combine to make up total shareholders’ equity. These accounts include common stock, preferred stock, contributed surplus, additional paid-in capital, retained earnings, other comprehensive earnings, and treasury stock. Equity is the amount funded by the owners or shareholders of a company for the initial…
What is Cash Flow from Financing Activities? Cash Flow from Financing Activities is the net amount of funding a company generates in a given time period. Finance activities include the issuance and repayment of equity, payment of dividends, issuance and repayment of debt, and capital lease obligations. Companies that require capital will raise money by…
R&D Capitalization vs Expense Under the United States Generally Accepted Accounting Principles (GAAP), companies are obligated to expense Research and Development (R&D) expenditures in the same fiscal year they are spent. It often creates significant volatility in profits (or losses) for many companies, as well as difficulty in measuring their rates of return on assets…
What is a Lease? Leases are contracts in which the property/asset owner allows another party to use the property/asset in exchange for some consideration, usually money or other assets. The two most common types of leases in accounting are operating and finance (or capital) leases. It is worth noting, however, that under IFRS, all leases…
Introduction to Pension Accounting In addition to salaries, many companies offer other benefits to their employees such as pension plans, health insurance, stock option benefits, fitness memberships, or life insurance plans. There are very specific requirements around pension accounting, which will be outlined in this article. For regular benefits, the accounting is relatively simple –…
What is Cash Flow from Investing Activities? Cash Flow from Investing Activities is the section of a company’s cash flow statement that displays how much money has been used in (or generated from) making investments during a specific time period. Investing activities include the purchase of long-term assets (such as property, plant, and equipment), the acquisition of other…
