An operating lease means that no asset is created when the owner enters into the lease agreement.Ī capital lease requires the owner to post an asset for the leased item. CPA candidates need to know the specific criteria that must be met for a capital lease. If a business owner leases a vehicle or a building, the lease can be treated as an operating lease or a capital lease. A bond premium creates more expense for the buyer, while a discount creates more income for the buyer.

Since bonds are traded on exchanges, bonds can be bought or sold at different prices. Financial professionals have to explain bond premiums and discounts to customers, and answer questions if the explanation is not clear.

Accrual accounting matches the revenue produced in December with the wage expense incurred in December.Īccounting for bonds is often poorly explained, particularly if the instructor does not have experience in the financial services industry. Accrual accounting requires you to post an entry for the wage expense before the end of the year, so you record this adjusting entry. To keep things straight in your mind, remember that an adjusting entry involves one balance sheet account and one income statement account.

Some exam candidates have trouble with the adjusting entries that are required by the accrual method. CPAs must match the revenue generated with the expenses incurred to produce the revenue, regardless of the timing of cash inflow and outflows.