Closing journal entries are made at the end of an accounting period to prepare income statement accounts for the next period. This is because income statement accounts are measured periodically; and so, the amounts in one accounting period should be closed or brought to zero so that they won’t get mixed […]
What are Reversing Entries?
Reversing entries are made at the beginning of the new accounting period to enable a smoother accounting process. This step is optional and is especially useful to companies that use the cash basis method. In this step, adjusting entries made at the end of the previous accounting period are simply […]
What are Adjusting Entries?
Adjusting entries, or adjusting journal entries (AJE), are made to update the accounts and bring them to their correct balances. The preparation of adjusting entries is an application of the accrual concept of accounting and the matching principle. The accrual concept states that income is recognized when earned regardless of […]
What is EDI?
EDI is an abbreviation for electronic data interchange. Using EDI, companies send information digitally from one business system to another, using a standardized format. Some of the types of business systems to which EDI can connect include e-commerce solutions, ERP, WMS, CMS, accounting software, and more. EDI replaces order processes, […]
Foreign Exchange – Gain / Loss
How to Account for Foreign Exchange Accounting for foreign exchange transactions entails registering transactions in currencies other than one’s functional currency. For example, a company engages into a transaction in which it is scheduled to receive a payment in a foreign currency from a customer or to make a payment […]
What are Debits and Credits?
What are Debits and Credits? Business transactions are events that have a monetary impact on the financial statements of an organization. When accounting for these transactions, we record numbers in two accounts, where the debit column is on the left and the credit column is on the right. A debit […]
The Accounting Equation
Every business transaction, from the largest multi-national conglomerate to the corner beauty boutique, has an impact on a company’s financial status. The following items are used to assess a company’s financial position: Possessions (what it owns) Responsibilities (what it owes to others) Ownership Equity (the difference between assets and liabilities) […]
Understanding Cash Flow Statement – Definition and Examples
A cash flow statement tells you how much cash is entering and leaving your business. Along with balance sheets and income statements, it’s one of the three most important financial statements for managing your small business accounting and making sure you have enough cash to keep operating. First, let’s take […]
What is Chart of Accounts (COA)?
Every time you record a company transaction—a new bank loan, a customer invoice, or a laptop for the office—you must enter it in the correct account. However, how do you know which account to enter it into? You may find out by looking at the chart of accounts. We’ll go […]
What is Working Capital?
What is working capital? Working capital—also known as “net working capital”—is a measurement of a business’s short-term financial health. Simply put, it indicates your liquidity or ability to pay your bills. You can find it by taking your current assets and subtracting your current liabilities, both of which can be […]
