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 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...
What is an overdraft? Definition of Overdraft An overdraft (also known as a bank overdraft) generally means that the amount of a company’s checks being presented at the bank for payment exceeded the amount on deposit....
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...
A publication by the U.S. Internal Revenue Service (IRS) to assist employers with federal payroll taxes. The complete title of the publication is Publication 15 (Circular E), Employer’s Tax Guide. It is available...
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...
What is depletion? Definition of Depletion In accounting, depletion refers to the expensing of a company’s cost of a natural resource. Ultimately, it means moving a natural resource’s cost from the company’s...
What is the difference between a cost center and a profit center? Definition of Cost Center A cost center is a subunit of a company that is responsible only for its costs. A few examples of cost centers are: Production...
A liability account that reports an insurance company’s premiums received from its insured that have not yet been earned. For example, if the insurance company receives $600 on January 27 for an insured’s...
The financial ratio which indicates the speed at which a company collects its accounts receivable. If a company’s turnover is 10, this means the company’s accounts receivable are turning over 10 times per...
What is the accrual method? Definition of Accrual Method The accrual method of accounting reports revenues on the income statement when they are earned even if the customer will pay 30 days later. The accrual method of...
What does it mean to recognize an expense? Definition of Recognize an Expense To recognize an expense means to report the proper amount of an expense on the income statement for the appropriate accounting period. When...
How do you record a payment for insurance? Definition of Payment for Insurance A company’s property insurance, liability insurance, business interruption insurance, etc. often covers a one-year period with the cost...
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 difference between a bookkeeper and an accounting clerk? I envision a bookkeeper as a person employed by a smaller company and being responsible for recording nearly all of its transactions. Hence, the...
How does the accounting equation stay in balance when the monthly rent is paid? How a Rent Payment Affects the Accounting Equation A company’s payment of each month’s rent reduces the company’s asset Cash. This is...
Does a company have to use the IRS years of useful life for depreciation? For the company’s financial statements, the economic life of the asset should be used—not the years of useful life required for income tax...
What is goodwill? Definition of Goodwill In accounting, goodwill is an intangible asset associated with a business combination. Goodwill is recorded when a company acquires (purchases) another company and the purchase...
How many days after a month ends should the bank reconciliation be done? Definition Bank Reconciliation The bank reconciliation (if prepared or reviewed by someone other than the person with access to the checking...
How can a company have a profit but not have cash? Definition of Profit Under the accrual basis of accounting, profit is the amount of revenues earned minus the amount of expenses incurred. Note that revenues are not...
What are assets? Definition of Assets In accounting and bookkeeping, a company’s assets can be defined as: Resources or things of value that are owned by a company as the result of company transactions Prepaid expenses...
Bank Reconciliation (Flashcards) Download Single-Sided PDF Download Double-Sided PDF All Cards (31) Marked Wrong (0) Marked Right (0) bank reconciliation (or) bank rec (or) bank statement reconciliation This procedure...
What is the purpose of the Allowance for Doubtful Accounts? Definition of Allowance for Doubtful Accounts The Allowance for Doubtful Accounts or Allowance for Uncollectible Accounts is a general ledger contra account...
What are accrued expenses and when are they recorded? Accrued Expenses Accrued expenses are expenses that have occurred but are not yet recorded in the company’s general ledger. This means these expenses will not...
What does 2/10 mean in accounting? Definition of 2/10 2/10 is part of an early payment discount that allows a customer or client to pay after the sale or service has been provided. This sales discount allows the...
What is leverage? Definition of Leverage In accounting and finance, leverage is the use of a significant amount of debt to purchase an asset, operate a company, acquire another company, etc. Since the cost of debt is...
Why is Interest Expense Included in the Operating Activities Section of the Cash Flow Statement? Definition of Interest Expense Interest expense is the cost of borrowing money. Under the accrual method of accounting,...
What is the entry for a loan to an employee? Definition of Loan to Employee A loan to an employee is money advanced by the company to assist the employee. If the employee is expected to repay the loan within one year of...
What are gross sales? Definition of Gross Sales Gross sales are the amounts a company earned from selling its products. The amounts originate from the company’s sales invoices but the total will be adjusted to the...
Why would Prepaid Insurance have a credit balance? Definition of Prepaid Insurance Generally, Prepaid Insurance is a current asset account that has a debit balance. The debit balance indicates the amount that remains...
What is an unsecured creditor? Definition of Unsecured Creditor An unsecured creditor is often a vendor or supplier that: Shipped goods to a customer as part of a sale on credit Has not been paid Does not have a lien on...
Why is an increase in inventory shown as a negative amount in the statement of cash flows? Meaning of a Negative Amount on Statement of Cash Flows A negative amount on the statement of cash flows (SCF) indicates that the...
Is a loan's principal payment included on the income statement? Definition of Loan Principal Payment When a company borrows money from its bank, the amount received is recorded with a debit to Cash and a credit to a...
What is bank balance and book balance? Definition of Bank Balance The term bank balance is commonly used when reconciling the bank statement. It is also known as the balance per bank or balance per bank statement....
What is the inventory turnover ratio? Definition of Inventory Turnover Ratio The inventory turnover ratio is an important financial ratio that indicates a company’s past ability to sell its goods. Converting inventory...
In standard costing, how is the purchase price variance reclassified to arrive at actual cost? Definition of Purchase Price Variance In standard costing, the purchase price variance is the difference between the actual...
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...
What is safety stock? Definition of Safety Stock Safety stock is an additional quantity of an item held by a company in inventory in order to reduce the risk that the item will be out of stock. Safety stock acts as a...
How do you calculate the cost of carrying inventory? Definition of Cost of Carrying Inventory The cost of carrying inventory (or cost of holding inventory) is the sum of the following: Cost of money tied up in inventory,...
How do you calculate the break-even point in terms of sales? Definition of Break-even Point in Sales Dollars The break-even point in sales dollars can be calculated by dividing a company’s total fixed expenses by the...
What is a current asset? 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 appearing in the heading of the...
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