Balance Sheet Reserves: Definition, Types, and Example If there was a shortage of the specific reserve that was created, Chris Co. would be required to transfer the additional amount from retained earnings, to this particular reserve. However, it must be noted these reserve accounts are temporary accounts, and hence, once the specific purpose is completed, the account no longer exists in the books of the company. These are the accounting entries that are carried out…

Next to revenue, net income is the most important number in accounting. All the expenses are mentioned in the middle, followed by the total revenue. When total revenue is higher than total expenses, this indicates a good net income and is referred to as profitability. On the other hand, the company incurs a loss if its expenses exceed its revenue. For businesses, net income can usually be found on the bottom line of a company’s…

Unlike outstanding shares issued to shareholders, treasury shares or treasury stock do not grant voting rights or right to dividends. The total outstanding shares must be within the limits authorized by the company’s capital stock as defined in its charter or articles of incorporation. Authorized stock refers to the maximum number of shares a firm is allowed to issue based on the board of directors’ approval. Preferred stockholders generally do not have voting rights, though they have a…

Inventory Temporary Account, or ITA as it is often referred to, is a business account created by companies to track inventory and stock movements. Additionally, due to its temporary nature, this type of account helps businesses safely store and distribute their inventory, while also increasing their financial efficiency. In short, Inventory Temporary Account is an invaluable asset for any business looking to stay ahead in an ever-changing market. The best way for accountants to gauge…

Credit the FICA tax payable, federal income withholding payable, state income withholding payable, and any other withholdings on employee paychecks. Initial recordings, also known as the originating entry, are the primary entries for payroll accounting. Payroll accounting helps you keep track of employee compensation and other payroll costs. Accounting for payroll gives you an accurate snapshot of your expenses. Payroll liabilities relate to expenses a business owes but hasn’t yet paid. Independent contractors are often…

deduction: Explore its Definition & Usage Your payroll department must identify pretax deductions — amounts removed from gross pay before calculating payroll taxes — to ensure compliance and maximize employee benefits. A standard deduction is a set amount that a person who chooses not to itemize their deductions on his tax return. The tax code allows for a standard deduction to be taken, rather than itemizing such expenses as medical bills, premiums paid for medical…

Alternatively, the company paying large dividends that exceed the other figures can also lead to the retained earnings going negative. A positive retained earnings balance demonstrates that the company is retaining a portion of its income for reinvestment in the business. This can indicate healthy financial management and a commitment to growth. However, retained earnings should be analyzed in conjunction with other financial metrics to get a complete picture of the company’s financial performance. High…

Corporations Reap Billions in Tax Breaks Under Bonus Depreciation Under this method, the total depreciable amount is divided by the estimated total units the asset will produce over its useful life. Depreciation expense is then calculated based on the actual units produced in a given period. For example, if a machine is expected to produce 100,000 units over its life and costs $100,000, the depreciation expense per unit would be $1. If the machine produces…

Your law firm chart of accounts should also track amounts that your firm uses for client expenses, where you expect reimbursement at some point in the future. These amounts include reimbursable client costs, non-reimbursable client costs, and advanced client costs. With a well-organised chart of accounts, you can generate accurate and detailed financial reports, allowing for better decision-making. These reports help you track the chart of accounts for law firm financial health of your firm,…

Best small business accounting software of 2025 With the paid Plus plan, your credit card and ACH payment processing fees are lower, and you get access to cash flow insights and expense categorization. The lowest-priced plan starts at $10 per month with add-ons for additional collaborators, branches, autoscans, and even snail mail. When it comes to bookkeeping, Sunrise stands out as the top choice. Specifically designed to simplify bookkeeping for small businesses, its user-friendly, self-service…