example of a semivariable cost is the annual cost of operating a vehicle. Some of the vehicle’s total annual operating costs will be the same regardless of the miles driven. These fixed costs include depreciation,...
example of a semivariable cost is the annual cost of operating a vehicle. Some of the vehicle’s total annual operating costs will be the same regardless of the miles driven. These fixed costs include depreciation,...
Is depreciation an operating expense? Depreciation Could Be Either an Operating Expense or a Non-operating Expense Depreciation is an operating expense if the asset being depreciated is used in an organization’s main...
What is a contra expense account? Definition of Contra Expense Account A contra expense account is a general ledger expense account that will intentionally have a credit balance (instead of the debit balance that is...
Is the provision for doubtful debts an operating expense? Definition of Provision for Doubtful Debts Some companies use Provision for Doubtful Debts as the name of the contra-asset account which is reported on the...
How do you calculate ending inventory? Physically Counting the Items in Inventory One method for calculating the cost of a company’s ending inventory is to 1) physically count the quantity of each of the items in...
is generally based on the meters located on the company’s property. In other words, the utilities provide the gas, electricity, etc. in advance of being paid. Therefore, the company is receiving the gas, electricity,...
What is a deposit in transit? Definition of Deposit in Transit A company’s deposit in transit is the currency and customers’ checks that have been received and are rightfully reported as cash on the date received,...
. The bank will record the loan by increasing a current asset such as Loans to Customers or Loans Receivable and increasing a current liability such as Customer Demand Deposits. Example of a Company Recording a Loan from...
What is accumulated depreciation? Definition of Accumulated Depreciation Accumulated depreciation is the total amount of a plant asset’s cost that has been allocated to depreciation expense (or to manufacturing...
How do you calculate the cost of goods sold for a retailer? Formula for Calculating a Retailer’s Cost of Goods Sold A retailer’s cost of goods sold is: The cost of the retailer’s beginning inventory Plus the cost...
and perhaps fraudulent invoice. Example of Three-Way Match The “three-way” part of the three-way match refers to the three documents that will be compared: The vendor’s invoice that was received and will become...
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...
of an account. When an account balance is on the right side of an account, we say the account has a credit balance. A credit entry in an asset account will reduce the account’s usual debit balance. A credit entry in...
What is meant by the full cost of a product? Many (perhaps most) accountants use the term full cost to mean the full manufacturing or production cost of a product. To these accountants this means a product’s cost of...
What are direct materials? Definition of Direct Materials Direct materials are defined as: Traceable matter that is converted by a manufacturer into products Part of manufacturer’s production costs A variable cost of a...
account that is used to record the interest incurred. Lastly, interest expense is usually a separate line on a company’s income statement that indicates the amount that occurred during the period appearing in the...
, savings and retirement contributions, etc. Gross Pay vs Net Pay Net pay is the amount remaining after payroll taxes and other amounts are deducted from an employee’s gross pay. Net pay is the amount of the...
What is the total asset turnover ratio? Definition of Total Asset Turnover Ratio The total asset turnover ratio indicates the relationship between a company’s net sales for a specified year to the average amount of...
What is solvency? Definition of Solvency I use the term solvency to mean a company is able to 1) pay its obligations when they come due, and 2) continue in business. Some people look to a company’s working capital to...
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...
What is IFRS? IFRS is the acronym for International Financial Reporting Standards. IFRS is used throughout the world except in the United States where U.S. GAAP (generally accepted accounting principles) is followed....
What is meant by nonoperating expenses and losses? Definition of Nonoperating Expenses and Losses Nonoperating expenses are business expenses that are outside of a company’s main or central operations. (Some describe...
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...
How do you calculate an asset's salvage value? Definition of Asset Salvage Value In accounting, an asset’s salvage value is the estimated amount that a company will receive at the end of a plant asset’s useful...
What accounting entry is made when a company receives an order for its goods or services? Definition of Accounting Entry When an Order is Received At the time when a company receives a customer’s order (without...
What is the difference between revenue, income, and gain? Definition of Revenue Revenue is the amount earned from a company’s main operating activities, such as a retailer selling merchandise or a law firm providing...
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,...
How is a voucher used in accounts payable? Definition of Voucher A voucher is often a prenumbered form used in the accounts payable department to standardize and enhance a company’s internal control over payments to...
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...
How do you treat voided checks on the bank reconciliation? Definition of Voided Check on Bank Reconciliation If a check was voided in the current month but was written in the previous month and appeared on the previous...
What is accelerated depreciation? Definition of Accelerated Depreciation Accelerated depreciation is the allocation of a plant asset‘s cost at a faster rate than straight-line depreciation. Compared to straight-line...
What does a bookkeeper do? Definition of Bookkeeper A bookkeeper’s role at a company varies by the size and nature of the business. At a very small company without an accountant, the bookkeeper’s duties are likely to...
balance for the new year. Permanent accounts are also known as real accounts. Examples of Permanent Accounts Generally, the balance sheet accounts are permanent accounts, except for the owner’s drawing account which...
What is the acid test ratio? Definition of Acid Test Ratio The acid test ratio, which is also known as the quick ratio, compares the total of a company’s cash, temporary marketable securities, and accounts receivable...
What increases a break-even point? Definition of Break-even Point The break-even point is the volume of sales in units or in dollars that is equal to a company’s total expenses (including the cost of goods sold). In...
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...
as a percent of total assets. The vertical analysis of an income statement results in every income statement amount being restated as a percent of net sales. Example of Vertical Analysis of a Balance Sheet If a...
What is the difference between book depreciation and tax depreciation? Definition of Book Depreciation Book depreciation is the amount recorded in the company’s general ledger accounts and reported on the company’s...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
Working Capital and Liquidity Working Capital Working capital is defined as current assets minus current liabilities. Therefore, a company with current assets of $43,000 and current liabilities of $38,000 has working...
Featured Review
"I was a career teacher and coach before I took on the accounting/bookkeeping side of our business. My only accounting experience had been in college, with the one class my parents required of me—Accounting 101. A helpful class, yes, but not a strong base for dealing with daily business entries. Over the years, I read various books that helped me gain general knowledge and keep us in the black and out of trouble with my accountant. When I found AccountingCoach, I was blown away by the ‘fount of all accounting knowledge’ at my fingertips, complete with courses, study guides, and straightforward explanations that even a DIY accounting hack could understand! I now serve as our company's CFO and oversee the books and financial direction of multiple subsidiaries. AccountingCoach has helped me gain confidence and knowledge as I continue to learn best practices to run our businesses." - Angie S.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: