Business Entity Concept

Financial accounting is based on the premise that the transactions and balances of a business entity are to be accounted for separately from its owners. The business entity is therefore considered to be distinct from its owners for accounting.

Therefore, any personal expenses incurred by owners of a business will not appear in the income statement of the entity. Similarly, if any personal expenses of owners are paid out of assets of the entity, it would be drawings for accounting much in the same way as cash drawings.

The business entity concept also explains why owners' equity appears on the liability side of a balance sheet (i.e. credit side). Share capital contributed by a sole trader to his business, for instance, represents a form of liability (known as equity) of the 'business' that is owed to its owner which is why it is presented on the credit side of the balance sheet.

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Procure to Pay (P2P) Process Folow with Journal Entries

Procure to Pay process flow. 1. Requester: Request for goods & the same goes for an approval 2. PR is created & routed for approval 3. Once approved, PO is created. 4. Sourcing activities like, Choosing the right Vendor, Payment info happens meanwhile, 5. PO is routed for approval 6. PO is sent to the supplier.& Vendor signs the agreement (Payment terms) 7. Supplier will send the goods along with Invoice.(PO Number mentioned) 8. Good received & GRN entry is made. 9. Invoice is sent to the AP team 10. AP team process the Invoice (3 way match) - GL coding will be automatically pulled. 11. process for Payment Few Journal Entries examples are as followed. 1. Goods Received Ware House Dr Inventory a/c Cr GRNI a/c 2. Inv. Regis...

Intercompany Eliminations with Journal Entries

Intercompany Eliminations Explained intercompany eliminations happen for business combinations. The whole thing kind of confuses me. Can you explain the process and the journal entries to record the intercompany eliminations? Answer: Remember that in a business combination, we are trying to eliminate any transactions between the parent and the subsidiary so that we only have transactions with 3rd parties left after our consolidating entries. So, let’s assume Company A owns Company B and A sells $120,000 of inventory to B. Let’s also assume that Company A gets a 40% margin on all sales and Company B has 30% of the inventory remaining at the end of the year. With this set of facts, they could ask you a wide variety of questions on the CPA exam. One of the tricks to solving problems involving intercompany eliminations is to understand the entries that A and B would book in these cases. One of the other tricks is understanding the relationship between cost and margin percentage. ...

Journal Entries for Record to Report (R2R)

Journal Entry Examples Entity A had the following transactions in December 2xx1: 1. December 2, Owner P created a new Entity B and invested $140,000 in cash. 2. December 9, Entity B borrowed $80,000 from a bank. 3. December 11, Entity B purchased 3,000 units of merchandise at $10 per unit in cash. 4. December 18, Entity B purchased equipment and paid $70,000 in cash. 1. Investment by owner December 2, Owner P created a new Entity B and invested $140,000 in cash. Debit Credit Cash 140,000 Owner's equity 140,000 [Note] Debit: Increase in cash (asset) Credit: Increase in owner's equity (equity) 2. Borrowings from a bank December 9, Entity B borrowed $80,000 from a bank. Debit Credit Cash 80,...

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