Bookkeeping

Unlike most paid software, Wave has unlimited user access, including easy access for accountants and bookkeepers. And along with foundational reports like income and cash flow statements, Wave  includes sales tax tracking reports. Most notably, its comparative documents help you understand your business’s finances to make wise financial decisions.

Best Online Bookkeeping Services of 2024

Your bookkeeper might also prepare other auxiliary reports for your business, like accounts payable and accounts receivable aging reports. You can use these to make business decisions, but they should not be presented as audited, certified or official financial statements. Bookkeeping is broadly solutions bookkeeping defined as the recording of financial transactions for a business. It’s a key component of the accounting process and can be done as frequently as daily, weekly or monthly. Accurate bookkeeping is vital to filing tax returns and having the financial insights to make sound business decisions.

• When you outsource your bookkeeping, you take a lot of weight off your shoulders.
• All plans come with onboarding, a dedicated bookkeeper and account manager, reconciliation at month-end, balance sheet, P&L, statement of cash flows and a portal with document storage.
• Tap into the power of expert financial leadership, gaining the strategic insights and foresight necessary to navigate complex decisions and capitalize on opportunities.
• The Business plan starts at $125/month for tax planning and advice but to get business or personal tax preparation you’ll need a Corporation plan at $225/month.
• Companies that have adopted AI in accounting have seen an average increase in revenue growth of 15% from 2019 to 2023.
• Intuit found that 82% of accountants believe that AI-powered accounting tools have established more client interaction and satisfaction.
• The cost for these three plans is $200 per month, $400 per month, and $600 per month respectively.

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Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. We believe everyone should be able to make financial decisions with confidence. Kelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development.

Explore what you can do with QuickBooks

The service you decide to use depends on the needs of your business and may include extra features such as payroll or tax documents. Virtual and outsourced bookkeeping and accounting services are a happy medium between do-it-yourself software and pricey in-house bookkeeping. If that description fits what you’re looking for, one of the nine best virtual bookkeeping providers can save you time, money, and stress.

• If you’d like more information about our accounting services, get in touch today.
• For example, when money comes from a sale, it will credit the sales revenue account.
• You can hire a freelance bookkeeper for different CFO services to give you peace of mind.
• Although InDinero offers scalable plans, they’re not very transparent about what exactly they include in each plan until you talk to a salesperson.
• These integrations make it easy to track your bookkeeping and accounting data in one place.
• Mandatory annual reports and accounts guidelines for the Department of Health and Social Care (DHSC) group bodies.
• No add-on services, like tax planning or accrual basis accounting, outside of catch-up bookkeeping.

Online bookkeeping services, also called virtual bookkeeping services, are a very affordable alternative to the traditional employee bookkeeper. To put this in perspective, a bookkeeper’s average salary is $44,527. You may have heard of both bookkeeping and accounting services and wondered if they were the same thing.

Compare runner-up bookkeeping service features

• If your business utilizes Xero, you might consider Bookkeeper360 for your business bookkeeping services.
• QuickBooks Online Advanced supports the upload of 1000 transaction lines for invoices at one time.
• Unlike most paid software, Wave has unlimited user access, including easy access for accountants and bookkeepers.
• QuickBooks Online is one of the most popular bookkeeping software choices in the US.
• We go beyond preparation to strategize with you throughout the year, identifying ways to minimize liabilities and enhance financial opportunities.

Developing a strong foundation in accounting empowers you to confidently navigate the financial world. Understanding key accounting principles, like accrual accounting or the matching principle, will help you interpret financial statements and make informed decisions. Our seasoned bookkeeping experts ensure that every financial transaction is meticulously recorded, categorized, and balanced. With our precise bookkeeping, you’ll make informed decisions based on accurate financial insights, setting the stage for growth and profitability.

Leveraging AI for a path to accounting partnership

The second step is to calculate net sales, brands should calculate their gross sales valuation (total sales before discounts and returns) and subtract from it the value of all returned sales. The inventory to sales ratio can be expressed as a percentage by multiplying it by 100. The most common metric is simply the number of times that inventory is sold over time. There are many aspects of running an eCommerce business that retailers need to focus on but one of the most important aspects is inventory and having a proper method in place for inventory management. SmartBiz helps you find the best financing for your unique needs whether that’s an SBA loan, Bank Term loan, or other financing.

We translate complex financial concepts into clear, actionable strategies through a rigorous editorial process. You don’t want to have too much of your capital invested in inventory (as you need to be flexible to meet ever-changing demand and avoid deadstock), but you also don’t want to stock out too soon. To calculate this ratio, we simply divide the inventory by the total net sales. To be efficiently operational, a business has to maintain its inventory in such a way that it never has either too much or too little of it in stock. When a business generates the maximum number of sales from the available inventory, it is considered a successful business.

Achieving an optimal inventory-to-sales ratio is a continuous process that requires strategic planning, data analysis, and operational efficiency. By implementing effective inventory management practices, businesses can reduce carrying costs, improve cash flow, enhance customer satisfaction, and boost overall profitability. Monitoring and managing the inventory-to-sales ratio provides benefits for businesses. It offers insights into inventory efficiency, helps optimize turnover rates, and reduces carrying costs.

What is the inventory to sales ratio formula?

This might suggest overstocking, inefficient inventory management, or difficulties in selling products. In order to calculate a brand’s inventory to sales ratio, a brand needs to have a couple of other figures on hand. All of these figures can generally be found in the company’s income statement, balance sheet, and other financial statements. For example, if a company has cost of goods sold of $100,000 and total sales of $200,000, their inventory to sales ratio would be 0.5. This means that the company has $0.50 of inventory on hand for every $1.00 of sales. This means you have just enough inventory to avoid stockouts, but not too much to rack up holding costs.

This KPI helps retailers determine how quickly they’re liquidating stock, and how much capital they have invested in inventory. Inventory to sales is useful as a barometer for the performance of your organization and is a strong indicator of prevailing economic conditions and your ability to weather unexpected storms. This metric is closely tied to your inventory turnover ratio and, when taken together, speaks to the financial stability of your organization. It’s important to note that the cost of carrying inventory means you want to sell your inventory as quickly as possible.

Indicates how much inventory is on hand relative to sales, helping to assess if you have too much or too little inventory. Short multiple-choice tests, you may evaluate your comprehension of Inventory Management. To calculate average stock value, simply add your beginning inventory value and ending inventory value together, and then divide that sum by 2.

Financing for Furniture Companies

1. By optimizing inventory levels based on the inventory-to-sales ratio, businesses can strike a balance between holding sufficient inventory for customer demand and avoiding overstocking.
2. The inventory to sales ratio is an important metric for businesses to track.
3. Kickfurther puts you in control of your business while delivering the costliest asset for most brands.
4. This will give you a better idea of what is considered normal for that industry and whether or not the company’s stock turnover ratio is good or bad.
5. On the other hand, if your ratio is too high, you can conclude that you’ve likely overstocked and are incurring too much storage and holding cost (which chips away at the profit margin).

The OmniFlow suite of tools provides visibility from fulfillment through delivery with platform-level transparency so brands can stay ahead of low inventory. The platform’s real-time insights and predictive analytics allows brands to forecast future inventory needs so they’re never caught with out-of-stock products. Ensuring optimal inventory levels can improve customer satisfaction, build customer retention, and, ultimately, boost a brand’s bottom line. As mentioned earlier, the inventory to sales ratio is best calculated over a longer period of time, three to five years. If the inventory to sales ratio is only tracked for one year, the seasonal variations will make the metric less than ideal for forecasting and analysis. The inventory to sales ratio can be calculated by dividing a brand’s average inventory value for a certain period of time by the net sales from that same period of time.

Why inventory to sales ratio is important for businesses

With Flieber, you can plan for every scenario with just a few clicks to make sure you always have just the right amount of inventory on hand. Some of the more sophisticated tools or methods may also account for other regularly anticipated fluctuations — like higher Q4 demand — using a percentage you can add or deduct when demand is expected to shift. For every $1 sold, Kalë needed only 12.5 cents invested in inventory, which is half of what Pyllow needed and just one-fourth of what Drybl needed. To understand how to calculate your I/S ratio, let’s look at two companies, Pyllow and Drybl.

But it can’t be too low, or you’re looking at an increased risk of low inventory or stockouts. One of the best ways to do that is to figure out your optimal inventory to sales ratio. Kickfurther puts you in control of your business while delivering the costliest asset for most brands. By where’s my refund funding your largest expense (inventory), you can free up existing capital to grow your business wherever you need it – product development, advertising, adding headcount, etc. The pans cost $10 to make, and they sell the pans to end customers for $100 each. In one month, the business made 200 pans and sold 100 pans to customers, and 15 were returned.

The inventory-to-sales ratio is a key metric for businesses, indicating how well a company manages its inventory. If the ratio is too high, it may indicate that the company is carrying too much stock and not selling it quickly enough. On the other hand, if the ratio is too low, it may indicate that the company is not carrying enough inventory to meet customer demand. Every growing ecommerce brand needs to be tracking inventory management KPIs, like inventory to sales ratio, inventory turnover, and inventory days on hand. A fulfillment partner can serve as an invaluable partner in tracking and optimizing supply chain KPIs to grow business.

Explanation of the formula:

While the I/S ratio helps you figure out whether you’re ordering goods in the right quantities, DSI is a measure of the pace at which inventory moves through your company. The resulting number gives you a sense of how fast your company is moving its inventory. In general, a higher ratio is a good thing — it means you’re making a lot of sales, relative to what allocative efficiency you’re spending on inventory. When it comes to inventory, you should always try to keep the right balance.

What’s the functional difference between I/S ratio and inventory turnover ratio?

The cost of goods sold will also influence the inventory to sales ratio because as COGS change, so will net sales. By understanding the factors that can affect inventory to sales ratio, businesses can take steps to improve their inventory management and reduce their inventory to sales ratio. The inventory to sales ratio is an important metric for businesses to track. By understanding how to calculate inventory to sales ratio and by taking steps to reduce their inventory to sales ratio, businesses can improve their profitability and efficiency. For instance, if your stock to sales ratio is lower than you’d like, you can infer that you are stocking out and aren’t holding enough inventory to consistently meet customer demand. To increase it, you should buy more inventory (provided the company’s sales volumes don’t change), and improve demand forecasting in future seasons.

Inventory to sales ratio is a measure of how much stock a company has compared to how much it sells. A higher ratio means the company has more stock than it needs to meet demand, while a lower ratio means it has less stock than it needs. The stock to sales ratio measures of the pace at which a company is liquidating its stock. It involves comparing the value of inventory to sales within a specific period. While retailers tend to think that the stock to sales ratio and inventory turnover ratio are interchangeable, the two actually measure slightly different things.

The 80/20 rule is based on the Pareto principle, which states that roughly 80% of the effects come from 20% of the causes of many events. The 80/20 rule applies in various situations, including business and economics. A business’s revenue is positive when its sales exceed the cost of its inventory. A good inventory turnover rate should thus be greater than one, and since the inventory to sales ratio is the inverse of the inventory turnover rate, a good inventory to sales ratio should be less than one. WarehouseQuote is a managed warehousing solution helping middle market and enterprise businesses scale their warehouse operations with precision.

However, a very high stock turnover ratio could also indicate that a company cannot keep up with demand, which could lead to lost sales. To get the most accurate picture of a company’s stock turnover ratio, it is essential to compare it to other companies in the same industry. This will give you a better idea of what is considered normal for that industry and whether or not the company’s stock turnover ratio is good or bad. A low inventory-to-sales ratio implies that a business is efficiently managing its inventory and selling products relatively quickly in relation to the inventory levels. The ideal stock to sales ratio may be different for each business, as a healthy ratio is one that indicates that a company has invested in enough inventory to meet demand without over- or understocking.

Now that we have a good grasp of the basics, let’s explore how straight bonds operate within the financial market. The practice questions were challenging and helped me to assess my understanding of the concepts. Ganesh Nayak Sir’s teaching style was excellent, and he made the concepts easy to understand. The Telegram group was a great platform for interaction with other students, and it helped me to broaden my knowledge of the subject. The training materials were comprehensive and well-organized, covering all the topics in-depth. The video lectures were informative and engaging, and the practice questions and mock tests were challenging, which helped me to assess my understanding of the concepts.

Understanding Bond Valuation

Straight bonds are a fundamental tool for investors seeking stability and income within the bond market. Whether you’re interested in understanding their mechanics, assessing their benefits and risks, or comparing them to other types of bonds, this article has got you covered. At its most basic, the convertible is priced as the sum of the straight bond and the value of the embedded option to convert.

Longer-term bonds will also have a larger number of future cash flows to discount, and so a change to the discount rate will have a greater impact on the NPV of longer-maturity bonds as well. Bond valuation is a technique for determining the theoretical fair value of a particular bond. Bond valuation includes calculating the present value of a bond’s future interest payments, also known as its cash flow, and the bond’s value upon maturity, also known as its face value or par value. Because a bond’s par value and interest payments are fixed, an investor uses bond valuation to determine what rate of return is required for a bond investment to be worthwhile. To find the bond floor, one must calculate the present value (PV) of the coupon and principal payments discounted at the straight bond interest rate. The rate at which an investor receives a return on their bond investment is called the bond rate, coupon rate, or interest rate.

The face value is returned at maturity, and there are interest payments (coupons) made each year. Several variables, including coupon payment, yield to maturity, and maturity value, are used in the calculation. The fixed-income security that serves as the market standard is a straight bond sometimes called a plain vanilla bond. This type of bond obligates the issuer to pay a fixed interest rate to the bondholder until it matures, at which point the principal amount is returned.

1. Straight bonds offer a steady and predictable income stream, making them a valuable asset for risk-averse investors.
2. Find the present value of the cash flows that a straight bond will generate in the future to get its value.
3. A bond floor refers to the minimum value that a specific bond, usually a convertible bond, should trade for.
4. Many bonds have additional special features in addition to a straight bond component.

The fixed coupon payments and the known maturity date make it easier for investors to assess their risk profile and align them with their specific investment goals. The standard features of a straight bond include constant coupon payments, face value or par value, purchase value, and a fixed maturity date. A straight bondholder expects to receive periodic interest payments, known as coupons, on the bond until the bond matures.

I highly recommend this institute to anyone looking for quality online training in this field. The discount rate for estimation of the present bond value is will vary from bond to bond, based upon the default risk, with higher rates for risky bonds and lower rates for safer ones. As a participant in the Sustainability and Climate Risk (SCR®) Certification Program, I wholeheartedly endorse Fintelligents Institute and express my gratitude towards Ganesh Nayak Sir. The course content and instructional methodology have exceeded my expectations, enhancing my comprehension of sustainability and climate risk management principles. He irs issued identification numbers explained was able to explain complex concepts in a clear and concise way, and his personalized feedback and guidance were incredibly helpful. I especially appreciated the monthly coaching call and the fantastic YouTube tutorials, which helped me to gain a deeper understanding of the material.

Key Features of Straight Bonds

You can think of bond rates as the interest you can expect to earn on your investment. The straightforward nature of straight the difference between margin and markup bonds – free from additional features like convertibility or callable options – makes them an attractive choice for investors seeking predictability. Before adding straight bonds to your investment portfolio, it’s crucial to assess their suitability based on your specific investment goals and risk tolerance. Convertible bonds, for example, provide investors with the option to convert their bonds into a specified number of common shares of the issuing company. This feature allows investors to potentially benefit from future upside in the company’s stock price.

Understanding the Basics of Straight Bonds

Now that we understand the basic definition, let’s dive deeper into the key features of straight bonds that make them an attractive investment option for many. A bond is basically a security that provides an investor with a series of fixed interest payments over its tenure, including a fixed principal payment when it matures. It is the capital market instrument used to raise debt capital from the open market. Simply put, a bond is a loan taken at a certain interest rate for a certain amount of time and repaid on maturity. A convertible bond is a debt instrument that has an embedded option that allows investors to convert the bonds into shares of the company’s common stock. Bond valuation, in effect, is calculating the present value of a bond’s expected future coupon payments.

Non-Callable Bonds

Apart from the preparation, Sir was very helpful when I could not take the exam due to a technical fault at the test centre on the initial date scheduled (15th April). The package had a set of summary ppts, which were very helpful in reconciling my notes to ensure I did not miss any topic. The question sets within the package were good quality and very helpful in brushing up the concepts, which is what you need for the exam.

As an investor, you can purchase these bonds and become a creditor of the company. In return, the company promises to pay you periodic interest payments and return the principal amount when the bond matures. Investing in bonds can be a great way to diversify your portfolio and generate steady income.

Ganesh Nayak Sir’s expertise and teaching skills are unmatched, and his personalized guidance and support helped me to prepare extensively for the exam. As with all bonds there is default risk, which is the risk that the company could go bankrupt and no longer honor its debt obligations, as well as interest rate risk as rate changes affect bond prices in the secondary market. By carrying insurance on the portfolio (through this embedded bond feature), the risk of experiencing more than a certain amount of loss at any given time is kept to a minimum. At the same time, the floor does not inhibit the growth potential of the portfolio, effectively providing the investor with a lot to gain—and only a little to lose. While straight bonds have their merits, it’s essential to consider other types of bonds and their unique characteristics.

Assessing the Suitability of Straight Bonds for Your Investment Goals

Straight bonds serve as relatively less risky assets that can help balance the overall risk profile of a portfolio. By including bonds with varying maturities and issuers, investors can further diversify their exposure to credit risk and interest rate changes. In addition, straight bonds provide investors with the flexibility to choose from a wide range of issuers and maturities. This allows investors to tailor their bond investments to their specific preferences and investment objectives. Investors can calculate the present value of a straight bond’s future cash flows using discounting techniques to determine its fair value. This provides insights into whether the bond is trading above or below its intrinsic worth.

When a company or organization decides to issue a straight bond, they determine the coupon rate and the maturity date. These factors are influenced by prevailing market conditions, economic outlook, and the creditworthiness of the issuer. Bond valuation looks at discounted cash flows at their net present value if held to maturity. Duration instead measures a bond’s price sensitivity to a 1% change in interest rates.

This is because receiving a fixed interest rate, of say 5% is not very attractive if prevailing interest rates are 6%, and becomes even less desirable if rates can earn 7%. In order for that bond paying 5% to become equivalent to a new bond paying 7%, it must trade at a discounted price. Likewise, if interest rates drop to 4% or 3%, that 5% coupon becomes quite attractive and so that bond will trade at a premium to newly-issued bonds that offer a lower coupon.

In today’s fiercely competitive job market, setting yourself apart from the crowd is paramount. Acquiring certification as a QuickBooks expert could be your golden ticket to a more prosperous and gratifying career. As a QuickBooks Certified professional, you demonstrate not only your proficiency in utilizing QuickBooks but also your commitment to excellence in the world of accounting and bookkeeping.

How much does QuickBooks certification cost?

Hevo Data, a No-code Data Pipeline, helps load data from any data source such as Databases, SaaS applications, Cloud Storage, SDK,s, and Streaming Services and simplifies the ETL process. It supports QuickBooks and 100+ Data Sources including 40+ Free Sources. It is a 3-step process by just selecting the data source, providing valid credentials, and choosing the destination. In addition, you can keep track of all of your assets in one place, generate a cash flow forecast, and determine if projects are profitable and on time. You can also download all your certifications and CPE certificates from your history page. These are available in webinar, virtual conference, and on demand.

Help new clients find you—faster

In other words, ProAdvisors are highly trained professionals who have the necessary skills and experience to assist clients in their use of QuickBooks and related services. They can help clients with the software’s setup, maintenance, and use. In addition, ProAdvisors can assist with training QuickBooks users and provide ongoing support. Are you looking for a way to become a certified QuickBooks ProAdvisor? Becoming a ProAdvisor isn’t a difficult process, but it requires understanding the QuickBooks platform and demonstrating a thorough knowledge of the software.

Do you need any special certificate before enrolling in the QuickBooks ProAdvisor Program?

When you take the exam, managing time effectively can be the difference between passing and failing. Professionals who take the course get the opportunity to verify their skills on an exam to become certified QuickBooks Specialists upon completion of the course. If you pass the 80-question exam with a score of at least 80% or higher, you will get your QuickBooks ProAdvisor certification.

This timeline can be shorter for those with prior QuickBooks experience or longer for those with no background in accounting software. To keep your ProAdvisor status, you need to complete continuing education and regularly pass recertification exams. This ensures you stay up-to-date with the latest QuickBooks features, updates, and best practices. Beyond software support, many ProAdvisors offer a range of accounting services, such as bookkeeping, financial reporting, budgeting, and payroll management, all integrated with QuickBooks.

The path to certification requires dedicating time to study QuickBooks software and best practices. Free and low-cost training options are available through Intuit, and paid exam prep courses may also be worthwhile investments to ensure you fully comprehend the material. Sitting for the exam itself takes just a few hours and costs under $200 in most cases. A QuickBooks Certified ProAdvisor has extensive knowledge in accounting and bookkeeping services.

Certificate in Accounting Program Guide

• However, there are other QuickBooks learning options you can use before taking the exam, such as QuickBooks tutorials and the QuickBooks learning center.
• Form study groups with colleagues or join online communities to discuss challenging concepts.
• In this article, you will understand and explore the key features of QuickBooks.
• Becoming a certified QuickBooks ProAdvisor doesn’t make you a certified bookkeeper—it indicates that you’re knowledgeable in QuickBooks products.
• The test will take you about three hours to complete if you take it in one sitting.

It typically includes multiple-choice questions and covers a range of topics, such as setup, navigation, features, and troubleshooting within QuickBooks. With their understanding of QuickBooks and accounting principles, ProAdvisors how long does it take to become a quickbooks proadvisor can assist with tax preparation and planning, ensuring that financial records are accurate and tax-compliant. Therefore, you must check with them to determine how many CPE credits, if any, are available to earn.

Importance of QuickBooks Certification

When the amount recorded in the contra revenue accounts is subtracted from the amount of gross revenue, it equals the net revenue of a company. In case a customer returns a product, the company will record the financial activity under the sales return account. The use of contra accounts ensures the accuracy of financial accounting records, as the value of the original accounts is not directly reduced. In the event that a contra account is not utilized, it can become increasingly troublesome to determine historical costs, which makes tax preparation time-consuming and difficult. The balance in the allowance for doubtful accounts is used to find out the dollar value of the current accounts receivable balance that is deemed uncollectible.

• For example, when your company borrows money, you would identify that debt in a Notes Payable account.
• Instead, you need to record this value gap, and a contra asset account serves that purpose.
• The use of a contra account allows a company to report the original amount and also report a reduction so that the net amount will also be reported.
• At Invoiced, we provide a suite of solutions that work together to make managing your invoicing, accounts receivable, and accounts payable seamless and easy.
• In the event that a contra account is not utilized, it can become increasingly troublesome to determine historical costs, which makes tax preparation time-consuming and difficult.
• A business called Show-Fleur offers private driving tours of local botanical gardens — all from the comfort of high-end limousines.

What is a Contra Account? Definition

• As such, for an asset or expense account that is naturally a debit account, the contra accounts will be in a credit position.
• The bond is listed on the balance sheet at the full amount of $1,000, but the cash received is just $950, so a contra liability for the discount is listed to make the entry balance.
• A contra account is an entry on the general ledger with a balance contrary to the normal balance for that categorization (i.e. asset, liability, or equity).
• For the past 52 years, Harold Averkamp (CPA, MBA) hasworked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online.
• A delivery van is purchased by a business to use in delivering product and picking up materials.

By reporting contra accounts on the balance sheet, users can learn even more information about the company than if the equipment was just reported at its net amount. Balance sheet readers cannot only see the actual cost of the item; they can also see contra expense account how much of the asset was written off as well as estimate the remaining useful life and value of the asset. Accountants use contra accounts rather than reduce the value of the original account directly to keep financial accounting records clean.

Popular Types of Contra Accounts

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How to Record a Contra Account

• Balance sheet readers cannot only see the actual cost of the item; they can also see how much of the asset was written off as well as estimate the remaining useful life and value of the asset.
• When the original dollar amount is kept in the original account and a separate account is used for recording the deduction, the resulting financial information becomes more transparent and helpful for stakeholders.
• When considering all of the money currently owed to your business that’s recorded in your Accounts Receivable (A/R) line item as an existing asset, there’s a good chance that not all of those customers are going to pay you back in full.
• Home Depot also devotes footnote 4 to its share repurchase program and reports that the company is authorized by its board to repurchase $20 billion in shares.
• The B/S impact is where the contra liability comes into play, i.e. the historical value of the debt is not impacted by the OID.

We can see how the $10,000 allowance for doubtful accounts offsets the $100,000 A/R account from our illustrative example above (i.e. the account decreases the carrying value of A/R). When the two balances are offset against each other they show the net balance of both accounts. For industries that rely on natural resources — mining, logging, oil, gas — depletion tracks the gradual exhaustion of the raw material in question, offsetting that loss in value against the initial appraisal of the land. So an Accumulated Depletion account would serve as the contra for the parent Fixed Asset account.

Impact on Financial Statements

At this point, it isn’t known which accounts will become uncollectible so the Accounts Receivable balance isn’t adjusted. Instead, an adjusting journal entry is done to record the estimated amount of bad debt. Accumulated Depreciation acts as a subaccount for tracking the ongoing depreciation of an asset. Each year of an asset’s life, another year of Depreciation Expense is recorded. However, that $1.4 billion is used to reduce the balance of gross accounts receivable.

The purpose of contra accounts

When researching companies, the financial statement is a great place to start. Home Depot also devotes footnote 4 to its share repurchase program and reports that the company is authorized by its board to repurchase $20 billion in shares. Contra accounts are confusing at first, but, with a little study, understanding them becomes second nature.

Understanding Contra Liability Accounts

Examples of Contra Accounts