What is the Revenue Recognition Principle? The revenue recognition principle dictates the process and timing by which revenue is recorded and recognized as an item in a company’s financial statements. Theoretically, there are multiple points in time at which revenue could be recognized by companies. Generally speaking, the earlier revenue is recognized, it is said…
What are Source Documents? Every time a business is involved in a financial transaction, a paper trail is generated. This paper trail is referred to in accounting as source documents. Whether checks are written to be paid out, sales are made to generate receipts, billing invoices are sent by suppliers, or work hours are recorded on an…
What is Petty Cash? Petty cash refers to a small amount of hard currency that a businesses will keep on hand to pay for miscellaneous and unexpected items, such as team lunches, birthday cakes, or office snacks. Petty cash is usually a relatively small amount, and is grouped with the general cash account on the…
What is Revenue Variance Analysis? Revenue Variance Analysis is used to measure differences between actual sales and expected sales, based on sales volume metrics, sales mix metrics, and contribution margin calculations. Information obtained from Revenue Variance Analysis is important to organizations because it enables management to determine actual sales performance in relation to the projected…
What is Marginal Revenue? Marginal Revenue is the revenue that is gained from the sale of an additional unit. It is the revenue that a company can generate for each additional unit sold; there is a marginal cost attached to it, which must be accounted for. A business can examine its marginal revenue to determine…
What are Tangible Assets? Tangible assets are assets with a physical form and that hold value. Examples include property, plant, and equipment. Tangible assets are seen and felt and can be destroyed by fire, natural disaster, or an accident. On the other hand, intangible assets lack a physical form and consist of things such as…
What is Accumulated Depreciation? Accumulated depreciation is the total amount of depreciation expense allocated to a specific asset since the asset was put into use. It is a contra-asset account – a negative asset account that offsets the balance in the asset account it is normally associated with. Unlike a normal asset account, a credit…
Introduction to Fixed and Variable Costs Cost is something that can be classified in several ways, depending on its nature. One of the most popular methods is classification according to fixed costs and variable costs. Fixed costs do not change with increases/decreases in units of production volume, while variable costs fluctuate with the volume of…
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…
