Short Essay 3: Unrestricted

SHORT ESSAY 3
Asset disposal is the removal of a long-term asset from the company’s accounting records. It
is an important concept because it primarily relates to the company’s capital assets that are
essential to successful business operations. Moreover, the proper accounting of the disposal of
an asset is critical to maintaining updated and clean accounting records.
The asset disposal may be a result of several events, an asset is fully depreciated and must be
disposed of, as asset is sold at a gain and loss and an asset must be disposed of due to unforeseen
circumstances. The asset disposal results in a direct effect on the company’s financial statements.
In all scenarios, the asset disposal affects the balance sheet by removing the capital asset
account.
Also, if a company disposes of assets by selling with gain or loss, the gain and loss should be
reported on the income statement. One of the rules in preparing a statement of cash flows is
that the entire proceeds received from the sale of a long-term asset must be reported in
the second section of the statement, the investing activities section. This presents a problem
because any gain or loss on the sale of an asset is also included in the company's net income
which is reported in the first section operating activities. To avoid double counting, each gain
is deducted from net income and each loss is added to net income in the operating activities
section of the cash flow statement.
This income account is used to show the amount of money or just economic value in your
native currency that you have gained or lost as a result of foreign currency transactions. This
income account is used to show the amount of money or just economic value in your native
currency that you have gained or lost as a result of foreign currency transactions.
The standard Balance Sheet and Income Statement reports must be given in your own local
currency. When a report is generated, the appropriate exchange rate for the date of the report
is used to convert any foreign currency amounts to your business’ home currency amount for
that date.
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The Gain and Loss on Exchange income account is a special account that has balances in
multiple currencies whose balance is calculated according to the previous currency exchange
transactions that have been performed. When generating a report, all the foreign-currency
balances are converted to your home currency and added to the home currency balance; the
result will be the difference in value between those foreign currency assets and liabilities at the
time they were recorded and the value using the exchange rates at the time of the report. This
appears as either a gain or a loss. This sounds complicated, but it’s necessary in order to maintain
two important rules for your Balance Sheet must be reported in your business’ home currency
and the sum of your asset values must be equal to the sum of your liabilities and equity values
If the Gain and Loss on Exchange account were not calculated, then your “Net Income” would
not fluctuate with exchange rates in the same way that your foreign-currency valued assets like
cash and receivables or liabilities payables or loans did, and the Balance Sheet would go out of
balance. If you’re not an accountant these rules might seem like a bit of a pain, since they could
be causing you some confusion. However, when you really get into accounting the importance of
these rules becomes very, very clear. For now, I suggest that you accept that this is how things
are done and that there are very good reasons for it.
If you’ve reached this point and you’re still not clear about Gain and Loss on Exchange, don’t
worry you’re not alone, and you don’t have to understand it fully to use or ignore it. Here are
some tips on troubleshooting a Gain and Loss on Exchange that looks out of line Make sure you’ve
entered payments on your invoice; I’ve seen cases where people are using the system
to only track income and expenses, but instead of marking each income item as “paid” they set
terms or a due date but never add a payment. Thus, the Accounts Receivable balance goes up
and up and results in a lot of Gain/Loss on Exchange, make sure you’ve correctly entered the
exchange rate for your payment and for the income. When you enter or add a payment
separately from adding an invoice, you must enter its exchange rate separately and Check
whether the balances on your balance sheet, like bank, credit card, receivables, and payables are
like what you really have or owe. Sometimes you’ll get a large Gain and Loss on Exchange because
you’ve forgotten to record some transactions to remove cash from the business, or to record
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times where you have exchanged the foreign currency amounts for local amounts. Bank
statement reconciliation can be very helpful for catching errors like this
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