Under the accrual method of accounting, this account reports the employer’s expense for the company’s 401(k) plan associated with the employees in the warehouse department during the period indicated in the...
Under the accrual method of accounting, this account reports the employer’s expense for the company’s 401(k) plan associated with the employees in the warehouse department during the period indicated in the...
Waste, scrap, evaporation, etc. in the manufacturing of products. Normal spoilage is considered unavoidable and is part of the cost of producing the good output. Abnormal spoilage is considered avoidable and is not part...
Usually refers to manufacturing overhead costs such as factory supplies, factory depreciation, indirect factory labor, etc. To learn more, see Explanation of Manufacturing Overhead.
Earnings are said to be of a high quality if the accounting policies are conservative. One indication is that the cash flows from operating activities shown on the statement of cash flows consistently exceed the amount...
See International Accounting Standards Board (IASB).
An asset representing the right to receive the principal amount contained in a written promissory note. Principal that is to be received within one year of the balance sheet date is reported as a current asset. Any...
Current assets minus current liabilities.
In the 1970’s the Financial Accounting Standards Board (FASB) articulated three objectives of financial reporting. In summary, financial information should (1) be useful to investors and lenders, (2) be helpful in...
The cost to hold an item in inventory. Includes the cost of capital tied up in inventory, the cost of space and insurance, and the cost of items becoming obsolete while being held in inventory. This is an important...
To receive money in exchange for a promise to repay the amount to the lender.
The amount needed to replace an asset such as inventory, equipment, buildings, etc. If an asset’s replacement cost is greater than the asset’s carrying amount, the cost principle prohibits the use of the...
An amount that should be charged to the current accounting period as an expense.
Generally, securities that can be sold quickly in the stock or bond market and where the investor’s intention is to sell them within one year of the balance sheet date.
A simple form of business where there is one owner. Legally the owner and the sole proprietorship are the same. However, for accounting purposes the economic entity assumption results in the sole proprietorship’s...
Market interest rate, current return, effective interest rate. Also see yield to maturity.
This current liability account reports the amount a company owes the U.S. government as of the balance sheet date for the federal income taxes withheld from its employees’ salaries and wages.
The current liability account which reports the amount of salaries earned by a company’s employees, but which have not yet been paid by the company.
See Explanation of Standard Costing.
Transfer of an asset’s title from seller to buyer for a stated amount. The transfer/sale occurs at the shipping point (if terms are FOB shipping point), at the time when the item reaches the destination (if terms...
The average time it takes for a retailer’s or manufacturer’s inventory to turn to cash. If a manufacturer turns its inventory six times per year (every two months) and allows customers to pay in 30 days, its...
This is an administrative expense which reports the fees incurred by a company for the expenses associated with its checking account transactions.
An example is the major overhaul of a truck’s engine that will extend the useful life of the truck. This expenditure is recorded on the balance sheet in an asset (or in a contra asset) account and then depreciated...
A revenue account that reports the sales of merchandise. Sales are reported in the accounting period in which title to the merchandise was transferred from the seller to the buyer.
Obligations of the enterprise that are not payable within one year of the balance sheet date. Two examples are bonds payable and long term notes payable.
A subgroup of a nonprofit’s supporting activities expenses. This functional expense classification is used for the fundraising activities including fundraising campaigns, mailings for funds from supporters, and...
A dollar adjusted for inflation. If an asset such as land was purchased for $10,000 many years ago when the consumer price index (CPI) was 100 and today the CPI is 400, today’s constant-dollar amount would be...
See contractual interest rate.
Magnetic ink character recognition.
This term is often associated with an investment in the bonds issued by another corporation if the bonds are traded on a bond exchange.
The depreciation computed on the tax return according to the income tax code and regulations. This amount is usually different from the depreciation used on the financial statements (book depreciation).
Comprehensive income consists of the following two components (which are reported on the statement of comprehensive income): Net income (or loss) from the income statement, and Other comprehensive income (some...
A check drawn on a bank. A cashier’s check leaves no doubt that the funds represented by the check are real. A bank money order or a certified check would also assure the payee that the funds are in the bank.
Usually a department within a company that is responsible for its costs but not revenues or profit.
See separation of duties.
The issued shares of common stock minus the shares of treasury stock. The weighted average of the outstanding shares is used to compute the earnings per share.
A long-term asset account that reports the cost of real property exclusive of the cost of any constructed assets on the property. Land usually appears as the first item under the balance sheet heading of Property, Plant...
See generally accepted accounting principles (GAAP).
A special journal (or specialized journal) used to record money received. In a manual system this will allow one entry to the Cash account for the month (or shorter periods) instead of debiting the Cash account for every...
See job order costing.
To learn more, see Explanation of Depreciation.
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