Under the accrual method of accounting, the account Salaries Expense reports the salaries that employees have earned during the period indicated in the heading of the income statement, whether or not the company has yet...
Under the accrual method of accounting, the account Salaries Expense reports the salaries that employees have earned during the period indicated in the heading of the income statement, whether or not the company has yet...
A non-operating or “other” reduction in net income resulting from a judgment against the company. It is shown in the accounting period when the amount is determined to be probable and the amount can be...
What is the FISH inventory method? FISH is the acronym for first-in, still-here. FISH is an attempt to bring humor to the fact that some items have been sitting in inventory for years. Unlike FIFO and LIFO, which are...
Under the accrual basis of accounting, the Interest Revenues account reports the interest earned by a company during the time period indicated in the heading of the income statement. Interest Revenues account includes...
An accounting guideline where the U.S. dollar is assumed to be constant (no change in purchasing power) over time. This allows an accountant to add one dollar from a transaction in 2010 to one dollar in 2024 and to show...
A term associated with petty cash. Replenish means to return the amount of actual cash in the petty cash box back to the amount appearing in the general ledger account Petty Cash. This is done whenever the amount of...
Inventory and Cost of Goods Sold(Quick Test #1) Download PDF After you have answered all 40 questions, click "Grade This Quick Test" at the bottom of the page to view your grade and receive feedback on your answers....
The type of stock that is present at every corporation. (Some corporations have preferred stock in addition to their common stock.) Shares of common stock provide evidence of ownership in a corporation. Holders of common...
Do variance accounts have an impact on financial statements? Or are they for performance evaluation only? Since the financial statements must reflect the cost principle, both the standard costs and the variances must be...
The amount of income tax that is associated with (matches) the net income reported on the company’s income statement. This amount will likely be different than the income taxes actually payable, since some of the...
Obligations due within one year of the balance sheet date. (If a company’s operating cycle is longer than one year, an item is a current liability if it is due within the operating cycle.) Another condition is that...
One of the main financial statements (along with the balance sheet, the statement of cash flows, and the statement of stockholders’ equity). The income statement is also referred to as the profit and loss...
What is a cash cow? A cash cow is often a profitable product or service that dominates a market and generates far more cash than is needed to maintain its market position. Companies may use the money from the cash cow to...
This phrase has two connotations. One is the cost of holding inventory. In this case the carrying cost is the cost of capital tied up in inventory, the cost of storage, insurance, and obsolescence. Often this is...
Is the current portion of long term debt adjusted monthly? A monthly adjustment to the current portion of long term debt is necessary when: 1. the company issues monthly balance sheets, and 2. the amount to be paid on a...
The ABC inventory system is different from activity-based costing. The ABC inventory system is used in order to focus on the most important items in inventory. Usually a relatively few items will account for a very...
Losses result from the sale of an asset (other than inventory) for less than the amount shown on the company’s books. Since the loss is outside of the main activity of a business, it is reported as a nonoperating...
The allocation of common costs based on the sales value of the products that emerge. For example, a company develops a large parcel of land at a cost of $5 million dollars. Individual lots will be sold for $100,000 to...
Temporary differences between the reporting of a revenue or expense for financial statements (books) and the reporting of the item for income tax purposes. For example, it is common for companies to depreciate equipment...
What is a line of credit? In business a line of credit or credit line is an arrangement/commitment by a bank or other creditor with a customer. The agreement specifies an amount that the customer can borrow or use in the...
A dividend in the form of more shares of stock. A 5% stock dividend means that a stockholder holding 100 shares would receive 5 additional shares of stock. Since all shareholders receive additional shares, each...
What is a condensed income statement? A condensed income statement is one that summarizes much of the income statement detail into a few captions and amounts. For example, a retailer’s condensed income statement will...
Is an automobile loan payment an expense? Only the interest portion of an automobile loan payment is an expense. The principal portion of the loan payment is a reduction of the loan balance, which is reported as a Note...
What is a voided check? A voided check is a check written or partially written but then canceled or deleted by the maker of the check. The notation of “void” is used because checks are prenumbered for control...
Cost of goods sold is usually the largest expense on the income statement of a company selling products or goods. Cost of Goods Sold is a general ledger account under the perpetual inventory system. Under the periodic...
The costs incurred to bring an asset back to an earlier condition or to keep the asset operating at its present condition (as opposed to improving the asset). For example, if a company truck is damaged, the cost to...
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...
Payroll Accounting(Quick Test #1) Download PDF After you have answered all 40 questions, click "Grade This Quick Test" at the bottom of the page to view your grade and receive feedback on your answers. Note: Some of the...
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
What is an accounting period? Definition of Accounting Period An accounting period is the period of time covered by a company’s financial statements. Common accounting periods for external financial statements include...
What is the cost of goods sold? Definition of Cost of Goods Sold The cost of goods sold is the cost of the products that a retailer, distributor, or manufacturer has sold. The cost of goods sold is reported on the income...
What is income smoothing? Definition of Income Smoothing Income smoothing involves reducing the fluctuations in a corporation’s earnings. The reductions in fluctuations can result from some legitimate business methods...
What are some of the methods for evaluating capital expenditures? Definition of Evaluating Capital Expenditures Capital expenditures involve large amounts of money spent on assets that have a useful life of more than one...
Chart of Accounts Chart of Accounts A chart of accounts is a list of the general ledger accounts (and subaccounts) available for recording an organization’s transactions. The chart of accounts will likely include an...
Is standard costing GAAP? Definition of Standard Costing Standard costing is a cost accounting system used by some manufacturers to assist in planning and controlling its manufacturing operations. When standard costing...
How do I calculate the amount of sales tax that is included in total receipts? Sales Tax Calculation To calculate the sales tax that is included in a company’s receipts, divide the total amount received (for the items...
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...
Can absorption costing cause an increase in net income? Definition of Absorption Costing Absorption costing is a cost accounting method (required by US GAAP) in which a manufacturer must assign fixed manufacturing...
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