What is straight line depreciation? Definition of Straight-Line Depreciation Straight-line depreciation is the most common method of allocating the cost of a plant asset to expense in the accounting periods during which...
What is straight line depreciation? Definition of Straight-Line Depreciation Straight-line depreciation is the most common method of allocating the cost of a plant asset to expense in the accounting periods during which...
What is the conservatism principle? Definition of Conservatism Principle In accounting, the conservatism principle (or accounting constraint) directs an accountant, who is faced with doubt between two possible...
is expected to be useful for 5 years or the production of 100,000 units of output. The asset is placed into service on January 1, 2022, and the company’s accounting year is January 1 through December 31. Straight-Line...
starting next year. Because of this assurance, the utility will record the $300,000 as a deferred asset. In each of the five subsequent years, the utility will credit the deferred asset account for $60,000 and will...
in working capital is important information for the company, its investors, and its creditors. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping...
proof is $30,000 of sales + $2,100 of sales tax = $32,100. In general journal form the accounting entry to record this information is: debit Cash $32,100; credit Sales $30,000; credit Sales Tax Payable $2,100. Join PRO...
to provide the goods or services to the customer or to return the money. Hence, the current liability account Customer Deposits is credited. When the company earns the deposit amount, the current liability will be...
What is goodwill? Definition of Goodwill In accounting, goodwill is an intangible asset associated with a business combination. Goodwill is recorded when a company acquires (purchases) another company and the purchase...
that common rules be followed. In the U.S., the common rules are known as generally accepted accounting principles (GAAP), which are established by the Financial Accounting Standards Board (FASB) and the Securities and...
for Doubtful Debts Accounting textbooks avoid the use of the word “provision” and instead use the following terminology: The contra-asset account associated with accounts receivable will have the account title...
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What is meant by owner's draws? Definition of Owner’s Draws Owner’s draws are withdrawals of a sole proprietorship’s cash or other assets made by the owner for the owner’s personal use. The account in which...
garnishments, and so on. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your current job Refresh your skills to...
cash flows are presented in one of three classifications: Operating activities Investing activities Financing activities The cash flow statement has been required by the Financial Accounting Standards Board (FASB) since...
they are not expenses. However, dividends on preferred stock will appear on the income statement as a subtraction from net income in order to report the earnings available for common stock. Join PRO to Track Progress...
revenues are considered earned when the goods have been shipped or delivered to the customers and the merchandiser has a right to a collectible accounts receivable. (Under accrual accounting it is not necessary to have...
, to reduce rent, etc. To satisfy stockholders who prefer appreciation in the value of the corporation’s common stock instead of receiving cash dividends that require current income tax payments Join PRO to Track...
Where do I record the refund of a registration fee? If the registration fee refers to a fee expense that you had originally paid but the amount is now being refunded to you, I would credit the same expense account that...
What is a liability? Definition of Liability A liability is an obligation arising from a past business event. It is reported on a company’s balance sheet. Liabilities are also part of the basic accounting equation:...
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will require the collection of sales taxes. Sales tax can be viewed as a tax on consumption. In accounting, the sales taxes collected by the seller of the goods or services are not revenues for the seller. For example,...
to pay at a later date, the company records the sale with a debit to Accounts Receivable and a credit to the revenue account Sales. The Sales account is a temporary account used to keep a tally of the sales made during...
income is its operating revenues minus the cost of goods sold and its sales, general and administrative expenses. The FASB’s Statement of Financial Accounting Concepts No. 6, Elements of Financial Statements,...
an accounting adjusting entry in which the account Depreciation Expense is debited and the contra asset account Accumulated Depreciation is credited. Effects of Depreciation The following are some of the effects for a...
What is a contingent liability? Definition of Contingent Liability A contingent liability is a potential liability that may or may not become an actual liability. Whether the contingent liability becomes an actual...
for a total of $2,000 and the stock’s par value is $1 per share, the accounting entry is a debit to Cash for $2,000 and a credit to Common Stock—Par $100, and a credit to Paid-in Capital in Excess of Par for...
Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your current job Refresh your skills to re-enter the workforce Pass your accounting class Understand your small business...
What is FIFO? Definition of FIFO In accounting, FIFO is the acronym for First-In, First-Out. It is a cost flow assumption usually associated with the valuation of inventory and the cost of goods sold. Under FIFO, the...
(revenues, expenses, gains, losses) as temporary accounts because their balances will be closed and transferred to the owner’s capital account at the end of the year. Join PRO to Track Progress Mark the Question as...
never enters the factory area. It is important not to confuse worker comp with unemployment comp. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and...
Where is the discount on the purchase of office furniture recorded? Definition of Discount on Purchase of Office Furniture The discount on the purchase of office furniture that will be used by a company (as opposed to...
for the year of the income statement might be $300,000. The $300,000 accounting entry debited Depreciation Expense and credited Accumulated Depreciation. As you can see, not a penny left the checking account in the year...
on the meters’ readings. The retailer receives its first utility bills on January 8th and must remit the amount by February 2. Under the accrual basis of accounting, the retailer’s income statement for the month of...
What is the operating cycle? Operating cycle definition The operating cycle is the time required for a company’s cash to be put into its operations and then return to the company’s cash account. Operating cycle...
ledger account Sales Discounts is a contra revenue account. Sales discounts are not reported as an expense. Example of Sales Discounts A company offers its business customer sales discounts of 1/10, net 30. For the...
asset, the business must reduce the amount it reports as working capital (which is current assets minus current liabilities). Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance...
Why are expenses debited? Why Expenses Are Debited Expenses cause owner’s equity to decrease. Since owner’s equity’s normal balance is a credit balance, an expense must be recorded as a debit. At the end of the...
, the book value per share of common stock is $12.42. This book value is likely to be far different from the market value of a share of the common stock. Join PRO to Track Progress Mark the Question as Read Must-Watch...
Why would Prepaid Insurance have a credit balance? Definition of Prepaid Insurance Generally, Prepaid Insurance is a current asset account that has a debit balance. The debit balance indicates the amount that remains...
, but the $4,600 is not reported on the bank statement as of June 30. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at...
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