If a business owner leases a vehicle or a building, the lease can be treated as an operating lease or a capital lease. Which Section of the CPA Exam Should I Take First?.Reduce Your CPA Exam Study Time by 116 Hours.Deep Dive: Top 35 CPA Exam Statistics.
If the bond matures in 10 years, the annual income may be ($20 premium / 10 years), or $2 a year.Ī bond premium creates more expense for the buyer, while a discount creates more income for the buyer. On the other hand, the bond purchased at $980 has a $20 discount, and the discount is additional income that is reclassified into bond income over the remaining life of the bond. If the bond matures in 10 years, for example, the annual expense may be ($100 premium / 10 years), or $10 a year. The bond purchased at $1,100 has a $100 premium, and the premium is an additional cost that is reclassified into bond expense over the remaining life of the bond. If a bond is purchased at $1,100, the purchase price is a premium (more than par), and a bond purchased at $980 (less than par) is a discount price. Since bonds are traded on exchanges, bonds can be bought or sold at different prices. Financial professionals have to explain bond premiums and discounts to customers, and answer questions if the explanation is not clear.įor starters, bonds are typically issued at a face amount (par amount) of $1,000, or a multiple of $1,000. Bond Premiums and DiscountsĪccounting for bonds is often poorly explained, particularly if the instructor does not have experience in the financial services industry. Here’s the entry recorded when payroll is processed:Īccrual accounting matches the revenue produced in December with the wage expense incurred in December. (To record wages owed to employees on December 31st) Accrual accounting requires you to post an entry for the wage expense before the end of the year, so you record this adjusting entry: To keep things straight in your mind, remember that an adjusting entry involves one balance sheet account and one income statement account.Īssume, for example, that you owe $5,000 in wages on December 31st, and that you will process payroll on January 5th of the following year. Some exam candidates have trouble with the adjusting entries that are required by the accrual method.
CPAs must match the revenue generated with the expenses incurred to produce the revenue, regardless of the timing of cash inflow and outflows.
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