To Develop an Understanding

It is challenging at times to develop an understanding for what is occurring in the accounting realm but we as a team have hopefully taken a step in the right direction in explaining the processes that follow. We will begin with discussing how, current liabilities or short-term obligations are part of the notes payable, the accounts payable, and the accrued expenses. To differentiate these three obligations the companies will use the accounts payable to purchase the inventories. The companies will use the notes payable to the creditors to reduce the loans the company has. Finally, the accrued expenses are the debts the company has, which are currently not paid (Entrepreneur, 2011).

Preparing necessary journals can be a tough job but it is something that is very necessary. You need them to record the issuance of bonds, to calculate the periodic interest and amortization of bond premiums and discounts. Since there are many different types of bonds, the entry would depend on the type of bond you are trying to secure. Here is a prime example of how to start a journal entry for bonds.

General Journal

Date Account Title and Description Ref. Debit Credit

July 1 Bonds Payable 10,000

Cash 10,000

Paid off bonds at maturity

When calculating depreciation all three variables stay the same, however they move around depending on the formula or method of choice. The variables are cost, useful life, and salvage value. Under the straight-line method, an accountant would get the depreciable cost first by subtracting the salvage value from the cost. Then take the depreciable cost and divide it by the useful life (gagged by years). Under the Units of activity method, an accountant would divide the depreciable cost by the total units of activity to get the depreciation cost per unit then multiple it by the units of activity during the year. Declining methods was a tricky one because in order to get the two variables in the equation which is multiplying book value at the start of the year times the declining balance depreciation there are other hidden factors used. The only time that accountants or businesses use the amortization process is when their assets have limited life say for a company vehicle. Eventually the vehicle will have to be replaced so to record amortization of an intangible asset, a company increases (debits) Amortization Expense, and decreases (credits) the specific intangible asset.

We dove in depth into the process that are at times challenging and can and in many instance do intimidate most people. Hopefully with the explanation we were able to bring to fruition this will limit the challenges of understanding the processes that are mentioned in this reflection.