An asset is defined as something of current or future value owned by the company. Assets are shown on the balance sheet, which gives a snapshot of a company’s financial position at one point in time. Any time a business spends money, they are creating an expense or an asset in the financial statements.
Three characteristics of assets:
In order to be considered a true asset, the following must all be true:

There is probable future benefit that the asset contribute directly or indirectly to future net cash flows, that is it generates revenue for the company. (Or in the case of a non-profit, the …read more

A lot of the confusion in formal accounting comes from the difference between accrual basis accounting, and cash basis accounting.
Under the accrual basis accounting, revenues are reported on the income statement when they are earned. Under the cash basis accounting, revenues are reported on the income statement when cash is received.
As for expenses, accrual basis accounting matches expenses with the related revenues when the expense occurs. And in cash accouting? You guessed it – expenses are booked when the cash is paid.
The reasoning behind accrual accounting is that it creates an a more realistic income statement (in terms of profitability) …read more

Accounting rules have been in the news a lot lately. One in particular, the mark to market rule, has become something of a scapegoat for the current economic crisis. I thought we’d take a step back today and look at the purpose of accounting standards and their role in our free market economy.
Why Do We Need Accounting Standards and Where Do They Come From?
To ensure uniformity in financial statements, publicly traded companies must follow a set of rules known as the generally accepted accounting principles (GAAP). Basically, GAAP is designed to help investors (including bankers) compare financial apples to …read more

The going concern concept is one of the basics of financial accounting. And with US corporations begging for money like my kid on skate night, it’s become a hot issue.
Without the assumption that a business is going to continue into the future to pay its debts, the balance sheet becomes meaningless. To be considered a going concern the business entity is assumed to continue to operate indefinitely. It functions without the intention or threat of liquidation for the foreseeable future. (Historically at least one year beyond the balance sheet date.)
Stakeholders like creditors, employees, and shareholders want information …read more

With the economy in turmoil and the U.S. auto industry using words like bankrupt and restructure, doubt grows every day about whether or not companies are operating as a ‘going concern’. This accounting term simply means that the business is expected to continue into the foreseeable future.
Of course we can’t really predict the future of any company so we have regulations. The rules state the a company is not a going concern if management plans to liquidate the entity or cease operations, or has no realistic alternative but to do so. Since the future is a long time, …read more

As much as possible, even when you are already in deficit on your monthly expenses, put away some amount into an emergency fund. With hard times worsening from week to week, you have to prepare for a future when your finances drop to near zero. Or, worse –if you or a member of your family gets sick or meets an accident or some disaster strikes, immediate funds will be required.
Don’t just keep your emergency fund in a piggy bank, in a cookie jar, or under your mattress. Place it in an earning certificate of deposit, a …read more

Banks provide necessary services, but they are there for the money –your money. They are always cooking up new ways to charge you fees: miscellaneous fees, maintenance fees, online banking fees, excessive transaction fees, teller fees, etc.
Do not be taken in by offers of “no monthly fees” checking accounts. You can bet your bottom dollar the bank will make up for this freebie through some other fee.
Take time to shop around for a bank. Scrutinize their fees. Read the fine print. Keep records and study the entries. Avoid the charges that you …read more

No such thing as a free lunch, specially in bank services. You do a bank a favor by opening a checking account and letting them earn on your money through loans & mortgages, and it charges you a monthly fee (which, in some banks, can go over $10 per month).
On opening an account, you get a free checkbook. Subsequent checkbooks are charged a fee for which some banks collect as much as $15, and this is for the plain checkbooks. The personalized versions (with background scenery, etc) cost much more –an extravagance and a needless expense. …read more

You don’t always have your checkbook with you and you don’t want to carry cash around. So, you use a debit card.
Remember, however, that every time you use your debit card you are charged a fee. The fees vary from institution to institution. Some charge less than a dollar, other charges much more. So, the more often you use your debit card, the more costly this bank service becomes.
How about ATM cards? If you withdraw from the ATM machine at the bank’s premises, you don’t get charged a transaction fee. Outside the bank premises, …read more

You receive a check payment which you deposit in your bank account. Don’t assume that you can immediately withdraw or write a check against it.
Out-of-town or out-of-state checks take as much as a week before the amount is actually entered into your account for withdrawals or writing checks against. If you happen to write a check before the amount is actually in your account, your check will bounce –which, in addition to causing much embrassment, will cause a penalty to be charged against your account and do some damage to your credit standing.
To save you from overdrawn …read more