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Glossary of Accounting Terms Result for balance sheet | Simkover and Associates

Allowance for doubtful accounts- This is a provision taken against the accounts receivable of a company, representing the amount of receivables that is not likely to be collected from customers. It is subtracted from the gross receivables on the balance sheet, resulting in a net receivables amount that is expected to be collected. The purpose is to show a receivables figure on the balance sheet that is realistic rather than optimistic. When it is set up, the allowance for doubtful accounts is expensed to the current period as well as being credited or subtracted from the balance sheet receivables. In the following fiscal year, the prior year allowance for doubtful accounts is reversed, and a new provision is set up according to the current year collection conditions. Since the collectibility of receivables is based on the opinion of the company and is inherently subjective, it must be set up in a consistent and systematic manner. The most appropriate method is on an account-by-account basis, meaning that each customer receivable balance is scrutinized and added to the provision if it is deemed uncollectible, or one-half is set up if possibly uncollectible. This approach is also acceptable for Canadian income tax purposes.

Balance Sheet - The financial statement which reports the assets, liabilities and retained earnings of a business entity on a particular date.

Current liabilities- Current liabilities include all liabilities payable within one year from the date of the balance sheet. Typical examples of current liabilities are accounts payable, accrued liabilities, GST payable, and salaries and benefits payable.

Financial statements- A formal presentation of the financial activities of a business which provide an overview of its financial condition. The four standard financial statements are the balance sheet, income statement, statement of retained earnings and cash flow statement.

Fixed Assets- Fixed assets are assets of a permanent nature that are used in the operation of a business and not intended for sale in the ordinary course of business. Examples of fixed assets are: Building, machinery, office furniture and vehicles. As noted, if machinery is normally for sale because the business is a machinery manufacturer, then the machinery would be considered inventory instead of fixed assets. The valuation of fixed assets on the balance sheet of a company would normally be one of two alternatives: Cost, or cost less amortization. When an asset has been recently purchased, it would likely be on the balance sheet at cost. Companies should set up their own policies for depreciating or amortizing fixed assets, and then carry on this policy on a consistent basis over the years. If a company sets up a policy to depreciate fixed assets on a straight-line basis over the expected life of the asset, then the next step is to estimate the useful life of the equipment as being say, 15 years, and then expense one-fifteenth of the original cost each year. The balance sheet would always indicate the value as being the original cost less the total amount of depreciation written off as an expense on a cumulative basis over the years.

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