What is the rule of 72? The rule of 72 is a simple formula that tells you the approximate amount of time or interest rate needed for an amount to double. The formula is Years X Rate per year = 72. Here’s how it works....
What is the rule of 72? The rule of 72 is a simple formula that tells you the approximate amount of time or interest rate needed for an amount to double. The formula is Years X Rate per year = 72. Here’s how it works....
should normally be reported at its net realizable value. (U.S. income tax rules require conformity between tax and financial reporting. As a result, there are complexities involved.) Join PRO to Track Progress Mark the...
Premier to deliver them directly to the condo project. So instead of delivering them to XYZ’s warehouse, Premier is asked to drop ship them to the condo project. The drop ship means that XYZ will not have to receive...
debit and credit entries, but profitable corporations usually have credit balances Examples of Debits and Credits To illustrate, let’s assume that a company borrows $10,000 from its bank. The company will enter...
amount that is actually prepaid (not yet expired) at the end of the quarter. Example of Adjusting Prepaid Expenses Assume that a company’s only prepaid expense is the prepaid premiums on its liability insurance...
are paying interest. However, our agreement did not specify any interest, nor did it state an interest rate. To find the interest rate that is implicit in this arrangement, you need to carry out what’s known as a...
to be collected within one year of the balance sheet date is reported in the current asset section of the lender’s balance sheet. The remaining principal of the note receivable is reported in the noncurrent asset...
of details, but still has the correct balance for preparing the company’s financial statements. Example of Control Accounts A common example of a control account is the general ledger account entitled Accounts...
future cash flows back to the time when cash is invested. (The date that the cash is invested is often referred to as the “present” or the very beginning of the investment’s first year.) The greater the time value...
. The monitoring of the average collection period is one way to track a company’s ability to collect its accounts receivable. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance...
account Cash was $4,500. It planned on making a $1,000 deposit before the check cleared its bank account. Unfortunately, the $5,000 check was presented to the bank prior to the planned deposit. If the bank account...
, the allocated manufacturing cost will be included as part of the following costs: Cost of goods that are in inventory (a current asset on the balance sheet) Cost of goods that were sold (as the expense cost of goods...
variable cost of electricity. If the company’s electricity cost is estimated to be $5 per unit of x, and x is 4,000 machine hours, then the total variable cost of electricity for the month is estimated to be $20,000....
will appear as steps or stairs rising from left to right. To illustrate a stepped cost, let’s assume that you are developing a website and find that the monthly cost of hosting the site is based on the number of...
was widely discussed in the 1970s for businesses and governments. Today, it is again being discussed since a few large corporations have used the ZBB process to significantly reduce unnecessary expenses. Join PRO to...
What is a multiple-step income statement? Multiple-Step Income Statement Definition A multiple-step income statement presents two important subtotals before arriving at a company’s net income. For a company that sells...
What is meant by overabsorbed? Overabsorbed is usually used in the context of a manufacturer’s production overhead costs. Since manufacturing overhead costs are not directly traceable to products, they need to be...
and the associated adjusting entries will result in a more complete and accurate reporting of a company’s assets, liabilities, equity, and a more accurate reporting of its revenues, expenses, and earnings during each...
How do I learn of new accounting rules? The U.S. accounting rules issued by the Financial Accounting Standards Board (FASB) can be found on its free website www.fasb.org/st/. There you will find: FASB...
by reading our Nonmanufacturing Overhead (Explanation). 1. Selling expenses should be allocated to the cost of goods sold for external financial reporting. True Wrong. False Right! 2. According to U.S. accounting...
What is self-insurance? Self-insurance means no insurance. For example, if a retailer decides to self-insure its buildings, the retailer will not have an insurance policy to pay for losses that may occur to its...
decreases as adjusting entries credit the account Prepaid Insurance and debit Insurance Expense. Example of a Credit Balance in Prepaid Insurance Assume that a company’s annual premium on its liability insurance...
Why is the distinction between product costs and period costs important? The distinction between product costs and period costs is important to: Properly measure a company’s net income during the time specified on its...
it indicates that the company has paid more than the amount owed, has made an incorrect entry, etc.) Equity accounts including the stockholders’ equity accounts Common Stock, Paid-in Capital in Excess of Par Value,...
of the manufacturing building. The rental cost of a building that is not used for manufacturing (such as the rent of a manufacturer’s marketing and administrative offices or the rent of a retail store) is not part of...
another way, since we cannot undo the past, every decision will affect only today and/or the future. As a result, the relevant costs and benefits for making a decision are the current and future costs....
in the acid test ratio. Example of Current Ratio and Acid Test Ratio To illustrate the difference between the current ratio and the acid test ratio, let’s assume that a company has the following: Current liabilities...
issue costs (a debit balance in the contra-liability account Bond Issue Costs) It’s important that the discount, premium, and issue costs have been amortized properly up to the moment when the book value of the bonds...
too noisy for residents, there’s little point to calculate the net present value. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career...
is considered to be nonoperating income or other income. (However, banks and other lenders, whose primary activities involve earning interest, will report their interest earned as part of their operating income.)...
What is the discounted value of expected net receipts? Let’s first define expected net receipts. These are future receipts after deducting any related payments. For example, if you are likely to receive $1,200 one year...
to the retailers. Obviously its turnover ratios will be less impressive than the ratios of the first company. A company’s management is another variable that explains differences in the profit margin and turnover...
Long-term assets include the following: Long-term investments. These include some investments in stocks and bonds of other corporations, a company’s bond sinking fund, the cash surrender value of life insurance...
of depreciation. The entry debits Depreciation Expense for $3,000 and credits Accumulated Depreciation for $3,000 each and every month. A company may also have recurring journal entries in which the accounts are...
decreases by 20%) is known as an 80% learning curve. Example of 80% Learning Curve To illustrate the 80% learning curve, let’s use as an example a person learning to design and code websites of similar size and...
. For example, in General Electric’s 2011 Annual Report to the SEC (Form 10-K), it indicates that if General Electric had not been using LIFO (for many years), its balance sheet inventory amount would have been greater...
to earn less than the specified interest rate. Comparison of IRR and NPV Both IRR and NPV use a company’s cash inflows and cash outflows that are discounted to a present value. (Neither use the accrual...
approach is to compare the real estate’s total cost of $220,000 to the total appraisal amount of $250,000. This shows that the total cost is 88% ($220,000/$250,000) of the total market value. Using this approach...
the term accounts payable the person may be referring to any of the following: The section of a company’s accounting department that is responsible for processing vendor invoices and other bills for goods and services...
What is the difference between adjusting entries and correcting entries? Definition of Adjusting Entries Generally, adjusting entries are required at the end of every accounting period so that a company’s financial...
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