Standard Audits

Shareholders and creditors rely on a company’s financial statements to reflect the financial status of the business. However, they need assurance that the information on the statements is credible and reliable. Standard audits by public accountants provide this assurance. A …

Cash Flow Statements

A continuous cash flow is essential for any business, regardless of its size. A cash flow statement is an important tool for managers to have at their disposal to evaluate the financial position of the business. Numerous businesses end up …

Combining the Accounts of Foreign Companies

Mergers and take-overs are commonplace in today’s market. As a result, the accounts of both companies must be combined. Yet, how are the accounts combined of two companies when one is in a foreign country? It is helpful first to …

Deferred Income Taxes

Corporations pay taxes on their income. Traditionally, accounting income is used for the basis of taxation. However, this is not always the case because there are some forms of income that count as exceptions to this rule. There are some …

Pension Plans

Many companies offer attractive benefit packages to their employees. Some of the benefits may include pension plans. Pension plans are typically tax-exempt. The employer makes contributions towards funds set aside for the employee’s retirement. The employee transfers part of his …

Periodic vs. Perpetual Inventories

Inventory transactions can be recorded using the periodic inventory method or the perpetual inventory method. Recording inventory is detailed business. The accounting department must choose a method and keep it consistent throughout the books. Because these two methods vary in …

Normal Overhead Rate

When accounting for inventory, product costs are divided into direct costs and indirect costs also known as overhead. Direct costs are those that relate directly to the formation of the product. Indirect costs are associated with other costs indirectly related …

Intangibles

In accounting, numbers must be calculated with precision and books must balance. However, not everything works out so nice and tidy. There a some items where an exact amount cannot be taken into account. Intangibles are assets whose value can …

Capital Lease

When calculating assets, one must consider that many companies lease their long-term assets. This may include buildings, land and equipment. In accounting, a lease is categorized in two ways: as a capital lease or as an operating lease. Their categorization …

Evaluating the Effectiveness of Financial Reporting

The basic financial statements a company produces are not only for internal evaluation, but for the use of external entities like shareholders and creditors. Typically, these external users want to see a company’s balance sheet, income statement, statement of ownership …