Friday, October 5, 2018

Deferral Meaning and Expense & Revenue Deferral Accounting Entries

Deferral - Cash receipt/expenditure precedes accrual-basis recognition

(1) Revenue—postponement of recognition of revenue; cash is received, but revenue is not earned
(2) Expense—postponement of recognition of expense; cash is paid, but expense is not incurred
(3) A deferral postpones recognition of revenue or expense by placing the amount in liability or asset accounts.
(4) Two methods are possible for deferring revenues and expenses depending on whether real or nominal
accounts are originally used to record the cash transaction.

Deferrals of Expense Accounting
Expense method 
When paid -      Insurance expense xx 
                                    To Cash xx 
Year-end   -     Prepaid insurance xx 
                                    To Insurance expense xx  (Reversal-Yes) 

Thursday, July 3, 2014

Accrual meaning and Expense & Income Accrual Entries.....

Accrual—accrual-basis recognition precedes cash receipt and expenditure

(1) Revenue—recognition of revenue earned, but not received
(2) Expense—recognition of expense incurred, but not paid

Accounting Example :

Expense Accruals 

Wages expense Account  Dr xx
         To Wages payable Account xx 

Reversal Yes 

Thursday, May 1, 2014

Overview on Accounting for Income Taxes - US GAAP

ACCOUNTING FOR INCOME TAXES – US GAAP

Companies have to file income tax returns following the guidelines developed by the Internal Revenue Service (IRS). Because GAAP and tax regulations differ in a number of ways, so the pretax financial income and taxable income will also differ. Consequently, the amount that a company reports as tax expense will vary from the amount of taxes payable to the IRS.

Pretax financial income is a financial reporting term. It also is often referred to as income before taxes, income for financial reporting purposes, or income for book purposes. Companies determine pretax financial income according to GAAP Rules. They measure it with the objective of providing useful decision making information to investors and creditors.

Taxable income (income for tax purposes) is a tax accounting term. It indicates the amount used to compute income taxes payable to the tax authorities. Companies determine taxable income according to the Internal Revenue Code (the tax code).

To understand how differences in GAAP and IRS rules may affect financial reporting and taxable income, Let us consider the below example

Monday, April 28, 2014

GAAP, Created by and GAAP Hierarchy Prior and after the Codification Process

What is GAAP :


According to Auditing Standards Board (ASB), AU Section 411, The phrase “generally accepted accounting principles” is a technical accounting term that encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. It includes not only broad guidelines of general application, but also detailed practices and procedures. Those conventions, rules, and procedures provide a standard by which to measure financial presentations.

In general "GAAP" means Generally Accepted Accounting Principles, the standards, rules and procedures that serve as the norm for the fair presentation of financial statements.

GAAP was created by

  •          Committee on Accounting Procedure
  •          Accounting Principles Board
  •          Financial Accounting Standards Board
  •          American Institute of Certified Public Accountants (AICPA)
  •          Emerging Issues Task Force (EITF)
  •          Other sources
  •          Accounting Standards Codification

Saturday, April 26, 2014

List of International Accounting Standards


List of International Accounting Standards adopted by the International Accounting Standards Board. The list shows the standard No, Name, when it was originally issued, when it came in to force and finally when it was withdrawn and superseded by.

List of IFRS

FASB Accounting Standards Codification Quick Reference Guide

Topics, Subtopics, and Sections
The FASB Accounting Standards Codification (ASC or the "Codification") organizes nongovernmental U.S. GAAP using a topic-based model consisting of 90 individual Topics. Each Topic contains at least one Subtopic. Subtopics contain Sections, which include the actual accounting guidance. Sections are based on the nature of the content (e.g., scope, recognition, measurement, etc.) and are standardized throughout the Codification.

Paragraphs
Each Section includes numbered Paragraphs. Paragraph numbers start with the Section number followed by the unique paragraph number. For example, in Section 55 the first paragraph is numbered 55-1. Paragraph numbers in the Codification will not change going forward. New paragraphs may result in the FASB using a letter extension in order to keep the numbering constant. For example, a new paragraph inserted between paragraphs 55-3 and 55-4 would be numbered 55-3A.