Financial Statements

In short, correct it. How did you get a credit balance in A/R? If customers overpaid their bills, you should set up a liability account called Refunds Due and move the balance there. If the payments are deposits on future orders, you should have a Customer Deposits liability account. If they are payments in advance, you need an Unearned Income account. Perhaps you have un-recorded sales. It depends on the nature of the paymants posted to Accounts Receivable when there was no receivable in the first place.

I have to say that I don't entirely agree with this answer. I do agree that the first step is to find out exactly WHY you have a credit balance in your Account Receivable. Once this is established, how to correct it, or even temporarily leave it, depends on the reason it's there.

First let's say John Q Public is your customer and he owed you $500, however he accidentally pays you twice and you record the transaction, giving this AR a credit balance of $500. Your best option is to issue a refund for the amount, however, there is no sense in creating an obsolete or useless account such as "refunds due". Instead issue a refund in the amount of $500 debiting the Account Receivable - John Q Public for $500 and crediting Cash.

If, as stated in the first answer, it's payment on a future order, as he called it, deposits, it would still be listed as "unearned income or revenue" For example, John Q Public wants to pay for $500 in watches, however the watches will be shipped 30 days later. You will Debit your Cash and Credit your Unearned Revenue (Income) not some obsolete account called Customer Deposits. Once the order ships, you will then Debit the unearned revenue bringing the balance down to zero while crediting Revenue.

Now lets go back to the accidental overpayment. Say John Q Public did overpay his bill and your company wants to give him credit for the overpaid balance, leaving the credit balance in Accounts Receivable is perfectly acceptable. Since each AR will be unique to the customer, then there is no reason to move the credit balance to any other account. In your General Ledger each AR will be represented by the name of the customer, for example two customers with AR accounts won't be grouped into one account, they will be separated, for example AR - Customer A and AR- Customer B

Let's say Customer A has a credit balance in his AR account of $500 and he then places a credit order of $1500, when it is recorded, it will show that he had a credit balance and therefore now only owes $1,000. Moving the balance from account to account is pointless and time consuming.

I have to note that "unrecorded sales" would not effect your Account Receivable.

Out of all of this, first things first, check all Credit Sales Receipts pertaining to said customer to make sure all entries we recorded accurately, perhaps it was a transposition of numbers, for example John Q Public paid $580 dollars for his AR and it was transposed and recorded as $850, if this is the case, simply correct the numbers with a note as to why the entry has been altered.

The Gross Profit Margin = Gross Profit/Revenue*100 regardless of weather the Gross Profit is positive or negative (a loss). Therefor, it is acceptable to have a negative Gross Profit Margin.

Yes, Net worth is the residual value after utilizing all assets and paying off all liabilities so it is the actual value of business which is the actual benefit to the owners of business.

You might use it to apply for credit (a loan).

Interest collected on loans advanced to some institution or indivudual becomes the part of financing activities of a statement of cash flow. The reason being that the loan on which interest in collected is the part of financing activities of the company and the interest earned on it increases the value of actual loan and thus the interest becomes the part of financing activities. The another reason that can be attributed is that when installments are received for the loan given, the interest to be received has to be calculated on the amount of loan outstanding on the borrower at the time of closure of accounting books. Therefore, interest received or collected becomes the part of financing activities.

With advancing technology and intense competitions, companies will strive to provide wider varieties of goods and services. Companies will thus produce both simple and complex products. Complex products tend to consume more non-unit level activities. Examples of non-unit level activities are setups, inspections and equipment maintenance, etc. When there is a large proportion of non-unit level activities, plant-wide overhead rate and departmental overhead rates will result in inaccurate costing. This is because the two traditional methods use unit-level cost driver that cannot capture non-unit level activities with precision. An example of unit-level cost driver is machine hours, since every product requires machine time. Usually complex products are produced in lower volume than simple products. Since the traditional costing methods use a unit-level cost driver, simple products will have higher overhead costs than the complex products. The products will thus be priced higher. The complex products, which use more non-unit level activities are priced lower. Logically, complex products are more expensive than simpler products because of their more complicated production processes. These production processes involve more non unit-level activities. The inaccurate costing leads to inaccurate prices of products, i.e. overpricing the simpler products and underpricing the complex products. The overpriced products might lead the firm to shut down its production unit due to low demand. Similarly, the underpriced complex products will have unexceptionally higher demand. This will undermine the true profits made by the firm. Because although higher demands lead to higher sales, the revenue that the firm collects are, in fact, less than what it supposed to get, if proper costing method is used, e.g. ABC Costing. Companies will incur losses instead because of the high expenses incurred that are not captured in producing the complex products. Hence, the plant-wide rate and departmental rates are no longer adequate to use for costing products. With advancing technology and intense competitions, companies will strive to provide wider varieties of goods and services. Companies will thus produce both simple and complex products. Complex products tend to consume more non-unit level activities. Examples of non-unit level activities are setups, inspections and equipment maintenance, etc. When there is a large proportion of non-unit level activities, plant-wide overhead rate and departmental overhead rates will result in inaccurate costing. This is because the two traditional methods use unit-level cost driver that cannot capture non-unit level activities with precision. An example of unit-level cost driver is machine hours, since every product requires machine time. Usually complex products are produced in lower volume than simple products. Since the traditional costing methods use a unit-level cost driver, simple products will have higher overhead costs than the complex products. The products will thus be priced higher. The complex products, which use more non-unit level activities are priced lower. Logically, complex products are more expensive than simpler products because of their more complicated production processes. These production processes involve more non unit-level activities. The inaccurate costing leads to inaccurate prices of products, i.e. overpricing the simpler products and underpricing the complex products. The overpriced products might lead the firm to shut down its production unit due to low demand. Similarly, the underpriced complex products will have unexceptionally higher demand. This will undermine the true profits made by the firm. Because although higher demands lead to higher sales, the revenue that the firm collects are, in fact, less than what it supposed to get, if proper costing method is used, e.g. ABC Costing. Companies will incur losses instead because of the high expenses incurred that are not captured in producing the complex products. Hence, the plant-wide rate and departmental rates are no longer adequate to use for costing products.

Prepaid expense is that amount of expense which is paid in advance and expense is not actually incurred and prepaid expense is current assets of business and show under assets side of balances heet.

This concept simply implies that the business will continue to operate for the foreseeable future and that it isn't suddenly going to cease trading. The significance of this concept is that the assets of the business are not valued at their "break-up" value, which is the amount that they would sell for if they were sold off piecemeal.

The concept assumes that the owners of a company intend to continue its trading over the long term (at least 12 more months). It that is not the case, they will need to disclose that fact and present slightly different financial statements.

For example:

Suppose Jo Bloggs acquired a widget making machine at $100,000 and this machine has an estimated life of 5 years. Let us also assume that the machine has no other use outside Jo Bloggs' business and could only be sold for scrap at $15,000 after one year.

It is normal to write-off the cost of this asset to the profit and loss account, over this timeframe. That is, depreciation of $20,000 per annum would be charged to the profit and loss account. So, at the end of the first year, the value of the machine in the books, would be $80,000, rather than the $15,000 scrap value.

Although it doesn't seem very prudent, because Jo Bloggs will continue to trade and the machine will therefore be used in the business. It is the "Going Concern" concept that allows the higher valuation.

A Balance Sheet, also sometimes referred to as a Statement of Financial Position.

Bad debts is the loss which we suffer. It is the nominal account which is to be transferred to P&L A/c. The provision for bad debts is to be opened in order to follow the conservatism. By nature PBD is the Accounting estimate.

Other name of income statement is “Profit and loss account” as this statement shows all the incomes and expenses of one fiscal year and at the end either there is profit or loss so that’s why it is called “profit and loss statement” as well.

Yes it is. There's a provision for bad debt expense in the income statement and that same amount gets either added to the reserve for doubtful accounts on the balance sheet or reduces the accounts receivable account, on the balance sheet. That depends on whether its a reserve for future write-offs or a write off of a certain customer balance.

Accounts receivables are on the balance sheet. They are an asset of the firm, that is they represent a future economic benefit. The income statement holds the revenues and expenses of the business.

Sold items should be transferred to client or end user fully and all liabilities transferred to client before recording sales transaction in books.

Balance Sheet Statement of Income Statement of Shareholders (Owners') Equity Statement of Sources and Applications of Cash (or Funds) Balance Sheet Statement of Income Statement of Shareholders (Owners') Equity Statement of Sources and Applications of Cash (or Funds)

The balance sheet is an accounting tool with two parts. The assets are totaled up on one section, and the liabilities are all listed out in the second section. The balance sheet is not only used for banks but is used for almost any company.

Balance sheet, income statement, statement of cash flows, statement of ahareholder's equity and statement of comprehensive income, which is often incorporated into the income statement but is a separate reporting requirement for SEC filings

Accumulated depreciation-equipment is contra entry for asset account to show the reduction in actual assets cost through method of depreciation

Income Statement

Therefore, you record this deferred revenue as a cash inflow in the operating section. Specifically, you adjust cash generated from operating activities upward by the amount of the deferred revenue. ... Therefore, you must adjust the operating cash flow downward by the amount of this earned revenue.

Accumulated depreciation is all of the depreciation ever 'accumulated' against the assets currently in service. It is shown on the balance sheet as a 'contra' (negative) asset, directly below the assets it relates to.

Depreciation expense is the current period's depreciation of the assets currently in service. It is shown on the income (P&L) statement as an expense.

Example:

Business purchased a truck for $20,000 which will last 5 years. For simplicity, we'll use 'straight-line' depreciation.

End of Year One:

Depreciation expense on Income Statement

$4,000 (1/5th of $20,000)

Accumulated Depreciation on balance sheet: $4,000

End of Year Two:

Depreciation expense on Income Statement

$4,000

Accumulated Depreciation on balance sheet: $8,000 (both years)

End of Year Three:

Depreciation expense on Income Statement

$4,000

Accumulated Depreciation on balance sheet: $12,000 (all three years)

No. A Balance Sheet consists of Assets = Liabilities + Owner's Equity. Owner's Equity is increased by profits and contributed capital and is decreased by losses and capital withdrawals.

Example of a very simplified Balance Sheet -

Assets 150,000

Liabilities 50,000

Owner's Equity 100,000

Total 150,000