Written Down Value Method of Depreciation
Depreciation represents the systematic reduction in the value of an asset over its useful life due to wear and tear, usage, or obsolescence. It helps in presenting a fair and realistic value of assets in the financial statements. There are various methods to calculate it, and the Written Down Value (WDV) Method, also known as […]
Common Mistakes Students Make While Calculating Depreciation
Depreciation is one of the foundational concepts in accounting that helps allocate the cost of a tangible asset over its useful life. Despite being a routine topic in financial reporting, many students commit recurring mistakes when calculating it. These errors distort profit figures and asset values, undermining the accuracy of financial statements. Calculating depreciation demands […]
Depreciation, Amortisation, and Depletion: What’s the Difference?
Every business owns assets — machines, vehicles, buildings, patents, and natural resources — that help it generate revenue. But these assets don’t last forever. Over time, they lose value as they are used, age, or become obsolete. Accounting standards require companies to systematically record this loss in value through three key processes: depreciation, amortisation, and […]
What is the Matching Concept in Accounting
Accounting as a profession is based on a structure of principles and concepts that introduce consistency and dependability into financial statements. Amongst these, the Matching Concept plays a unique role, particularly under the accrual accounting method. The Matching Concept is the concept that all expenses should be accounted for in the same period as the […]
Operating Profit vs. Gross Profit vs. Net Profit
While reviewing an income statement, you probably noticed the terms gross profit, operating profit, and net profit. But do you understand what differentiates one from the other? Profitability metrics are vital for analyzing a company’s financial condition. Each one of these profits are calculated and tracked at different levels within the income statement and provide […]
Differences Between Events and Transactions
In accounting, the terms events and transactions are often used interchangeably by those unfamiliar with their technical distinctions. Yet, for accountants and finance professionals, knowledge of the distinctions between these two concepts is central to proper record-keeping, financial reporting, and adherence to accounting standards. Although both transactions and events affect an organization’s financial position, they […]
Creative Accounting and Its Effects on Financial Reporting
Creative accounting is a financial strategy that involves manipulating financial statements to present a more favourable image of a company’s financial health. Although it does not always entail unlawful actions, it tends to test the limits of ethical financial accounting. Firms employ creative accounting in order to overstate earnings, conceal losses, or minimize tax burdens, […]
What is Cash Book? Features and Objectives
The cash book, in its simplest form, is a chronological record of all cash transactions (receipts and payments) made by a business. It serves as a primary book of entry, meaning transactions are recorded here first before being transferred to other ledgers. Essentially, it’s a detailed account of the business’s cash flow, providing a real-time […]
What is a Common-Size Financial Statement in Accounting?
A common-size financial statement is a type of financial statement where each line item is presented as a percentage of a base figure. The base figure is typically total assets or total revenue. Common-size financial statements are useful for analyzing trends over time. For example, if a company’s total assets increase from $100,000 to $200,000, […]
What Does Mean Reconstitution of Partnership?
Reconstitution of partnership refers to a change in the existing structure or terms of a partnership firm while keeping its business operations intact. It takes place when the relationship between the partners changes, thereby changing their rights, obligations, or capital contributions. However, the name of the partnership firm remains unchanged. Reconstitution can be due to […]