Credit Policy

What are credit policies? – Definition A firm could adopt a very conservative credit policy and extend credit only to customers with excellent credit ratings. Although this type of policy virtually eliminates bad debts or uncollectible accounts, the firm can lose sales and profits by not extending credit to individuals or firms with less-than-perfect credit …

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Current method definition

What is the current method? A method of foreign currency translation under which all balance sheet items can be translated at a current exchange rate at the date of the financial statements; income statement items are translated at the average exchange rate for the period.  

Current Liabilities

Current Liabilities – Definition Current liabilities are those liabilities that will either be paid or require the use of current assets within a year (or within the operating cycle, if longer), or that result in the creation of new current liabilities. Current vs Long-term Liabilities In preparing a balance sheet, liabilities are classified as either …

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Current Assets Definition

What is meant by the term “current assets”? Current assets are the cash or other assets reasonably expected to be realized in cash or sold within the normal operating cycle of a business or within one year (if the operating cycle is longer than one year).

Conservatism Principle of Accounting

What is meant by the accounting term “Conservatism”? Conservatism is the prudence exercised in financial reporting as a result of the uncertainties surrounding business and economic activities. when faced with accounting alternatives accountants tend to choose those that are least likely to overstate assets or income. Conservatism Principle For historical reasons, an accountant is always …

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Closing Entries Definition

What are the closing entries? Closing entries are the journal entries made at the end of the period, used to update retained earnings to reflect the results of operations and to eliminate the balances in the revenue and expense accounts, so that they may be used again in a subsequent period. When closing entries are …

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Cash Sales

Definition When goods are sold & cash is received at the same time then this type of sales are called cash sales. Example If Mr. B has sold goods on January 1, 2019 and he received cash at the same time then this will be termed as cash sales.

Credit Purchases

Definition If goods are purchased but payment is postponed to a future date then this is called credit purchases. Example: If Mr. A purchases goods worth $3,000 on January 1, 2019 and promises to pay this amount one month later i.e. February 2019 then this will be termed as credit purchases.

Cash Purchases

Definition When goods are purchased for immediate cash payment these are called cash purchases. Example If Mr. A purchased goods worth $2,000 on January 1, 2019 and payment is made by him on the same day then this will be termed as cash purchases.