I love figuring out the relationship between accrued expenses and losses on the income statement and the actual cash expenses on the cash flow statement. Super cool.
When a guy transfers money from his bank to his business, is the journal entry debit cash and credit contributed capital? What about the income statement? If its not gains/losses, where does it go?
Debit cash and credit contributed capital. There is no gain or loss recognized on such a transaction- thus, there is no effect on the income statement. On the balance sheet, assets increase and owners' equity increase.
Thank you so much for this. Other than the sale of equipment (when not related to the core of the business) are there any other common examples where gains and losses would come into play? Does it always involve the company deciding to sell off something?
A gain or loss could occur if the company sells property, plant, & equipment or an investment in another company. You could also have a gain or loss from selling land. Gains and losses are like revenues and expenses, except that they originate from an activity that is not related to the company's core business activities
Gains and losses on the sale of depreciable business assets are not based on purchase price of the asset, to my knowledge. They are based on comparing the sale price and holding book value. In the example given, the ice cream shop would likely have depreciated the machine and the sale price would be compared to the holding value to determine gain, not the purchase price. This is done with financial as well as tax reporting.
You are correct. To compute a gain or loss you subtract the book value of the asset from the selling price. I ignored the possibility of depreciation or an impairment in this video so that people unfamiliar with those concepts would not become confused. My goal in this video is to simply show that a gain or loss originates from a transaction that is not related to the firm's core operations. You have raised an excellent point, however, so I will make an additional video showing how to compute a gain or loss when the asset has been previously depreciated or impaired.
I love figuring out the relationship between accrued expenses and losses on the income statement and the actual cash expenses on the cash flow statement. Super cool.
When a guy transfers money from his bank to his business, is the journal entry debit cash and credit contributed capital? What about the income statement? If its not gains/losses, where does it go?
Debit cash and credit contributed capital. There is no gain or loss recognized on such a transaction- thus, there is no effect on the income statement. On the balance sheet, assets increase and owners' equity increase.
Thanks for this. I have no idea why accountants write in parenthesis for negatives instead of a minus because it takes awhile to adapt to it.
Do gains and losses typically appear on the I/S?
Thank you so much for this. Other than the sale of equipment (when not related to the core of the business) are there any other common examples where gains and losses would come into play? Does it always involve the company deciding to sell off something?
A gain or loss could occur if the company sells property, plant, & equipment or an investment in another company. You could also have a gain or loss from selling land. Gains and losses are like revenues and expenses, except that they originate from an activity that is not related to the company's core business activities
Thanks so much! I'm understanding it better now. : ) It's tying right into what we're learning about depreciation and disposal.
Does a company maintain a separate gain (or profit) or loss a/c in the books? If yes can u show me ex with credit and debit?
Thank u so much for this
Gains and losses on the sale of depreciable business assets are not based on purchase price of the asset, to my knowledge. They are based on comparing the sale price and holding book value. In the example given, the ice cream shop would likely have depreciated the machine and the sale price would be compared to the holding value to determine gain, not the purchase price. This is done with financial as well as tax reporting.
You are correct. To compute a gain or loss you subtract the book value of the asset from the selling price. I ignored the possibility of depreciation or an impairment in this video so that people unfamiliar with those concepts would not become confused. My goal in this video is to simply show that a gain or loss originates from a transaction that is not related to the firm's core operations. You have raised an excellent point, however, so I will make an additional video showing how to compute a gain or loss when the asset has been previously depreciated or impaired.
you probably won't reply, but are gains credited and losses debited?