Month: November 2018

Liabilities

Definition A LIABILITY is a probable, nonownership claim against the firm which must arise from an event that occurred in the past and be expected to be satisfied in the future. Liabilities can be held by owners if they originate through transactions in which the owners acted in the capacity of nonowners. For example, the …

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Operating Assets

Operating Assets – Definition The term operating assets is used to identify the broad category of long-lived assets that are used to produce goods or services. This group includes not only tangible assets (often known as property, plant, and equipment or fixed assets) but also those that exist only as intangible rights (such as trademarks, …

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Classification of liabilities and date of maturities

As the maturity date of a liability approaches, the working capital available for other uses is reduced. On the other hand, if the maturity date is in the distant future, the firm can commit its resources to long-run strategies. Thus, information about the remaining time to a liability’s maturity may be helpful for assessing both …

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Exchange of similar nonmonetary operating assets

Although some accountants believe exchanges of similar assets should be treated the same as exchanges of dissimilar ones, GAAP treat these transactions as being substantively different. That is, the exchange is viewed as a restructuring of the firm’s productive capacity rather than a disposal and acquisition. Consequently, GAAP prescribe a treatment for these exchanges that …

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Accrued liabilities

Definition and Explanation Accrued liabilities result from non-transaction economic events. Their recognition is generally triggered by the occurrence of a financial statement date rather than transactions. Typically, accrued liabilities are very short term in nature; indeed, many of them are paid by the time the statements are released. Unless there is some special significance concerning …

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What are identifiable and unidentifiable intangible assets?

Definition Identifiable intangibles are assets that are derived from a specific right or ability. Most of them are created by registration with government authority or by contract. Types Some major types of identifiable intangible assets are listed below: Patent—unique right to manufacture a product or to use a process; protected by a legal authority for …

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Bonus accrual

A special type of accrued liability arises when a firm agrees to pay a bonus to management contingent upon operating results. There are no substantive conceptual problems as to the classification or disclosures to be provided for liabilities created by these plans. The only difficulty lies in the calculation of the amount of the bonus …

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Capitalization of interest cost during the construction of assets

Most accountants treated the acquisition of an asset and the obtaining of funds to pay for the acquisition as separate and unrelated events. GAAP departs from that convention only in terms of interest incurred while the asset is under construction and excludes interest incurred during its useful life. That is, interest incurred in preparing the …

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Goodwill

What is Goodwill? – Definition Goodwill is the future benefits that accrue to a firm as a result of its ability to earn an excess rate of return on its recorded net assets. Explanation Goodwill is reported in financial statements only if its valuation can be supported by a transaction involving the purchase of a …

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Accounting objectives for the use and disposal of operating assets

The usefulness of most operating assets is consumed as they are applied to the production of goods or the providing of services. This consumption is known as either depreciation, depletion, or amortization, according to the type of asset that is being used. The actual processes of the consumption are dependent upon a number of factors, …

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Treatment of unpresented cheques in bank reconciliation statement

What are unpresented cheques/checks or outstanding cheques/checks? All those cheques/checks which have been issued or drawn by the depositor but not presented to the bank for payment, till the date, on which Bank statement is issued, are called unpresented cheques. Effect of unpresented cheques/checks on bank balance When a cheque/check is issued to a creditor or …

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Treatment of uncleared cheques in bank reconciliation statement

What are uncleared or uncollected or uncredited cheques/checks All those cheques which have been deposited by the customer, but the amount of which has not been collected or credited by the bank in customer’s, account, till the date on which Bank Statement is issued are called uncleared cheques/checks. Effect of uncleared cheques on bank balance Whenever …

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