What is the cash flow statement? Definition of Cash Flow Statement The cash flow statement (officially known as the statement of cash flows) is one of the required financial statements issued by U.S. businesses (and by...
What is the cash flow statement? Definition of Cash Flow Statement The cash flow statement (officially known as the statement of cash flows) is one of the required financial statements issued by U.S. businesses (and by...
How does the purchase of a new machine affect the profit and loss statement? Definition of New Machine’s Effect on Profit The purchase of a new machine that will be used in a business will affect the profit and loss...
Why does a company's profit appear as a credit on its balance sheet? The accounting equation and the double entry system provide an explanation why a company’s profit appears as a credit on its balance sheet. Asset...
What does crossfoot mean? Definition of Crossfoot or Crossfooting Accountants and auditors use the word foot to mean adding one or more columns of numbers. When there are several columns of numbers along with a...
How does revenue affect the balance sheet? Effect of Revenue on the Balance Sheet Generally, when a corporation earns revenue there is an increase in current assets (cash or accounts receivable) and an increase in the...
Financial Statements (Flashcards) Download Single-Sided PDF Download Double-Sided PDF All Cards (30) Marked Wrong (0) Marked Right (0) financial statements These are part of the accounting cycle and part of a...
Our Explanation of Bonds Payable covers the recording of bonds, the accrual of interest expense, and the amortization of the discount and premium on bonds payable. You gain an understanding on why the market value of...
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 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...
Why and how do you adjust the inventory account in the periodic method? Definition of Inventory Account in Periodic Method Under the periodic method or periodic system, the account Inventory is dormant throughout the...
The contra owner’s equity account used to record the current year’s withdrawals of business assets by the sole proprietor for personal use. This is a temporary account with a debit balance. It will be closed...
A document issued to a customer by a seller which reduces the seller’s accounts receivable and its net sales. It also reduces the buyer’s accounts payable and net purchases. A document issued by a bank that...
The current asset which reports the cost of a retailer’s, wholesaler’s, or distributor’s goods purchased to be resold, which have not yet been sold as of the balance sheet date.
A written opinion of an independent certified public accountant that a company’s financial statements are a fair representation of the company’s financial performance and financial position. The...
The balance of the owner’s capital account excluding the current year’s net income and current year’s draws by the owner.
The amount of owner’s equity or stockholders’ equity reported on a company’s balance sheet. This is not an indication of the company’s fair market value.
What is inventory change and how is it measured? Definition of Inventory Change Inventory change is the difference between the amount of last period’s ending inventory and the amount of the current period’s ending...
What is the accounts receivable turnover ratio? Definition of Accounts Receivable Turnover Ratio The accounts receivable turnover ratio (or receivables turnover ratio) is an important financial ratio that indicates a...
Why do you separate current liabilities from long-term liabilities? Definition of Current Liabilities and Long-term Liabilities Generally, current liabilities are a company’s obligations that are due within one year of...
Why does an increase in accounts payable appear as an addition on the statement of cash flows? Adjustments from Accrual to Cash on Statement of Cash Flows When the statement of cash flows (SCF, cash flow statement) is...
Accounts Payable Accounts Payable Accounts payable are sometimes referred to as trade payables. Accounts payable involve the amounts that a company owes to vendors and others who have supplied goods or services on...
What is equity? Definitions and Examples of Equity Equity has several definitions that pertain to accounting: Equity can indicate an ownership interest in a business, such as stockholders’ equity or owner’s equity....
A company’s receipts that appear on the company’s records but do not yet appear on the bank statement. For example, a retail store’s receipts of March 31 are deposited after banking hours on March 31 or...
These journal entries are made after the financial statements have been prepared at the end of the accounting year. Most of the closing entries involve the income statement accounts (revenues, expenses, gains, losses,...
What is a source document? Definition of Source Document A source document is an original record which contains the detail that supports or substantiates a transaction that will be (or has been) entered in an accounting...
This is an owner’s equity account. The balance in this account reflects the owner’s investment in this sole proprietorship plus the net income and minus the owner’s draws since the company began. (The...
How do you calculate the cost of goods sold for a retailer? Formula for Calculating a Retailer’s Cost of Goods Sold A retailer’s cost of goods sold is: The cost of the retailer’s beginning inventory Plus the cost...
What is the difference between Notes Payable and Accounts Payable? Definition of Notes Payable The account Notes Payable is a liability account in which a borrower’s written promise to pay a lender is recorded. (The...
Is depreciation an operating expense? Depreciation Could Be Either an Operating Expense or a Non-operating Expense Depreciation is an operating expense if the asset being depreciated is used in an organization’s main...
What is the difference between interest expense and interest payable? Definition of Interest Expense Assuming the accrual method of accounting, interest expense is the amount of interest that was incurred on debt during...
Are utility bills an expense or a liability? Definition of Utility Bills Utility bills are invoices received by a company for the natural gas, electricity, water, and sewer charges that the company used during a previous...
How do you calculate ending inventory? Physically Counting the Items in Inventory One method for calculating the cost of a company’s ending inventory is to 1) physically count the quantity of each of the items in...
How is a short term bank loan recorded? Definition of Short Term Bank Loan When a company borrows money from its bank and agrees to repay the loan amount within a year, the company will record the loan by increasing its...
What is a dividend? Definition of Dividend Generally, the term dividend refers to a cash dividend, which is distribution of a portion of a corporation’s earnings to its stockholders in the form of cash. The cash...
When does a negative cash balance appear on the balance sheet? Definition of Negative Cash Balance A negative cash balance results when the cash account in a company’s general ledger has a credit balance. The credit or...
How do you calculate the gain or loss when an asset is sold? Definition of Gain or Loss on Sale of an Asset The gain or loss on the sale of an asset used in a business is the difference between 1) the amount of cash that...
Why would a company use double-declining depreciation on its financial statements? Definition of Double-Declining-Balance Depreciation The double-declining-balance method of depreciation is a form of accelerated...
What is accumulated depreciation? Definition of Accumulated Depreciation Accumulated depreciation is the total amount of a plant asset’s cost that has been allocated to depreciation expense (or to manufacturing...
What is a favorable variance? Definition of a Variance In accounting the term variance usually refers to the difference between an actual amount and a planned or budgeted amount. For example, if a company’s budget for...
What is the three-way match? Definition of Three-Way Match In the accounting and bookkeeping area of accounts payable, the three-way match refers to a procedure used when processing an invoice received from a vendor or...
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