In double entry bookkeeping, debits and credits (abbreviated Dr and Cr, respectively) are entries made in account ledgers

to record changes in value due to business transactions. Generally speaking, the source account for the transaction is credited (an entry is made on the right side of the account's ledger) and the destination account is debited (an entry is made on the left). Each transaction's debit entries must equal its credit entries.

Interest From Wikipedia, the free encyclopedia For other uses, see Interest (disambiguation).

This article needs attention from an expert in Economics. Please add a reason or a talk parameter to this template to explain the issue with the article. WikiProject Economics (or its Portal) may be able to help recruit an expert. (January 2009) Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money,[1] or money earned by deposited funds.[2] When money is borrowed, interest is typically paid to the lender as a percentage of the principal, the amount owed to the lender. The percentage of the principal that is paid as a fee over a certain period of time (typically one month or year) is called the interest rate. A bank deposit will earn interest because the bank is paying for the use of the deposited funds. Assets that are sometimes lent with interest include money, shares, consumer goods through hire purchase, major assets such as aircraft, and even entire factories in finance lease arrangements. The interest is calculated upon the value of the assets in the same manner as upon money. Interest is compensation to the lender, for a) risk of principal loss, called credit risk; and b) forgoing other investments that could have been made with the loaned asset. These forgone investments are known as the opportunity cost. Instead of the lender using the assets directly, they are advanced to the borrower. The borrower then enjoys the

benefit of using the assets ahead of the effort required to pay for them, while the lender enjoys the benefit of the fee paid by the borrower for the privilege. In economics, interest is considered the price of credit. Interest is often compounded, which means that interest is earned on prior interest in addition to the principal. The total amount of debt grows exponentially, most notably when compounded at infinitesimally small intervals, and its mathematical study led to the discovery of the number e.[3] However, in practice, interest is most often calculated on a daily, monthly, or yearly basis, and its impact is influenced greatly by its compounding rate.

Bad Debts / Irrecoverable Debts An entity may not be able to recover its balances outstanding in respect of certain receivables. In accountancy we refer to such receivables as Irrecoverable Debts or Bad Debts. Bad debts could arise for a number of reasons such as customer going bankrupt, trade dispute or fraud. Every time an entity realizes that it unlikely to recover its debt from a receivable, it must 'write off' the bad debt from its books. This ensures that the entity's assets (i.e. receivables) are not stated above the amount it can reasonably expect to recover which is in line with the concept of prudence. Accounting entry required to write off a bad debt is as follows:

Debit

Bad Debt Expense

Credit Receivable

The credit entry reduces the receivable balance to nil as no amount is expected to be recovered from the receivable. The debit entry has the effect of cancelling the impact on profit of the sales that were previously recognized in the income statement.

Example

ABC LTD sells goods to DEF LTD for $500 on credit. ABC LTD subsequently finds out that DEF LTD is being liquidated and therefore the prospects of recovering its dues are very low. ABC LTD should write off the receivable from DEF LTD in view of the circumstances. The double entry will be recorded as follows:

$ Debit

$ Bad Debt Expense 500 500

Credit DEF LTD (Receivable)

Bad Debt Recovered

Occasionally, a bad debt previously written off may subsequently settle its debt in full or in part. In such case, it will be necessary to cancel the effect of bad debt expense previously recognized up to the amount settlement.

Example

ABC LTD sells goods to DEF LTD for $500 on credit. ABC LTD subsequently finds out that DEF LTD is being liquidated and therefore the prospects of recovering its dues are very low. ABC LTD therefore writes off the receivable from its books. However, the administrator appointed to oversee the liquidation of DEF LTD instructs the company to pay $300 to ABC LTD in full settlement of its dues. As $300 of the bad debt has been recovered, it is necessary to cancel the effect of previously recognized bad debt expense up to this amount. The accounting entry will therefore be as follows:

Financial transaction From Wikipedia, the free encyclopedia

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Financial transaction involving money and agricultural goods at a farmers' market. A financial transaction is an agreement, communication, or movement carried out between a buyer and a seller to exchange an asset for payment. It involves a change in the status of the finances of two or more businesses or individuals. The buyer and seller are separate entities or objects, often involving the exchange of items of value, such as information, goods, services, and money. It is still a transaction if you exchange the goods at one time, and the money at another. This is known as a two-part transaction, part one is giving the money, part two is receiving the goods.

Loan From Wikipedia, the free encyclopedia For other uses, see Loan (disambiguation). Finance Financial markets Bond market Commodity market Derivatives market Foreign exchange market Money market Over the counter Private equity Real estate Spot market Stock market Financial market participants: Investor and speculator Institutional and retail Financial instruments Cash: Deposit Derivative Exotic option Futures contract Loan

Option (call or put) Security Stock Time deposit or certificate of deposit Corporate finance Accountancy Audit Capital budgeting Credit rating agency Financial risk management Financial statement Leveraged buyout Mergers and acquisitions Structured finance Venture capital Personal finance Credit and debt Employment contract Financial planning Retirement Student financial aid in the United States Public finance Government spending: Government final consumption expenditure Government operations

Redistribution of wealth Transfer payment Government revenue: Taxation Deficit spending Government budget Government budget deficit Government debt Non-tax revenue Warrant of payment Banks and banking Central bank Deposit account Fractional reserve banking Lists of banks Loan Money supply Financial regulation Professional certification in financial services Accounting scandals Standards ISO 31000 International Financial Reporting Standards Economic history History of private equity and venture capital

Recession Stock market bubble Stock market crash vte In finance, a loan is a debt evidenced by a note which specifies, among other things, the principal amount, interest rate, and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each installment is the same amount. The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. In a legal loan, each of these obligations and restrictions is enforced by contract, which can also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in practice any material object might be lent. Acting as a provider of loans is one of the principal tasks for financial institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.

Depreciation

From Wikipedia, the free encyclopedia

Not to be confused with Deprecation.

This article has multiple issues. Please help improve it or discuss these issues on the talk page. The examples and perspective in this article deal primarily with the United States and do not represent a worldwide view of the subject. (January 2013) This article needs additional citations for verification. (August 2010)
In accountancy, depreciation refers to two aspects of the same concept: 1. the decrease in value of assets (fair value depreciation), and 2. the allocation of the cost of assets to periods in which the assets are used (depreciation with the matching principle). The former affects the balance sheet of a business or entity, and the latter affects the net income that they report. Generally the cost is allocated, as depreciation expense, among the periods in which the asset is expected to be used. This expense is recognized by businesses for financial reporting and tax purposes. Methods of computing depreciation, and the periods over which assets are depreciated, may vary between asset types within the same business and may vary for tax purposes. These may be specified by law or accounting standards, which may vary by country. There are several standard methods of computing depreciation expense, including fixed percentage, straight line, and declining balance methods. Depreciation expense generally begins when the asset is placed in service. For example, a depreciation expense of 100 per year for 5 years may be recognized for an asset costing 500.