Compensating balances refers to the balance that a borrower is required to maintain in an account in order to fulfill the requirements for the loan. Often more favourable interest rates for the borrower are associated with these kinds of loans.
Cash Equivalents
According to ASC Topic 305, cash equivalents are short-term, highly liquid investments which are readily convertible into cash and have maturities of 3 months or less from the date of the entity has purchased them. Examples are interest bearing instruments like treasury bills, commercial paper, money-market funds, and short term municipal bonds. On the balance sheet [...]
Categorized in Uncategorized
Software developed for sale or lease (SFAS 86)
ASC Topic 985 (SFAS 86) outlines the standards to account for internally developed or purchased computer software, which are either leased, sold, or marketed as an individual product or as a part of a process.
In summary, internally incurred costs to develop the software should be expensed up to the point where technological feasibility is established. [...]
Categorized in Uncategorized
Current Assets (Current Accounts)
Usually cash and other liquid assets (e.g. accounts receivable, inventory, marketable securities) or resources which are realized within an operating cycle (generally 12 months).
Categorized in Accounting, Basic Concepts
Monopsony
A situation where there is a single buyer facing many suppliers is called monopsony. It is similar to a monopoly, except that the company acts as a buyer instead of a seller. Since there is only a single buyer it dominates the industry and has market power and can dictate terms to its suppliers and [...]
Categorized in Investing Basics
Capitalization of Interest
The capitalization of interest as part of the cost is required for certain assets under US GAAP (SFAS 34). Also the IASB was in the process of amending its IAS 23 on borrowing costs in an attempt to bring it closer to FASB’s 34 on interest costs. The major change proposed in IAS 23 was the [...]
Categorized in Accounting, Fixed Assets
Amortization
Amortization, also called depreciation, is a matter of cost allocation. The cost of property, plant, and equipment, and natural resources, the assets costs is charged to amortization expense (or depletion expense in case of natural resources) over its estimated life, as opposed to amortizing based on their decline in fair values.
After determining what the useful life of [...]
Categorized in Accounting
Criteria for Treatment as a Sale
Before the Accounting Standards Board published additional clarifying rules, it was not untypical for companies to account for transactions as sales, despite continuing interests in and control over the transferred assets (i.e. receivables or financial assets in security lending/repo transactions). In essence those transactions would rather have to be treated as secured borrowings as opposed [...]
Categorized in Accounting, Investment Accounting
Cost Recovery Method
In the cost recovery method provid is not recognized until the sum of the cash receipts exceed the costs of the asset sold. If for example a company sells a specific assets costing USD 40 000 for the price of USD 60 000 in year one, but the cash receipt is only USD 30 000 [...]
Categorized in Accounting
Tags: Cost Recovery Method
Instalment Sales Method
With the instalment sales method revenue is recognized at the point where cash is collected as opposed to when the sale occurs. That way gross profit is deferred and recognized proportionately to the collection of receivables. This method of accounting can only be used in cases where “the collection of the sale price is not [...]
Categorized in Accounting
Tags: Installment Sales Method
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