The 500 year-old accounting system where every transaction is recorded into at least two accounts. To learn more, see Explanation of Debits and Credits.
The 500 year-old accounting system where every transaction is recorded into at least two accounts. To learn more, see Explanation of Debits and Credits.
What does overstated mean? Author: Harold Averkamp, CPA, MBA Definition of Overstated When an accountant uses the term overstated, it means two things: The reported amount is incorrect, and The reported amount is more...
What does double entry mean? Author: Harold Averkamp, CPA, MBA Definition of Double Entry In accounting, double entry means that every transaction will involve at least two accounts. Double entry also requires that one...
What is the double-entry system? Author: Harold Averkamp, CPA, MBA Definition of Double-Entry System The double-entry system of accounting or bookkeeping means that for every business transaction, amounts must be...
What does understated mean? Author: Harold Averkamp, CPA, MBA Definition of Understated In accounting, understated means that a reported amount is less than the actual, true amount based on the accounting rules. In other...
What is a T-account? Author: Harold Averkamp, CPA, MBA Definition of T-Account A T-account is a visual aid used to depict a general ledger account. The account title is written above the horizontal part of the “T”....
Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
Assets = Liabilities + Owner’s Equity. For a corporation the equation is Assets = Liabilities + Stockholders’ Equity. For a nonprofit organization the accounting equation is Assets = Liabilities + Net Assets....
An Italian monk associated with debits, credits, and double-entry accounting approximately 500 years ago.
How are the balance sheet and income statement connected? Author: Harold Averkamp, CPA, MBA Connection between Balance Sheet and Income Statement The connection between the balance sheet and the income statement results...
What is a current asset? Author: Harold Averkamp, CPA, MBA Definition of Current Asset A current asset is a company’s cash and its other assets that are expected to be converted to cash within one year of the date...
To enter an amount on the right side of an account. Normal entries to revenue accounts are credits. Liabilities normally have credit balances. To learn more about debits and credits, see our Debits and Credits Outline.
How do cash dividends affect the financial statements? Author: Harold Averkamp, CPA, MBA Definition of Cash Dividends Cash dividends are a distribution of a corporation’s earnings to its stockholders or shareholders....
A series of equal amounts at equal time intervals. Also see annuity due, annuity in advance, annuity in arrears, and ordinary annuity.
In the context of inventory this means that the inventory should be reported at the lower of its cost or its net realizable value (NRV). The rule is associated with the conservatism guideline or principle. Net realizable...
Generally, securities that can be sold quickly in the stock or bond market and where the investor’s intention is to sell them within one year of the balance sheet date.
Cash that can be used only for the purpose intended.
What is interest payable? Author: Harold Averkamp, CPA, MBA Definition of Interest Payable Interest payable is the interest expense that has been incurred (has already occurred) but has not been paid as of the date of...
This current liability account reports the amount a company owes as of the balance sheet date for its worker compensation insurance policy premiums. The amounts owed are usually based on the policy’s rates for the...
A person or business that has a checking account or savings account at a bank.
Our Explanation of Financial Accounting introduces some of the basic accounting concepts and how they affect the income statement, balance sheet, and other financial statements.
Why are expenses debited? Author: Harold Averkamp, CPA, MBA Why Expenses Are Debited Expenses cause owner’s equity to decrease. Since owner’s equity’s normal balance is a credit balance, an expense must be recorded...
What is a provision for discounts allowable? Author: Harold Averkamp, CPA, MBA The provision for discounts allowable is likely to be a balance sheet account that serves to reduce the asset account Accounts Receivable....
What is the meaning of debit? Author: Harold Averkamp, CPA, MBA Definition of Debit The term debit is similar to the term used in Italy more than 500 years ago when the double entry accounting system was documented. What...
Our Explanation of Financial Statements provides you with the highlights of each of the five external financial statements issued by U.S. corporations. Our insights will give you a good understanding of what the...
How do you calculate the average balance in accounts receivable? Author: Harold Averkamp, CPA, MBA The average will be more representative if you include additional balances in the computation. For example, if you...
Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
Our Explanation of Accounts Payable provides insights on the bill paying process in a large company. Included are discussions of the three-way match, early payment discounts, end of period accruals, and more.
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
Our Explanation of Accounts Payable provides insights on the bill paying process in a large company. Included are discussions of the three-way match, early payment discounts, end of period accruals, and more.
What is the FUTA tax? Author: Harold Averkamp, CPA, MBA Definition of FUTA Tax FUTA is the acronym for the Federal Unemployment Tax Act and is associated with a federal payroll or employment tax paid solely by the...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
What is the bookkeeping equation? Author: Harold Averkamp, CPA, MBA Definition of Bookkeeping Equation The bookkeeping equation (or accounting equation) is similar to the structure of the balance sheet: For a sole...
What is a general ledger? Author: Harold Averkamp, CPA, MBA Definition of General Ledger A general ledger is a grouping of perhaps hundreds of accounts that are used to sort and store information from a company’s...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
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