This classification of net assets has been replaced by the FASB with the classification net asset with donor restrictions.
This classification of net assets has been replaced by the FASB with the classification net asset with donor restrictions.
This classification of net assets has been replaced by the FASB with the classification net assets with donor restrictions.
Prior to 2018, this term was used by a not-for-profit organization to describe net assets without donor-imposed restrictions. Since 2018, this term has been replaced with the classification net assets without donor...
On account. Goods purchased with terms of net 10 days, net 30 days, or 2/10, net 30 are goods purchased on credit. Goods sold with similar terms are sales on credit.
What are common-size financial statements? Common-size financial statements present the financial statement amounts as a percentage of a base number. For example, the common-size income statement will report the revenue...
Which financial statement shows a corporation's worth? Not one of the financial statements will show a corporation’s worth. The balance sheet, income statement, statement of cash flows, and stockholders’ equity...
What are sales? Definition of Sales In accounting, the term sales refers to the revenues earned when a company sells its goods, products, merchandise, etc. When a company sells a noncurrent asset that had been used in...
What is the expanded accounting equation? Definition of Expanded Accounting Equation The expanded accounting equation provides more details for the owner’s equity amount shown in the basic accounting equation. The...
What is the cost of sales? Definition of Cost of Sales Cost of sales is often a line shown on a manufacturer’s or retailer’s income statement instead of cost of goods sold. The cost of sales for a manufacturer is the...
What to do with the balance in Allowance for Doubtful Accounts? Definition of Allowance for Doubtful Accounts The Allowance for Doubtful Accounts is a contra asset account that is used with the balance in Accounts...
If a company earns a profit, which balance sheet items change? Definition of Profit Profit is the result of revenues minus expenses. How Profits Change the Balance Sheet Since all business transactions affect at least...
What are the stockholders' equity accounts? The stockholders’ equity accounts are balance sheet accounts and a part of the accounting equation Assets = Liabilities + Stockholders’ Equity. In this light you can view...
What is an asset's useful life? Definition of Asset’s Useful Life An asset’s useful life is the estimated period of time (or total amount of activity) that a long-lived asset will be economically feasible for use in...
Why does an inventory error affect two periods? Definition of Inventory Error An inventory error could be the result of any of the following: Omitting some items when physically counting inventory Double counting some...
What are invoice payment terms? Definition of Invoice Payment Terms Invoice payment terms appear as part of the information shown on the invoice (or bill) prepared by a seller of goods or a provider of services....
Our Explanation of Accounts Payable provides insights on the bill paying process in a large company. Included are discussions of the three-way match, early payment discounts, end of period accruals, and more.
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...
Why does the internal rate of return equate to a net present value of zero? Internal rate of return and net present value are discounted cash flow techniques. To discount means to remove the interest contained within the...
What is the definition of net sales? Definition of Net Sales Net sales is a company’s gross sales of products minus any sales discounts and sales returns and allowances. When a company makes a sale, the general ledger...
What is the net book value of a noncurrent asset? The net book value of a noncurrent asset is the net amount reported on the balance sheet for a long-term asset. To illustrate net book value, let’s assume that several...
Our Explanation of Adjusting Entries gives you a process and an understanding of how to make the adjusting entries in order to have an accurate balance sheet and income statement. Eight examples including T-accounts for...
The one-year period ending at an organization’s typical low point of activity. For example, a school’s natural business year is July 1 through June 30. It is practical to have the accounting and financial...
Our Explanation of Stockholders' Equity covers the unique terminology for a corporation's paid-in capital, retained earnings, treasury stock, and accumulated other comprehensive income. Included are cash dividends, stock...
This current liability account reports the ”net” amount a company owes its employees as of the date of the balance sheet. The ”net” amount is the amount of the employees’...
The terms which indicate when payment is due for sales made on account (or credit). For example, the credit terms might be 2/10, net 30. This means the amount is due in 30 days; however, if the amount is paid in 10 days...
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 a fixed cost? Definition of Fixed Cost A fixed cost is one that does not change in total within a reasonable range of activity. Since the fixed cost remains constant in total, the fixed cost per unit of activity...
What is cash from operating activities? Definition of Cash from Operating Activities Cash from operating activities usually refers to the first section of the statement of cash flows. Cash from operating activities...
What is the contribution margin ratio? Definition of Contribution Margin Ratio The contribution margin ratio is the percentage of sales revenues, service revenues, or selling price remaining after subtracting all of the...
Are liabilities always a bad thing? Definition of Liabilities Liabilities are a company’s obligations and are usually defined as a claim on the company’s assets. However, liabilities (and stockholders’ equity) can...
What is the cost of capital? Definition of Cost of Capital The cost of capital is the weighted-average, after-tax cost of a corporation’s long-term debt, preferred stock (if any), and the stockholders’ equity...
What does understated mean? Definition of Understated In accounting, understated means that a reported amount is less than the actual, true amount based on the accounting rules. In other words, the reported amount can be...
Our Explanation of Future Value of a Single Amount will show you the power of compounded interest on a single deposit. You will see how the future value tables can be useful as well as the rule of 72.
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...
Our Explanation of Payroll Accounting discusses the taxes and benefits which are withheld from employees' pay as well as the taxes and benefits that are expenses for the employers. Also provided are examples of 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...
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...
Why are sales a credit? Definition of Sales In accounting, sales are revenues earned when a company transfers ownership of its goods to its customers. Under the accrual basis or method of accounting, the sale occurs when...
What is salvage value? Definition of Salvage Value In accounting, salvage value is the amount that is expected to be received at the end of a plant asset‘s useful life. Salvage value is sometimes referred to as...
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