What is the interest coverage ratio? Definition of Interest Coverage Ratio The interest coverage ratio is a financial ratio used as an indicator of a company’s ability to pay the interest on its debt. (The required...
What is the interest coverage ratio? Definition of Interest Coverage Ratio The interest coverage ratio is a financial ratio used as an indicator of a company’s ability to pay the interest on its debt. (The required...
What does it mean to rotate stock? Definition of Rotating Inventory Stock To rotate stock means to arrange the oldest units in inventory so they are sold before the newer units. The goal is to avoid losses due to getting...
How do you reduce the break-even point? Definition of Break-even Point The break-even point is the number of units or amount of revenues needed for the company’s income statement to report zero net income or zero net...
Our Explanation of Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
Accounts Receivable and Bad Debts Expense (Word Scramble) Download PDF To see each answer, press or click on the blue "Unscramble" button. If you have difficulty answering the following questions, learn more about this...
What is a burden rate in inventory? I assume that the burden rate in inventory refers to a manufacturer’s indirect manufacturing costs, which are also referred to as factory overhead, indirect production costs, and...
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...
What is a fringe benefit rate? Definition of Fringe Benefit Rate A fringe benefit rate is a percentage that results from dividing the cost of an employee’s fringe benefits by the wages paid to the employee for the...
What is the debt to equity ratio? Definition of Debt to Equity Ratio The debt to equity ratio or debt-equity ratio is the result of dividing a corporation’s total liabilities by the total amount of stockholders’...
How do you record a deposit on utilities? Definition of Deposit on Utilities A new customer of a public utility (electricity, natural gas, telephone, etc.) may be required to pay a refundable amount known as a utility...
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...
Are commissions considered to be revenues or expenses? Definition of Commissions Revenues or Expenses The company or person earning and receiving commissions (such as a percentage of sales) will have commissions revenue....
What is the days' sales in inventory ratio? Definition of Days’ Sales in Inventory The financial ratio days’ sales in inventory tells you the number of days it took a company to sell its inventory during a recent...
How do I learn of new accounting rules? The U.S. accounting rules issued by the Financial Accounting Standards Board (FASB) can be found on its free website www.fasb.org/st/. There you will find: FASB Statements...
What is a contra revenue account? Definition of Contra Revenue Account A contra revenue account is a revenue account that is expected to have a debit balance (instead of the usual credit balance). In other words, its...
What is meant by reconciling an account? Definition of Reconciling an Account Reconciling an account is likely to mean proving or documenting that an account balance is correct. Examples of Reconciling an Account When a...
What is the dividend payout ratio? The dividend payout ratio, or simply the payout ratio, is the percentage of a corporation’s earnings that is paid out in the form of cash dividends. The calculation of the dividend...
How should an interest only loan be recorded? Defintion of an Interest Only Loan An interest only loan specifies that only interest payments are required during the life of the loan. No principal payment is required...
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...
What is the difference between reserve and allowance? More than 60 years ago, accountants in the U.S. used Reserve for Bad Debts as the title of the contra account associated with Accounts Receivable or Loans Receivable....
Our Explanation of Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
What is a recurring journal entry? Definition of Recurring Journal Entry A recurring journal entry is a journal entry that is recorded in every accounting period. Some recurring journal entries will involve the same...
What is the difference between reserve and provision? Definition of Reserve Many decades ago, U.S. accountants decided to eliminate the word reserve when reporting the balances in contra asset accounts. The accounting...
What is the profit margin (after tax) ratio? Definition of Profit Margin Ratio The after tax profit margin ratio expresses the company’s net income or earnings as a percent of the company’s net sales. In other words,...
Where do credit card payments get recorded? Definition of Credit Card Payments We define a credit card payment as the amount a company remits to the credit card company for the purchases that occurred by using the credit...
What is the times interest earned ratio? Definition of Times Interest Earned Ratio The times interest earned ratio is an indicator of a corporation’s ability to meet the interest payments on its debt. The times...
What is the accounts receivable collection period? Definition of Accounts Receivable Collection Period The accounts receivable collection period is similar to the days sales outstanding or the days sales in accounts...
Can you help me understand the golden rules of accounting? The golden rules of accounting are not presented in any of the U.S. accounting books that I have reviewed. I assume the reason for omitting the golden rules of...
Does collecting a customer's accounts receivable affect net income? Definition of Accounts Receivable Accounts receivable is a current asset that results when a company reports revenues from sales of products or the...
What is the effective interest rate for a bond? Definition of Effective Interest Rate of a Bond The effective interest rate of a bond is usually the market interest rate and the bond’s yield-to-maturity (as opposed to...
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...
How do you record a dividend payment to stockholders? Definition of Dividend Payment to Stockholders A dividend payment to stockholders is usually a cash payment which reduces the corporation’s asset cash and the...
What is the stated interest rate of a bond payable? Definition of Stated Interest Rate of a Bond The stated interest rate of a bond payable is the annual interest rate that is printed on the face of the bond and stated...
Where do worker compensation insurance costs get reported on the financial statements? Worker compensation insurance costs (also referred to as worker comp) should appear on the income statement and also on the balance...
Where are short-term bank loans reported on the statement of cash flows? Definition of Short-Term Bank Loans Short-term bank loans are generally loans that must be repaid within one year of the date of the balance sheet....
How are fully depreciated assets reported on the balance sheet? Definition of Fully Depreciated Asset A fully depreciated asset is a depreciable asset for which no additional depreciation expense will be recorded. In...
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