Egon & Gitte Jensen (Page 4.281)

Usually, companies record these amounts the cash over and short accounts. Accruing tax liabilities in accounting involves recognizing and recording taxes that a company owes but has not yet paid. This is important for accurate financial reporting and compliance with… Therefore, the balance of cash short and over is on debit or credit depends on whether it is shortage or overage. Effective management of accounts receivable journal entries ensures businesses can track outstanding account balances and maintain smooth cash flow. Likewise, it can save us a bit of time and effort by including both cash shortage and cash overage into only one account. Streamlining accountsRead More →

The ability to estimate the amount of the loss means being able to reasonably estimate the most likely amount for settlement if the event were to occur. If the most likely amount is unknown, but there is a reasonably estimated range, then it is acceptable to use the range and apply the minimum limit of the range. The warranty liability account will be reduced when the warranties are paid out to the customers. For example, Vacuum Inc. will debit the warranty liability account $500 and credit either cash– in the case of a full refund– or inventory– in the case of a replacement– in theRead More →

Profits may increase temporarily when business is declining, and losses can increase, again temporarily, while actual business is increasing. To provide a more accurate picture of profitability, the industry has developed a combined ratio that combines a loss ratio and expense ratio over a given period. The loss ratio equals losses for a given period divided by the earned premium for that period. The expense ratio equals expenses divided by the total written premiums for the period. A combined ratio of less than 1 indicates profitability, called the trade profit, while a combined ratio exceeding 1 indicates losses. Statutory accounting reports and audited statutory financialRead More →