The journey of accounting does not end with calculating profit. After preparing the Trading Account and the Profit & Loss Account, the next step is to understand what the business owns, what it owes, and what belongs to the owner. This information is presented in the Balance Sheet, one of the most important financial statements.
Decoding the Balance Sheet: Assets, Liabilities and Owner’s Equity Read More »
Accounting is not merely about preparing financial statements, it is about understanding how a business earns profit. Every business performs several activities. Some are directly related to its core operations, such as purchasing raw materials, manufacturing products and selling goods. Others arise from supporting or financing activities, such as earning interest on bank deposits, selling
From Gross Profit to Net Profit: Understanding Operating and Non-Operating Activities Read More »
Introduction The Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act (SECA) are the two primary U.S. laws that finance the nation’s Social Security and Medicare programs. These programs provide financial security and healthcare benefits to eligible retirees, disabled individuals, and surviving family members. Under FICA, employers are required to withhold Social Security and
Understanding FICA and SECA Read More »
Case: Edific Engineering Ltd. (India) Edific Engineering Ltd., an Indian multinational company, exports industrial machinery to customers across the USA, Europe, and Asia. As the company expands globally, it encounters various aspects of international business. International finance encompasses a wide range of interconnected concepts that are best understood through a logical sequence of business events
Understanding International Finance through an Integrated MNC Case Study Read More »
Reading the Internal Revenue Code or a Form 1040 instruction booklet in the abstract can feel overwhelming — dozens of lines, schedules, and terms like “AGI,” “above-the-line,” and “refundable credit” that don’t mean much until you see them in action. This case study takes a single, realistic taxpayer — John, a salaried employee with some
Understanding US Federal Income Tax: A Case Study Read More »
Suppose the Government wants to provide you with a tax benefit. Should it reduce your income first, or should it reduce your tax directly? The answer leads us to two of the most important concepts in U.S. taxation—deductions and tax credits. Although both reduce the overall tax burden, they work at different stages of the
Understanding Deductions and Tax Credits in U.S. Taxation Read More »
Prelude In our previous blogs, we learned how business transactions are recorded in the Journal, classified in the Ledger and summarized in a Trial Balance. A Trial Balance, however, is not the destination of accounting. It is merely a gateway to the preparation of financial statements. For a non-corporate entity such as a sole proprietorship
Imagine that a business has recorded hundreds of transactions during a month. These transactions have been entered in the Journal and subsequently posted to various Ledger Accounts such as Cash, Bank, Sales, Purchases, Rent, Capital and Creditors. At this stage, an important question arises: How can an accountant verify that the debit and credit entries
Trial Balance – The Gateway to Financial Statements Read More »
Before we discuss tax forms such as Form 1065, Form 1120, or Form 1120S, we must first understand how businesses are legally organized. The legal structure determines who owns the business, who manages it, who bears the liability, and ultimately how the business is taxed. Partnerships, S corporations, and C corporations are three common business
Understanding Business Structures in the U.S. Read More »
Imagine that a business records hundreds of transactions every month. While the Journal records transactions in chronological order, it does not tell us the total cash available, the amount owed by customers, or the amount payable to suppliers. To obtain this information, accountants classify journal entries into separate accounts known as Ledgers. Once the balances
Understanding Ledger and Trial Balance Read More »
