What is a blank endorsement? In the case of a check payable to John Smith (the payee), a blank endorsement would be the signature of John Smith on the back side of the check without any other words above or below his...
What is a blank endorsement? In the case of a check payable to John Smith (the payee), a blank endorsement would be the signature of John Smith on the back side of the check without any other words above or below his...
Where are accruals reflected on the balance sheet? Definition of Accruals The accrual of expenses and liabilities refers to expenses and/or liabilities that a company has incurred, but the company has not yet paid or...
If cash and a note are exchanged for a plant asset, is the amount of the note used in the depreciation calculation? A plant asset’s cost is depreciated, unless the asset is land. Cost is defined as the cash or cash...
Does the income statement explain the change in the equity section of a balance sheet? The income statement could explain the change in the equity section of a balance sheet. However, there are likely to be some other...
What is the procedure for preparing a trial balance? Definition of a Trial Balance A trial balance consists of the following information: The title of each general ledger account that has a balance To the right of the...
What is a lease? Definition of a Lease Typically, a lease is a written agreement between an owner of property (land, building, equipment, vehicle, etc.) and a person or business that will use the property for a stated...
What is the difference between public sector and private sector? Definition of Public Sector Public sector refers to: government-owned organizations, and government-provided services (Note: public sector entity is...
Where does revenue received in advance go on a balance sheet? Definition of Revenue Received in Advance Under the accrual basis of accounting, revenues received in advance of being earned are reported as a liability. If...
How do I write off old outstanding checks? Definition of an Old Outstanding Check We will assume that an outstanding check has appeared on the outstanding check list that is part of the company’s bank reconciliation...
How do I record money received for an insurance claim on inventory loss? Definition of Money from Insurance Claim for Inventory Loss Let’s assume that a company has insurance on its inventory and its inventory is...
What is a letter of credit? A letter of credit is a letter or document issued by a bank for use by one of its customers. The letter of credit states that the bank will guarantee payment up to the stated amount for...
Why is depreciation on the income statement different from the depreciation on the balance sheet? Definition of Depreciation Depreciation is the systematic allocation of an asset’s cost to expense over the useful life...
What is a comparative income statement? A comparative income statement will consist of two or three columns of amounts appearing to the right of the account titles or descriptions. For example, the income statement for...
Is a manufacturer's product warranty part of its manufacturing overhead or is it part of its SG&A expense? The costs associated with a manufacturer’s product warranty are part of its selling expenses and therefore part...
What does it mean to amortize the premium, discount, and issue costs on bonds payable? Definition of Amortize Premium, Discount, and Issue Costs With regards to bonds payable, the term amortize means to systematically...
What does capitalize mean? Definition of Capitalize In accounting, the word capitalize means to record an expenditure as an asset. The cost of this asset is then allocated to expense over its useful life. (If the...
What is the entry for an employee's personal phone calls included in the company's bill? Let’s assume that an employee has made personal phone calls of $20 which are included in the company’s phone bill of $100....
What is a reclassification? Definition of Reclassification In accounting, the term reclassification is often used to describe moving an amount from one general ledger account to another. Examples of Reclassification...
What is Subchapter S? Subchapter S refers to a section of Chapter 1 of the U.S. Internal Revenue Code. A subchapter S corporation, which is also referred to as an S corporation, is a corporation that does not pay the...
How do you amortize goodwill? Definition of Amortize Goodwill Prior to 2001, to amortize goodwill meant to consistently and in uniform increments move the reported amount of the intangible asset goodwill from the balance...
What is a calendar year? Definition of Calendar Year A calendar year is the 12 consecutive months from January through December. In other words, it is the 365 days (366 days in a leap year) beginning on January 1 and...
What is discount on bonds payable? Definition of Discount on Bonds Payable Discount on bonds payable (or bond discount) occurs when a corporation issues bonds and receives less than the bonds’ face or maturity amount....
What does debit memo mean on a bank statement? Definition of Bank Debit Memo A debit memo on a company’s bank statement refers to a deduction by the bank from the company’s bank account. In other words, a bank debit...
What is float? Definition of Float In accounting and bookkeeping, float is the time between the writing of a check and the time that the check clears the bank account on which it is drawn. Examples of Float Payer...
What does it mean to report expenses by function? Definition of Reporting Expenses by Function Reporting expenses by function means to classify and report expenses according to the type of activity for which the expenses...
What is preferred stock? Definition of Preferred Stock Preferred stock is a type of capital stock issued by some corporations in addition to its common stock. Preferred stock is also known as preference stock. The word...
What is double-entry bookkeeping? Definition of Double-Entry Bookkeeping Double-entry bookkeeping refers to the 500-year-old system in which each financial transaction of a company is recorded with an entry into at least...
What is bad debts? Definition of Bad Debts The term bad debts usually refers to accounts receivable (or trade accounts receivable) that will not be collected. (Bad debts is also used for notes receivable that will not be...
What is the carrying amount? Definition of Carrying Amount The term carrying amount is also known as book value or carrying value. The term carrying amount is often used when there is a valuation account associated with...
What is the aging method? Definition of Aging Method The aging method usually refers to the technique for estimating the amount of a company’s accounts receivable that will not be collected. The estimated amount that...
What is an unpresented check? An unpresented check is a check written by a company and entered in its records, but the check has not yet cleared the company’s checking account. In other words, the check has not yet...
What are the various types of adjusting entries? Types of Adjusting Entries Adjusting entries, which are required in order to have a company’s financial statements comply with the accrual method of accounting, are...
What is ERP? Definition of ERP In accounting, ERP is the acronym for enterprise resource planning. ERP could be described as a database software package that supports all of a business’s processes and operations...
Is it okay to have negative amounts in the equity section of the balance sheet? Definition of Equity Section of the Balance Sheet The equity section of the balance sheet is known as: Owner’s equity if it is a sole...
How, when and why do you prepare closing entries? Definition of Closing Entries Closing entries transfer the balances from the temporary accounts to a permanent or real account at the end of the accounting year. As a...
What does drop ship mean? One example of drop ship is a manufacturer shipping goods directly to one of its customers’ customer (instead of delivering the goods to the customer that placed the order with the...
How can a business increase its cash flow from operations? A business can increase its cash flow from operations (or operating activities) by looking closely at each of its current assets and current liabilities. For...
What is an equivalent unit of production? Definition of Equivalent Unit of Production An equivalent unit of production is an expression of the amount of work done by a manufacturer on units of output that are partially...
What is a/c? Definition of a/c In accounting, a/c is the abbreviation for account. Example of a/c An accountant might leave the following note for a subordinate: “Please review the balance in the a/c Interest...
What is deferred revenue? Deferred Revenue Deferred revenue is money received by a company in advance of having earned it. In other words, deferred revenues are not yet revenues and therefore cannot yet be reported on...
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