Why are some expenses deferred? Definition of Deferred Expenses Under the accrual basis of accounting, an expense is a cost that is used up, has expired, or is directly related to revenues reported on a company’s...
Why are some expenses deferred? Definition of Deferred Expenses Under the accrual basis of accounting, an expense is a cost that is used up, has expired, or is directly related to revenues reported on a company’s...
to the accounts indicated. Definition of General Ledger The general ledger contains the accounts used by the company to sort and store the amounts from all of the company’s transactions (including all of the payments,...
Is it possible to have a balance sheet for a single day? A balance sheet presents the amounts of a company’s assets, liabilities, and owner’s equity as of an instant or moment in time within a day. Usually it is the...
are not part of the seller’s sales or revenues. This means the amount of sales taxes that were collected by the retailer will not be reported on its income statement. Instead, the sales taxes collected are reported on...
of the goods that were sold during the current period, and the following which also occurred during the current period: salaries earned by the company’s employees, interest expense incurred, commissions earned by...
Returns. This allows the company’s management to see the magnitude of the returns that occurred. The account Purchases Returns is a general ledger account that will have a credit balance (or no balance). Its credit...
that contains videos, visual tutorials, forms, and more than 500 bookkeeping exam questions with answers. There is a reasonable one-time fee for a lifetime membership in AccountingCoach Pro and it comes with a 60-day,...
will include preparing the following projections for the next accounting year: Amounts for sales Amounts for producing goods Amounts for each department’s expenses Summarizing the above budgets into a master budget or...
the asset’s book value An unfavorable settlement of a lawsuit against the company The retirement of bonds payable at a cost that is greater than the carrying value of the bonds Loss is also used to describe write-down...
What is a trade discount? Definition of Trade Discount A trade discount is a routine reduction from the regular, established price of a product. The use of trade discounts allows a company to vary the final price based...
in the company’s general ledger accounts. If it is the end of the accounting period, these amounts must be recorded to comply with the accrual method of accounting. By entering these on an adjusting entry dated for...
the second year the principal balance is reported as a current liability. If the current month’s interest is paid on the last day of each month, there will be no interest liability reported on the end-of-the-month...
are the depreciation of the building, salaries of the company’s management, etc. For a company’s financial statements to have relevance they must be issued within several weeks after each accounting period ends. To...
What is the difference between liability and debt? Definition of Liability In accounting and bookkeeping, the term liability refers to a company’s obligation arising from a past transaction. Examples of Liabilities A...
an account receivable is actually removed from the company’s receivables. Under the direct write off method there is no contra asset account such as Allowance for Doubtful Accounts. This means that the balance sheet...
a bank receives from a depositor. Since the bank is not earning this money, the amount is recorded by the bank with a debit to Cash and a credit to Customer Deposits. Example of Customer Deposit Let’s assume that Ace...
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...
What is prepaid insurance? Definition of Prepaid Insurance Prepaid insurance is the portion of an insurance premium that has been paid in advance and has not expired as of the date of a company’s balance sheet. This...
of the ending work-in-process inventory The cost of goods manufactured is similar to a retailer’s cost of goods purchased. Hence a manufacturer’s cost of goods sold is computed as: The cost of the beginning finished...
, a reversing entry will be recorded to permanently remove the accrued amounts because the actual invoice for the accrued expense will be received and processed. The reversing entry assures that the expense will be...
What is YOY? In financial analysis and data analytics, YOY is the acronym for year over year. YOY indicates the change from the comparable amount reported in the same period one year earlier. Below are three examples of...
the accounting knowledge to pass the CPA exam in addition to meeting your state or jurisdiction’s educational requirements. Our Accounting Career Center provides links to each state’s board of accountancy and more...
of a valuation account is that the amount in the main account is not changed, since the needed adjustment(s) are contained in a separate account. Examples of Valuation Accounts A common example of a valuation account is...
What is an early payment discount? Definition of Early Payment Discount An early payment discount is a reduction in the amount on a supplier’s invoice if the customer pays the supplier promptly. The early payment...
, the company had a profit of $8,000 (revenues of $10,000 minus $2,000 of expenses), but its cash decreased by $1,100 (cash receipts of $0 with cash payments of $1,100). If it has no other business transactions, the...
What is the production volume variance? Definition of Production Volume Variance The production volume variance is associated with a standard costing system used by some manufacturers. This variance arises when there is...
, some fixed costs could be eliminated. Here’s an illustration. A company manufactures products in its 100,000 square foot plant. The company’s depreciation on the plant is $1,000,000 per year. The capacity of the...
Why does a company debit Purchases instead of Inventory? Definition of Purchases and Inventory When a company uses the periodic inventory system the amount of the company’s inventory is determined by a physical count...
with Debit Balances The following general ledger account classifications normally have debit balances: Asset accounts Expense accounts Loss accounts (Loss on Sale of Plant Asset, Loss from Lawsuit, etc.) Sole...
What is the difference between actual overhead and applied overhead? Definition of Actual Overhead In the context of actual and applied overhead, actual overhead refers to a manufacturer’s indirect manufacturing costs....
What are payroll taxes? Definition of Payroll Taxes The payroll taxes are the federal, state, and local taxes that pertain to the wages, salaries, commissions, bonuses, etc. of a company’s employees. Some of the...
, and the company’s required profit. Assume that the final amount is $240,000. The customer wants the house, but believes there is a little “wiggle room” in the $240,000. The company and the customer go back and...
What is manufacturing overhead and what does it include? Definition of Manufacturing Overhead Manufacturing overhead (also known as factory overhead, factory burden, production overhead) involves a company’s...
of a single factor (such as machine hours) is likely to lead to misleading costs for a manufacturer’s goods. To address this deficiency, the activity based costing (ABC) method attempts to identify all of the diverse...
activities. The combination of the cash inflows and the cash outflows from a company’s operations (activities outside of its investing and financing activities). loss on disposal, net of tax. An accounting loss on the...
the book value, the difference is a loss on the sale or disposal.) To have the book value at the time of the sale, the asset’s depreciation must be recorded up to the date of the sale. Example of Proceeds and Gain on...
spent to acquire or improve a company’s fixed assets. The capital expenditures increase the respective asset accounts which are reported in the noncurrent asset section of the balance sheet entitled property, plant...
What is a fiscal year? Definition of Fiscal Year A fiscal year is an accounting year that does not end on December 31. (Accounting years of January 1 through December 31 are known as calendar years.) A fiscal year could...
. Expressed another way, to rotate the stock of goods on hand means that the physical flow of goods will result in the first or oldest goods being sold first. However, the accounting cost flows do not have to agree with...
For most industries, a company’s current assets are defined as cash and other assets that will turn to cash or will be used up or consumed within one year of the balance sheet date. If a company is in an industry...
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