Have you ever seen “Goodwill” as an asset category on a set of financial statements? Do you wonder how the dollar amount was arrived at? Did you know that the only way Goodwill can be entered on the balance sheet is through a purchase? For a definition and general understanding of Goodwill, be sure to [...]
Category Archives: John’s Comments
Recording Goodwill on the books
29-Nov-05Clients ask me this question from time to time and usually don’t like or understand the answer. The question is, “If I donate or contribute my labor to a charitable institution, can I record the cost, at my normal charge rate, as an expense on my financial statement?” The obvious result is that the client’s [...]
Lease or Buy: How the accounting works
16-Aug-05A description of how the accounting works for a “contract of sale” purchase, a capital lease, and an operating lease can be found in my article “Loans vs. Leases: What’s it all about?” But to give you an idea of what I am referring to, let me ask a question. Have you ever leased a [...]
The accrual method of accounting is the method by which revenues are recorded when earned, and expenses are recorded when they are incurred. A cash-basis method of accounting measures revenue when cash is received and expenses when they are paid. The accrual method must be used for financial statements to be considered prepared according to [...]
Disposing of Assets
29-Apr-05If you are a small business owner or manager, there will come a time when you have to dispose of an asset. You may sell, trade, or discard the asset but regardless how you dispose of it you must account for it on the company’s books. Essentially, you must determine if there is a gain [...]
Recording credit card purchases on your books can be confusing and messy if you don’t do it right. This is especially true if you mix personal and business expenses together. It makes no sense to simply record a payment to some account called Miscellaneous Expense or Credit Card Expense. The business and personal charges must [...]
Recording Out-of-Pocket Expenses
23-Mar-05There are several ways to record “out-of-pocket” expenses for the owner of a business on your books. How you do this depends of what type of business organization is being used. For example: Sole proprietor; Partnership; or Corporation. Sole Proprietor Choice One: Write a reimbursement check to yourself, code it to the appropriate expense categories. [...]
Anyone who works in accounting will soon come across an item where it is not clear to which general ledger account it should be posted. When this happens, you can use a general ledger (GL) account called Miscellaneous Suspense. This account is normally located in the Other Assets section of the Balance Sheet. It serves [...]
Replenishing Petty Cash
30-Jan-05How to properly replenish petty cash has been a source of confusion for many small business owners. As a practicing accountant, I find clients making the same mistake constantly, and it come from not understanding the full concept of petty cash. The concept is not difficult to understand; you just need to make sure you [...]
Working with the Equity section of your Balance Sheet
17-May-06As I say in my newly posted article, “Equity Accounts – It’s Your Money“, the equity section of the balance sheet is the least understood. I give examples of the general ledger accounts that are found in the equity section for a sole proprietor, partnership, and corporation along with an explanation of how the accounts [...]