Financial Accounting

Accrued vacations are entitled absence payments to an employee from the employer when certain conditions are fulfilled. An employer may adopt a certain compensation policy that includes compensated absence. ASC 710 provides guidelines on the accounting treatment of compensated vacations and the accrued liability for an employer. Let us discuss how an employer can account […]

Joint ventures are commonly known as equal investments in a new entity. However, the definition and accounting treatment of a joint venture does not require equal investment and ownership stakes in the joint entity. Joint ventures can be in the form of partnerships, for projects, or for any other investment purposes. The accounting for joint

Companies involved in the manufacturing process have assets that assist in this process. Usually, these assets include machinery, which helps them alter raw materials into finished goods. Companies acquire machines through capital investments, usually an upfront payment to a supplier. In some cases, they may also feature leased machinery. Regardless of the source, companies need

A lease is an agreement in which a lessor allows a lessee to use their assets. In this process, the lessor owns the asset and grants a right to use the underlying asset. The lessee, in exchange, pays them for this right. Some several other terms and conditions dictate these contracts. In essence, however, most

When acquiring an asset, companies have several options to finance it. The most common form of finance is the company’s internal resources. Usually, companies have surplus assets that they can invest into new acquisitions. Most companies track these resources to ensure they can acquire new assets based on them. These assets generate from the company

Companies take care of their customers in various ways. Previously, companies only sold products and services without any other services. While this process was still profitable, it did not ensure they could retain their customers. However, customers have become more loyal now due to the added-on services and products that companies offer. For companies that

When a company sells its products and services, it recognizes any proceeds as revenues. In the case of credit transactions, the transaction value will be the agreed or perceived value of the products. For companies, revenues represent the primary income source from operations. However, these revenues do not ascertain that a company will receive its

Investors can make an investment in another entity with any amount. If they exercise significant influence and hold substantial shareholding (at least 20%), they will account for the investment with the equity method of accounting. The initial investment, subsequent measurement adjusted for income/loss, and finally the disposal will also be recorded under the equity accounting

Accretion expense is an ongoing expense related to a long-term liability. The liability is often an asset retirement obligation (ARO) under the contractual or compliance requirements of a company. Accretion expense records the change in the ARO liability that changes with the passage of time. Usually, it represents the change in the present value of

Opportunity costs represent a foregone opportunity for an investor or entity when choosing one option over the other. It is a widely used concept in the capital budgeting method when deciding between mutually exclusive projects. Sunk costs represent a type of non-relevant costs that cannot be recovered and already spent. Investment decisions mainly focus on