1. Matching principle and accruals What are accrued taxes? Why accrued taxes? 2. Estimating taxable amount and straight-line expense recognition Estimating the tax liability Example: Monthly income tax accrual 3. The reconciling act: The true-up Example: True-up 4....
Articles with Accounting Examples
Discount Rate Implicit in the Lease under ASC 842
1. What is the implicit rate under ASC 842? Download our present value calculator to follow along How to calculate the rate implicit in a lease under ASC 842 If you are unable to calculate the implicit rate 2. Summary Download our free lease vs. buy tool for...
ASC 842 Lease Accounting Explained with Examples, Journal Entries, and More
1. What is ASC 842? 2. ASC 842 effective dates 3. What is a lease under ASC 842? ASC 842 lease classifications and subtopics 4. Scope of ASC 842 5. ASC 842 lease accounting for lessees Prepaid and deferred rent under ASC 842 Interest rates under ASC 842 Tenant...
The Matching Principle in Accounting Explained
1. Trust fund trials: Picking a profitable business 2. What is the matching principle? Cause and effect in financial reporting 3. The accountant's tools: Accruals and deferrals Example: Prepaid insurance (a deferral in action) 4. Matching across the business 5. Why...
Deferred Expenses Explained with a Full Example & Journal Entries
A deferred expense is a term you probably haven’t heard, but have likely seen in practice. Deferred expenses are categorized as a type of deferral, which is defined as, “the accounting process of recognizing a liability resulting from a current cash receipt or an...
Tenant Improvement Allowance Accounting under ASC 842 Explained with a Full Example
1. What is a tenant improvement allowance? 2. How to account for tenant improvement allowances under ASC 842 3. Tenant improvement allowances paid at or before commencement of the lease 4. Tenant improvement allowances payable after commencement of the lease 5. Tenant...
Accrued Wages and Salaries Accounting Explained
1. The foundation: Accrual accounting and the matching principle 2. Understanding the full scope of accrued payroll 3. Examples: Bi-weekly pay and month-end accruals Example 1: Understanding accrual journal entry Example 2: Visualizing the accrual schedule 4. Beyond...
Prepaid Insurance Accounting Explained: A Step-by-Step Guide with Examples and Journal Entries
Prepaid insurance is a standard and recurring item on the balance sheet for the vast majority of businesses, making it one of the most common types of prepaid asset. Examples include business owners insurance, worker’s compensation insurance, and cyber liability...
Accrued Expenses and Liabilities: Definition, Journal Entries, Examples, and More Explained
1. What are accrued expenses? 2. What are accrued liabilities? 3. Accrued expenses vs. accounts payable 4. Common examples of accrued expenses 5. Prepaid vs. accrued expenses 6. Accrual vs. cash accounting 7. Financial statement presentation Accrued expenses on the...
Mastering Accruals: True-Ups for Estimated Payments
Mastering accruals is crucial for accurate reporting and sound business decisions. Accruals represent expenses that have been incurred (the company has received goods or services) but have not yet been paid for as of the end of the accounting period. Even though the...
ASC 842 Disclosure Requirements Explained with Examples
1. A focus on quantitative disclosures for lessees 2. Why software makes generating disclosures more accurate and efficient 3. Looking at quantitative disclosures in four “buckets” Lease costs Other information Weighted averages Maturity analysis 4. Summary 5. Related...
Lease Amendment Accounting Explained: Expansion of Leased Premises
1. Accounting for amendments resulting in additional assets under ASC 842 Example: Accounting for amendments resulting in obtaining additional asset under ASC 842 2. Summary 3. Related articlesThis article will discuss how to account for a lease when the tenant...
Accrual Accounting Explained: Summary, Examples, Journal Entries, Applications, & More
1. What is accrual accounting?2. Key components of accrual accounting Prepaids Accruals 3. Cash basis vs. accrual basis accounting Cash basis accounting Accrual basis accounting 4. Benefits of accrual accounting5. Challenges of accrual accounting6. When should you use...
Rent Abatement and Rent-Free Period Accounting under ASC 842
1. What is rent abatement? 2. Example: Accounting for rent abatement and rent-free periods under ASC 842 3. Summary 4. Related articlesFor a simple operating lease, calculating the straight-line rent expense involves summing the total cash payments and dividing the...
Sublease Accounting under ASC 842 Explained with an Example
1. What is a sublease? 2. How to account for a sublease under ASC 842 3. Example of sublease accounting under ASC 842 Operating lease amortization schedule for the initial lease 4. Summary 5. Ultimate Lease Accounting Guide 6. Related articlesWhat is a sublease? A...
Lease Purchase Options and More Intersections of Fixed Assets and Lease Accounting Explained with a Full Example
1. Capitalization of leases and fixed assets ASC 840 – Capital leases and fixed assets on the balance sheet ASC 842 – Operating leases now capitalized Accounting for finance leases vs operating leases 2. Similarities in accounting policies Capitalization thresholds –...
FRS 102 Leases Explained: Summary, Examples, Journal Entries, and Disclosures
1. FRS 102 summary FRS 102 lessee lease classification What is considered a lease under FRS 102? FRS 102 lessor accounting How to calculate the liability and ROU asset under FRS 102 2. FRS 102 finance lease example (lessee) Amortisation schedule Journal entries 3. FRS...
Operating Lease Accounting under ASC 842 Explained with a Full Example
1. Operating lease treatment under ASC 842 2. Operating lease vs. finance lease identification under ASC 842 Transference of title/ownership to the lessee Purchase option Lease term for major part of the remaining economic life of the asset Present value represents...
Cash vs. Accrual Accounting Explained with Examples and Journal Entries
1. Cash basis accounting Advantages of the cash basis May be best for 2. Accrual basis accounting Advantages of the accrual basis May be best for 3. Cash vs. accrual accounting example4. Summary5. Related articlesChoosing and correctly applying the right accounting...
GASB 96 Explained: Accounting for Subscription-Based IT Arrangements with Calculations and a Full Example
1. Scope SBITA defined Exemptions 2. Recognition and measurement of a SBITA Subscription liability Subscription asset Outlays other than subscription payments Disclosure requirements 3. SBITA accounting example Terms Additional costs evaluation Calculation of...
Accelerating Your Close: Best Practices for Smooth Month-End, Quarter-End, and Year-End Operations
Closing the books at the end of each month, quarter, or year is demanding for accounting teams. The pressure to meet tight deadlines while ensuring accuracy often leads to long hours and increased stress. However, by adopting best practices and leveraging technology,...
How To Leverage Contracts for Prepaid and Accrual Accounting
Accounting teams frequently struggle with the efficient management of prepaids and accruals due to the complexities involved in tracking expenses across multiple accounting periods and ensuring precise financial reporting. Traditional methods for managing prepaids...
GASB 87 Explained with a Full Example of the New Governmental Lease Accounting Standards
1. What is GASB 87? 2. GASB 87 vs. prior GASB guidance: Key differences GASB 87 lease classification What is considered a lease under GASB 87? 3. Key differences: GASB vs. FASB 4. Lessee vs. lessor accounting under GASB 87 5. Example: Accounting for a lease under GASB...
IFRS 16 Leases: Summary, Example, Journal Entries, and Disclosures
1. IFRS 16 summary IFRS 16 lessee lease classification What is considered a lease under IFRS 16? IFRS 16 lessor accounting How to calculate the right-of-use asset under IFRS 16 IFRS 16 right of use asset accounting 2. IFRS 16 finance lease example (lessee)...
Capital Lease Accounting and Finance Lease Accounting under ASC 842 Explained with a Full Example
1. What is a capital/finance lease? Finance lease vs. capital lease 2. Capital lease criteria under ASC 8403. Finance lease criteria under ASC 842 "Strong-form" vs. "weak-form" finance leases 4. Finance lease accounting example Determining finance lease vs. operating...
Rent Expense Explained and an Example of Straight-Line Rent under US GAAP
1. What is rent expense? 2. How has accounting for rent payments changed under ASC 842? 3. How is rent expense measured? Other considerations in rent expense measurement 4. Differences in timing of cash flows in rent payments Prepaid rent Deferred rent Accrued rent 5....
Capital/Finance Lease vs. Operating Lease Explained: Differences, Accounting, & More
1. What is an operating lease? 2. What is a capital lease / finance lease? 3. Capital/finance lease vs. operating lease criteria Transfer of title/ownership to the lessee Exercising a purchase option Lease term Present value Alternative use 4. Finance lease vs....
Deferred Rent under ASC 842 Explained with Examples and Journal Entries
1. What is deferred rent? 2. Deferred rent under ASC 842 3. Deferred rent example under ASC 842 with ROU assets and lease liabilities Deferred rent journal entries under ASC 842 for year 1 Deferred rent under ASC 840 vs. ASC 842 4. Treatment of deferred rent during...
Prepaid Rent and Other Rent Accounting for ASC 842 Explained (Base, Accrued, Contingent, and Deferred)
1. Rent explained 2. Accounting for rent under the new lease accounting standards 3. Base rent Accounting for base rent with journal entries 4. Prepaid rent Is prepaid rent an asset? Accounting for prepaid rent with journal entries 5. Accrued rent Accounting for...
Software Capitalization Rules under US GAAP and GASB
1. Software Capitalization Rules under FASB and GASB 2. Types of software Purchased software Internally-developed software Software as a Service (SaaS) 3. SummarySoftware Capitalization Rules under FASB and GASB The capitalization of software development costs was a...
Prepaid Expenses Guide: Accounting, Examples, Journal Entries, and More Explained
1. What are prepaid expenses? Prepaid expenses vs. accrued expenses 2. Accounting for prepaid expenses Accrual basis vs. cash basis Presentation on the balance sheet When do prepaid expenses hit the income statement? 3. Common examples of prepaid expenses Lease...
Fixed Asset Accounting Explained with Examples, Journal Entries, and More
1. What are fixed assets? Fixed asset examples Current assets vs. long term assets Tangible vs. intangible assets Right-of-use assets vs. fixed assets Operating vs. non-operating assets Capitalization policy and materiality Total fixed assets vs. net fixed assets 2....
Right-of-Use Asset (ROU Asset) and Lease Liability for ASC 842, IFRS 16, and GASB 87 Explained with an Example
1. What is a right-of-use asset? 2. What is a lease liability? 3. Right-of-use asset under ASC 842 How to calculate the right-of-use asset under ASC 842 Right-of-use asset accounting example 4. Right-of-use asset under IFRS 16 How to calculate the right-of-use asset...
How to Calculate the Present Value (PV) of Future Lease Payments in Excel
1. Present value of lease payments explained PV (Present Value) vs. NPV (Net Present Value) Minimum lease payments and future lease payments 2. How to calculate the present value of a payment stream using Excel in 5 steps Step 1: Create your table with headers Step 2:...
GASB 96 Disclosure Requirements for Governments Explained with an Example
1. Qualitative disclosures Requirements 2. Quantitative disclosures Subscription asset disclosure Outflow of resources Subscription liability disclosure and maturity analysis Future SBITA commitments Impairment loss Exemptions 3. Presentation on financial statements...
Depreciation Expense & the Straight-Line Depreciation Method Explained with a Fixed Asset Example & Journal Entries
1. What is depreciation? Depreciation expense Accumulated depreciation 2. Depreciation methods in accounting Straight-line method of depreciation Declining balance method of depreciation Sum-of-the-years’-digits depreciation method Units of production depreciation...
Sale-Leaseback Transactions and Accounting under ASC 842 Explained
1. What is a sale-leaseback transaction? 2. Why enter into a sale-leaseback transaction? What are the benefits of a sale-leaseback transaction? What are the disadvantages of a sale-leaseback transaction? 3. Examples of sale leasebacks 4. Identifying a sale-leaseback...
Lease vs. Buy Analysis and Calculator for Business – How to Determine When to Lease or Buy an Asset
1. Benefits of leasing vs. buying Benefits of leasing Benefits of buying Disadvantage of leasing Disadvantage of buying 2. Lease vs. Buy Analysis: Five Factors to Consider 1. How long will you need the item and how much is it worth? 2. What is feasible for your...
Asset Capitalization Explained with a Lease Example
1. What is capitalization in accounting? How assets are capitalized 2. Capitalized right-of-use asset example 1: Capital/Finance lease Classification test 3. Capitalized right-of-use asset example 2: Operating lease 4. SummaryTo understand capitalization, start with...
SFFAS 54: FASAB Lease Accounting Explained with a Full Example
1. What is SFFAS 54? 2. Effective date 3. Lease definition What is a lease? Embedded leases 4. Scope Short-term lease exemption Lessee recognition Lessor recognition Discount rate 5. Example 6. SummaryWhat is SFFAS 54? SFFAS 54 is the new lease accounting standard...
Accrued Rent Accounting under ASC 842 Explained
1. What is accrued rent? Accrued rent vs. deferred rent 2. Accounting for accrued rent with journal entries Accounting for accrued rent under ASC 840 Accounting for accrued rent and deferred rent under ASC 842 3. SummaryWhat is accrued rent? Accrued rent is a...
Initial Direct Costs under ASC 842 Explained: Summary, Full Example
1. What are initial direct costs? Definition of initial direct costs ASC 840 treatment of initial direct costs 2. Initial direct costs under ASC 842 What changed? Accounting treatment under ASC 842 3. Example: Initial direct costs under ASC 842 4. Summary 5. Related...
Asset Retirement Obligation (ARO) Accounting Example for Real Estate
1. Accounting for AROs 2. Example: Accounting for an ARO using a real estate lease Changes in estimate or timing of ARO liability 3. Summary 4. Related articlesAn asset retirement obligation (ARO) represents the legal commitment to remove certain improvements or...
Accretion Expense Accounting Explained with Full Example and Journal Entries
What is accretion in accounting? Accretion is the periodic recognition of an expense associated with an increase in the present value of a liability over time. This expense is recognized as an operating expense in the statement of income. In practice, accretion...
ARO (Asset Retirement Obligation) Accounting Example for Oil and Gas Production
Asset Retirement Obligations (ARO) are commonly associated with industries such as oil and gas, mining, waste disposal, or nuclear energy. Some examples specific to the oil and gas industry include oil well plugging and abandonment and underground storage tank...
Asset Retirement Obligation (ARO) Accounting under ASC 410 and ASC 842 Explained with Example
1. What is asset retirement in accounting? 2. What is an Asset Retirement Obligation (ARO)? 3. ASC 410: ARO accounting and environmental obligations ASC 410-20 and interactions between ASC 410 and ASC 842 How to perform the accounting for an ARO What is accretion...
Capital Lease Impairments under GASB 87: Example, Journal Entries
1. Lease impairment indicators under GASB 42 2. Recording an impairment loss under GASB 87 Example: Recording a lease impairment under GASB 87 3. Summary 4. Related articlesUnder the legacy GASB lease accounting model only capital leases were presented on the...
Equipment Lease Accounting under ASC 842 and the Benefits of Leasing Equipment vs. Buying Explained
1. Capital/finance lease criteria Example scenarios of capital/finance leased equipment 2. Example: Equipment lease under ASC 842 Opening calculation Amortization schedule Journal entries 3. Leasing vs. buying equipment Benefits of leasing Benefits of buying Financial...
GASB 87 Accrued Interest Example: Calculating the Liability Amortization
1. What is accrued interest? 2. Example: Accrued interest for a lease under GASB 87 Amortization schedule for the lessee Governmental fund accounting Conversion entries Proprietary fund accounting 3. Summary 4. Related articlesThe new lease accounting standard for...
Interest Expense Calculation Explained with a Finance Lease Example and Journal Entries
1. What is interest? 2. What is accrued interest? 3. Interest expense calculation & journal entries 4. Interest expense for a finance lease Which reporting frameworks does this apply to? How is finance lease interest expense calculated? Interest expense formula How is...
GASB 87 Sale-Leaseback and Lease-Leaseback Accounting Transactions
1. Sale-leasebacks GASB 87 requirements Quantitative example Disclosure requirements 2. Lease-leasebacks GASB 87 requirements Quantitative example Disclosure requirements 3. Summary 4. Related articlesOrganizations often enter into either sale-leaseback or...
Accounting for Partial Disposals of Equity Method Investments under ASC 323
1. Equity method 2. Equity method of accounting Partial disposal Example: How to account for an equity method disposal resulting in a loss of significant influence 3. Summary 4. Related articlesThis article is part of a series of articles covering equity method...
GASB 87 Disclosure Requirements for Lessees Explained with Examples
1. Qualitative disclosures 2. Quantitative disclosures Lease asset disclosure Lessee’s outflow of resources Lease liability disclosure and maturity analysis Future lease commitments Short-term leases: exempt Additional disclosures (if applicable) 3. Summary 4. Related...
Equity Method Accounting for Distributions Exceeding the Carrying Value (ASC 323)
1. Equity method 2. Accounting for distributions exceeding carrying value 3. Cash flow classification Cumulative earnings approach Nature of distribution approach 4. Example: Accounting for an equity method investment when distributions exceed the carrying value...
Accounting for Loss from Equity Method Investments
1. Equity method 2. Loss from equity method investments Example of accounting for equity method losses in excess of investment 3. Summary 4. Related articlesThis article is part of a series of articles covering equity method accounting in accordance with ASC 323...
GASB 87 Lessor Accounting Example with Journal Entries
1. Lessee vs lessor accounting 2. Lessor accounting under GASB 87 An example of lessor accounting for a lease under GASB 87 3. GASB 87 RFP Template 4. Summary 5. Related articlesLessee vs lessor accounting Government entity lessees reporting under GASB are required to...
Leasehold Improvements Accounting and Amortization under US GAAP
1. Common examples 2. Accounting for leasehold improvements Amortization of leasehold improvements Example of leasehold improvement amortization 3. Leasehold improvements and AROs 4. Bonus depreciation and tax considerations for qualified LHIs Qualified improvement...
Goodwill and Basis Differences in the Equity Method of Accounting (ASC 323)
1. Equity method of accounting when basis differences exist What are basis differences and how do you identify them? How do basis differences impact equity method accounting? An example of equity method accounting with basis differences 2. Summary 3. Related...
How to Calculate Interest Rate Implicit in the Lease for GASB 87
1. What is the implicit rate under GASB 87? Implicit rate: Understanding GASB 87 vs ASC 842 Example of calculating the rate implicit in the lease Validating the rate implicit in the lease 2. Summary 3. Related articlesUnder GASB Statement No. 87, Leases, the majority...
Interest Rate Implicit in the Lease under IFRS 16 Explained
1. What is the implicit interest rate under IFRS 16? Implicit rate: ASC 842 vs. IFRS 16 2. Example: Calculate the interest rate implicit in a lease under IFRS 16 3. Summary 4. Related articlesWhat is the implicit interest rate under IFRS 16? The rate implicit in the...
The Equity Method of Accounting for Investments and Joint Ventures under ASC 323
1. What is the equity method of accounting? 2. When do you apply it? 3. How to determine if the equity method is applicable 4. Accounting for an equity method investment 5. Required disclosures 6. Example: Accounting for an investment using the equity method 7....
Lease Incentives under ASC 842 Explained with a Full Accounting Example
1. What is a lease incentive? 2. It’s a lease incentive: How do we treat it? Leasehold improvements Leasehold improvements: Lessor asset Leasehold improvements: Lessee asset Lease incentive impact to opening lease liability and ROU asset 3. Example 1: Paid at or...
How to Account for Partial Lease Terminations
1. Is it a termination? 2. How to account for a termination Reassessing classification Remeasuring the lease liability Remeasuring the right-of-use asset 3. Partial termination accounting with example Approach 1: Proportionate change in the lease liability Approach 2:...
Lease Abandonment Accounting: Common Questions and a Full Example
Lease abandonment from the lessee’s perspective means precisely that the lessee is still paying for an asset they are no longer using. While the asset has in fact been abandoned by its initial renter, the landlord is still receiving payment for the property....
Lease Liability Amortization Schedule: How to Calculate It in Excel
1. What is lease liability? 2. How to create the lease amortization schedule and calculate your lease liability Create five-column spreadsheet Enter the number of periods and cash payments Enter expense formula Fill expense column Enter liability reduction formula...
Accounting for Lease Modifications under ASC 842, Part 2: Operating to Finance
This is the second blog in our series on lease modifications and addresses a modification where the lease classification changes as a result of the modification. In this blog, we will give a comprehensive example under ASC 842 illustrating how to account for a lease...
GASB 87: Two Examples of How to Transition for Lessees
The new lease accounting standard for governmental organizations, GASB Statement No. 87, goes into effect for all reporting periods that begin subsequent to December 15, 2021. In 2019, GASB released an implementation guide to provide additional clarification on GASB...
Lease Modification Accounting under ASC 842: Operating Lease to Operating Lease
In this blog, we will give an example of how to account for a lease modification under ASC 842 that does not expand or add additional assets to the original lease, but rather increases the lease term and changes the payment amounts. Because there isn’t an additional...
GASB 13: A Comprehensive Example
Similar to the FASB and IASB, the Governmental Accounting Standards Board released guidance updating the accounting for lease agreements. GASB No. 87, Leases, is effective for applicable governmental entities for reporting periods that begin subsequent to December 15,...