An accounting method wherein revenues are recognized when cash is received and expenses are recognized when paid. This method is inferior to the accrual basis of accounting where revenues are recognized when they are...
An accounting method wherein revenues are recognized when cash is received and expenses are recognized when paid. This method is inferior to the accrual basis of accounting where revenues are recognized when they are...
Is a money market account a current asset or a fixed asset? A money market account is a current asset unless it is restricted for a long-term purpose. The amount of an unrestricted money market account will likely be...
Often this account appears as a line in the retained earnings section of stockholders’ equity (balance sheet) and will show the year-to-date net income. The reason is that some accounting software will not put the...
The acronym for earnings before interest, taxes, depreciation, and amortization. This measure is used by some companies as a supplementary disclosure, since EBITDA does not comply with U.S. GAAP (generally accepted...
A payroll tax paid solely by the employer and usually calculated as 0.6% times each employee’s first $7,000 of annual wages or salaries. (The tax rate is 6.0% but a credit of up to 5.4% is usually given for...
The amount of interest expense incurred during the time interval shown in the heading of the income statement that pertains to a company’s bonds payable. Bond interest expense also includes the amortization of the...
A phrase used to communicate the total compensation of a salaried employee. Fringe benefits (health insurance, vacation days, sick days, employer matching of Social Security and Medicare taxes, pension or 401-k...
The length of time that an asset would last. Instead of the physical life, accountants focus on the useful life. For example, a computer’s physical life is perhaps 50 years. However, its useful life is likely to be...
Beginning in 2018, this is one of two classifications of net assets reported on the financial statements of a not-for-profit organization’s financial statements. This classification replaces the previous...
The products in a manufacturer’s inventory that are completed and are awaiting to be sold. You might view this account as containing the cost of the products in the finished goods warehouse. A manufacturer must...
The systematic allocation of the discount, premium, or issue costs of a bond to expense over the life of the bond. The systematic allocation of an intangible asset to expense over a certain period of time. The systematic...
The “bottom line” on the statement of activities. The change in net assets results from revenues, expenses, and the release of assets from restrictions. It is computed for an organization’s three...
An employee that must be paid overtime pay when the employee’s weekly hours exceed 40 hours. Some states may have additional requirements. Nonexempt employees include both hourly-paid and salary-paid who are not...
The amount of a long-term asset’s cost that has been allocated to Depreciation Expense since the time that the asset was acquired. Accumulated Depreciation is a long-term contra asset account (an asset account with...
The process of comparing the amounts in the Cash account in the general ledger to the amounts appearing on the bank statement. The objective is to be certain that there is consistency between the amounts and that the...
The original cost incurred to acquire an asset (as opposed to replacement cost, current cost, or cost adjusted by a general price index). If a company purchased land in 1980 for $10,000 and continues to hold that land,...
Also referred to as book value or carrying value; the cost of a plant asset minus the accumulated depreciation since the asset was acquired. This net amount is not an indication of the asset’s fair market value....
A contra revenue account that reports 1) merchandise returned by a customer, and 2) the allowances granted to a customer because the seller shipped improper or defective merchandise. This of course will reduce the...
A percentage of an hourly wage rate (or salary) that represents the employer’s additional costs of employee benefits such as paid vacation days, paid sick days, insurance (health, dental, life, worker...
In accounting, cost is defined as the cash amount (or the cash equivalent) given up for an asset. Cost includes all costs necessary to get an asset in place and ready for use. For example, the cost of an item in...
The section of the U.S. Internal Revenue Service (IRS) code which includes public charities such as religious, scientific, educational, and certain other organizations. Under section 501(c)(3) a nonprofit can be approved...
Under this method a company records detailed transactions and reports its net income by summarizing and reporting these detailed transactions. (A different approach is called the capital maintenance approach which...
An accelerated method of depreciation, where two times the straight-line rate is applied to the book value of an asset. The result is more depreciation expense in the early years and less in the later years of the...
The book value of an asset is the amount of cost in its asset account less the accumulated depreciation applicable to the asset. The book value of a company is the amount of owner’s or stockholders’ equity....
This is granted by banks only to very creditworthy customers. It states that the bank will guarantee amounts that its customer incurred when purchasing goods. A letter of credit might be necessary for a U.S. company...
Costs that have been divided up and assigned to periods, departments, products, etc. In depreciation it is the asset’s cost that is assigned to each of the years that the asset is in use. In cost accounting it is...
account, another balance sheet account, __________ __________, __________, will also be understated. 12. The amount assigned to an item in inventory might be less than its cost when the item’s __________ __________...
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 Present Value of a Single Amount discusses the time value of money and the need to discount future amounts to the time of an investment or other transaction. The present value of 1 table is used to...
Our Explanation of Evaluating Business Investments compares four of the techniques for reviewing potential capital expenditures. You will be introduced to accounting rate of return, payback, net present value, and...
What are the notes to the financial statements? Definition of Notes to Financial Statements The notes to the financial statements are a required, integral part of a company’s external financial statements. They are...
How do you calculate the payroll accrual? Definition of Payroll Accrual The payroll accrual is the amounts a company owes for work done by employees, but the amounts have not yet been recorded in the company’s general...
with your industry. You need to get those receivables turning to cash. Accounts payable should be reviewed to be sure that your company’s cash is not being paid to suppliers prior to the required payment dates. In...
. Example of Correlation Assume that during a 10-year period the number of cars sold in the U.S. moved in the same direction as the country’s rate of inflation. Even with a 10-year correlation between the two sets of...
an annualized interest rate of 18% (1.5% per month multiplied times 12 months). A vendor’s invoice having an early payment discount of “1/10, net 30” means that 1% can be saved if the amount owed is remitted...
that can easily be audited. In contrast, the market value is subjective: one person thinks the land is worth $1 million while another thinks it’s worth $1.5 million. Further support for the cost principle is the...
. receives $24,000 on December 31, 2023 in exchange for promising to provide the client with services for the year January 1 through December 31, 2024. As of December 31, 2023 the entire $24,000 is unearned. Therefore,...
What is a natural business year? Definition of Natural Business Year A natural business year is the period of 12 consecutive months (or 52-53 consecutive weeks) ending at a low point of the organization’s activities...
What is a general ledger account? Definition of General Ledger Account A general ledger account is an account or record used to sort, store and summarize a company’s transactions. These accounts are arranged in the...
What is the difference between the current ratio and the quick ratio? Definition of Current Ratio The current ratio is the proportion, quotient, or relationship between the amount of a company’s current assets and the...
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