What are bonds payable? Definition of Bonds Payable Bonds payable are a form of long term debt usually issued by corporations, hospitals, and governments. The issuer of bonds makes a formal promise/agreement to pay...
What are bonds payable? Definition of Bonds Payable Bonds payable are a form of long term debt usually issued by corporations, hospitals, and governments. The issuer of bonds makes a formal promise/agreement to pay...
What is the 13-point average for inventory? The 13-point average for inventory for the calendar year 2023 would be the sum of the following: (the inventory amount at December 31, 2022 plus the 12 end-of-the-month amounts...
What is the difference between unearned revenue and unrecorded revenue? Definition of Unearned Revenue In financial accounting, unearned revenue refers to money received prior to being earned. It is also referred to as...
What is an accountant? Definition of Accountant Accountants are employed by businesses and other organizations to report their financial results according to generally accepted accounting principles (GAAP) and income tax...
What does amortization mean? Definition of Amortization In general, the word amortization means to systematically reduce a balance over time. In accounting, amortization is conceptually similar to the depreciation of a...
What is payroll accounting? Definition of Payroll Accounting Payroll accounting involves a company’s recording of its employees’ compensation including: gross wages, salaries, bonuses, commissions, and so on that...
What is a rolling budget? Definition of Rolling Budget A rolling budget often refers to a company’s operating budget which presents the future monthly budgets for the next 12 months. A rolling budget is also known as a...
Our Explanation of Accounting Principles provides you with clear and concise descriptions of the basic underlying guidelines of accounting. You will see how the accounting principles affect the balance sheet and income...
Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
What are the benefits of a revenue budget? The main benefit of a revenue budget is that it requires looking into the future. The revenue budget should contain the assumptions made about the future and the details about...
What is the double declining balance method of depreciation? Definition of Double Declining Balance Method of Depreciation The double declining balance method of depreciation, also known as the 200% declining balance...
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...
In the context of inventory, net realizable value or NRV is the expected selling price in the ordinary course of business minus the costs of completion, disposal, and transportation. In the context of accounts 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...
When calculating inventory turnover, do you use sales or the cost of goods sold? I calculate the inventory turnover by using the cost of goods sold. I use the cost of goods sold because inventory is in the general ledger...
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...
What if an employee's actual vacation payment is greater than the amount that has been accrued? Let’s assume that a company’s accounting year ends on December 31 and the company has only one employee who worked the...
Bonds Payable For multiple-choice and true/false questions, simply press or click on what you think is the correct answer. For fill-in-the-blank questions, press or click on the blank space provided. If you have...
Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
What is gross margin? Definition of Gross Margin Gross margin is the amount remaining after a retailer or manufacturer subtracts its cost of goods sold from its net sales. In other words, gross margin is the retailer’s...
Accounts Payable Accounts Payable Accounts payable are sometimes referred to as trade payables. Accounts payable involve the amounts that a company owes to vendors and others who have supplied goods or services on...
What is the gross margin ratio? Definition of Gross Margin Ratio The gross margin ratio is a percentage resulting from dividing the amount of a company’s gross profit by the amount of its net sales. (The gross margin...
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...
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...
Interest on interest. For example, if $1,000 is deposited in an account earning interest of 6% per year the account will earn $60 in the first year. In year two the account balance will earn $63.60 (not $60.00) because...
Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
What is the break-even formula? Break-even Point in Units of Product The formula for determining the break-even point in units of product sold is: total fixed expenses divided by the contribution margin per unit. For...
What is the days' sales in accounts receivable ratio? Definition of Days’ Sales in Accounts Receivable The days’ sales in accounts receivable ratio (also known as the average collection period) tells you the number...
Why would the cost behavior change outside of the relevant range of activity? Cost behavior often changes outside of the relevant range of activity due to a change in the fixed costs. When volume increases to a certain...
Why is inventory turnover important? Definition of Inventory Turnover A company’s inventory turnover is often expressed as the company’s cost of goods sold for a year divided by the average cost of inventory during...
How do you calculate staff turnover? To calculate staff turnover, I would use the W-2 wage statements for the most recent year. My first step would be to sort the W-2’s into meaningful groups such as full-time...
How do you calculate the average balance in accounts receivable? The average will be more representative if you include additional balances in the computation. For example, if you compute the average balance for the year...
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...
Our Explanation of Financial Statements provides you with the highlights of each of the five external financial statements issued by U.S. corporations. Our insights will give you a good understanding of what the...
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.
What is the accounts receivable turnover ratio? Definition of Accounts Receivable Turnover Ratio The accounts receivable turnover ratio (or receivables turnover ratio) is an important financial ratio that indicates a...
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.
What are LIFO layers? Definition of LIFO Layer LIFO is the acronym for Last-In, First-Out. In the context of inventory, it means that the cost of the most recently purchased units will be the first costs to be matched...
What is a controller's cushion? A controller’s cushion or controller’s reserve involves temporarily recording too much expense for an item that the controller calculates. For example, the controller might budget...
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