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What is a Bank Reconciliation Statement?
It is a useful practice to compare the balance reported by the bank and your internal accounting, in the form of a Bank Reconciliation Statement. Bank Reconciliation is the useful practice of comparing the records of the bank and a business's internal accounting for a specific accounting period. Many businesses produce Bank Reconciliation Statements (BRS) on a monthly basis. There may be pending transactions that have not settled yet, such as outstanding checks to vendors, which have shown up on the business’s books but are not represented in the bank account balance. It can be important to identify which transactions have shown up on the bank’s ledger and which ones have not. Continue reading...
What is Account Reconcilement?
Account reconcilement is the act of comparing and affirming multiple records of the same financial information. To “reconcile the books” is to compare different records of the same accounts to ensure that they match up. One might reconcile all the different record-keeping for the same account, such as copies of checks and receipts, to be sure that they add up to the balance and ledger shown on a bank account statement. It could be that the recipient of a check has not yet cashed it, and it is important to keep all records “synced” with one another. Continue reading...
What is a Bank Statement?
A Bank Statement is a report issued to an account holder on a regular basis, such as monthly, which contains the account balance as of the date of the report and usually a history of transactions for the period. A Bank Statement will usually be mailed, either by the postal service or electronically, to a banking customer every month. The statement will represent a summary of the bank’s records for the recent month on a particular account, and will probably show all transactions posted to the account, along with the ending balance of the account as of the date of the mailing. Continue reading...
What Encompasses Reconciliation in Accounting: Its Definition, Purposes, and Types?
Reconciliation is a cornerstone of the accounting world, ensuring accuracy and alignment between different sets of financial records. This comprehensive examination of account reconciliation delves into its definition, purposes, and various types, providing a thorough understanding of its significance in both personal and business realms. Continue reading...
What is EBITDA?
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization, and is used as a ballpark figure for where the company’s earnings are without these expenses. It gives a picture of the total operating revenue of a company with the expenses that are related to financing decision and the tax environment left out. Accountants can calculate EBITDA by taking net income (earnings, or operational earnings) and adding interest payments, tax obligation, depreciation of hard assets, and amortization of intangibles back into it. Continue reading...
What are Accounts Payable?
On a balance sheet, Accounts Payable is a section under ‘Liabilities’ that details the obligations the company has to pay off short-term debts. Goods and services rendered to a company by suppliers, banks, utilities, and so forth will need to be paid for in the short term, and these bills are accounted for in the Accounts Payable. In a Company's Balance Sheet, the Payables will appear in the Current Liabilities section, and these tend to have cycles of 30-90 days in which they should be paid. Continue reading...
What is an Accounts Payable Subsidiary Ledger?
Accounts payable may have enough items within it to require its own department in the company, or just a subsidiary ledger to supplement the General Ledger of the company. A subsidiary ledger gives full details of a line-item in the general ledger, especially when it is too detailed to include in the general ledger. The Accounts Payable Subsidiary Ledger will contain all of the transaction details for each credit and debit in the Payables history from a specific period. Continue reading...
What is an Account Balance?
An account balance is the amount either credited to or owed on a ledger assigned to a particular entity or line-item. The balance of an account is the net debit or credit assigned to it after all transactions have been documented for a current period. Transactions might be deposits, withdrawals, interest credited, fees, or other activity. The account in question could be a personal savings or checking account, or a ledger account at a business or institution, or another form of account, such as the macroeconomic concept of current national account. Accounts are said to be “in the red” when there is a net debit (negative) amount, and “in the black” when there is a net positive balance (net credit). Continue reading...
What is Account Settlement?
Settling an account is laying all outstanding business on an account to rest. Account settlement is an idea that can take a few forms. Settlement is when acceptable “consideration” (compensation or pay) has been provided and both parties agree that the matter is settled, resolved, and no further debts or obligations exist for that item of business. Many people have heard the term “settlement” with regards to legal matters, in which the defendant pays off the plaintiff before an actual trial and usually can avoid officially admitting guilt. Continue reading...
What is Accounts Payable for Accounting?
Accounts Payable is part of the Current Liabilities section of a company’s books. Accounts Payable are the short-term expenses and debts that a company must pay out in the near future. These might include utility bills and regular expenses, debt service, and bills to regular suppliers and vendors. The amounts that appear in the Payables, as they are also called, have not been paid out yet, but are scheduled to be paid within the current quarter, generally. Continue reading...
What is Accounts Receivable for Accounting?
Also simply called Receivables, the Accounts Receivable line on a General Ledger will contain the amounts owed to the company which are due to be received in the near future. If a company offers financing for the items it sells, or it has regular payments coming in for things such as rent, leases, monthly subscription or membership fees, and so on, they will have substantial numbers in their accounts receivable. Continue reading...
What is a Balance Sheet?
A company's balance sheet gives a picture of how all the assets, liabilities, and equities of the company "balance out." The basic accounting equation is Total Assets = Total Liabilities + Equity, and a Balance Sheet is going to detail these parts to show how everything adds up at the time of the report. With things equal on both sides of the equation, the company's books are balanced, the same way someone might go back through the carbon copies of checks they've written and "balance the checkbook" to make sure all checks written have been accounted for. Continue reading...
What are the Contribution Limits for My Keogh Plan?
The contribution limit for a Keogh Plan depends on what type of Keogh Plan you set up. There are Defined Contribution and Defined Benefit Keoghs. Defined Contribution plans could be profit-sharing or money-purchase plans. As of 2013, a Defined Contribution Keogh Plan allows the employer to contribute up to 25% of your income, or $53,000, whichever is less, and this will constitute the profit-sharing or money-purchase aspect of the plan. Continue reading...
What is Account History?
Account history is a term especially useful for investment accounts, where transactions beyond a current month or year’s records are useful for reference. Most people are familiar with the transaction history that is available for the current month, quarter, or year on an individual’s savings, checking, and credit card accounts. These are often called “activity ledgers” or something similar. Account history that reaches further back might be more useful for investment accounts, where the current value of investments, and their cost basis, will depend heavily on account history from potentially years in the past. This sort of query can be made easily with online investment account viewing software from a broker or custodian company. Continue reading...
What is a Margin Account?
A margin account is one in which an investor uses borrowed money to purchase additional securities. An investor is almost always required to use the securities in the account as collateral for the borrowed money. The objective of a margin account is for the investor to magnify gains, but the opposite can also be true, and losses may lead the investor to have to sell securities in the account to cover the loan balance. There’s more upside in a margin account, but there’s more downside too. Continue reading...
What are Accounts Receivable?
Accounts Receivable is part of the Assets on a Balance Sheet, and it details the money due to the company from its customers or debtors in the near future. Accounts Receivable will include money which should be received by the company from those who owe it. This appears in the Current Assets section of the Balance Sheet. The money should be receivable within the next 30 or 90 days, generally. This might be rent payments or other bills which are paid regularly or after the goods or services have been rendered. An account receivable also might include interest due. Continue reading...
What is a Lifeline Account?
Lifeline accounts are offered by some banks, and are required in some states to be offered by all banks — they give low-income individuals an opportunity to bank without paying fees or observing a minimum balance. This is done in an effort to promote social mobility by giving everyone access to banking services. You are likely to be able to find a bank that offers free checking accounts anyway, but some states have mandated that banks allow for so-called “lifeline accounts,” which have fewer features than other checking accounts but which may be the only banking option available for low-income banking customers. Continue reading...
What are Accounting Controls?
Internal control systems and procedures can ensure the accuracy and reliability of financial accounts at a business. Accounting controls are meant to ensure that the numbers being put onto the books are accurate. Internal controls are the practices that employees are trained to do, and may be audited on, which general involve some oversight or double-checking to filter out mistakes. This not only prevents mistakes, but also malfeasance, embezzlement and fraud. Accounting done wrong can result in criminal penalties, bankruptcy, and tax problems. Continue reading...
What is the Accounting Cycle?
The Accounting Cycle includes all of the documentation that is collected and all of the controls and systems in place to ensure accurate accounting. The Accounting Cycle begins with the point of sale, with documentation for the transaction (invoice or receipt) and the internal expenses and inventory. There are conventions, controls and systems in place to account for and control the flow of information in a company at each stage of the process to ensure that accounts are as accurate as possible. The Accounting Cycle may refer to the length of time between trial balances, such as monthly, quarterly, or annually. Continue reading...
What are Accounting Policies?
Accounting policies are the internal controls of a company which stipulate the methods by which the books will be kept. Accounting policies are the agreed-upon accounting methods, conventions, and practices of an accounting cycle. A business must establish guidelines and training to ensure that accounts are kept in ways that satisfy their needs for documentation, security, liquidity, management, and the observation of applicable laws. Continue reading...