Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
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.
One of the main financial statements of a nonprofit organization. This financial statement reports the revenues and expenses and the changes in the amounts of each of the classes of net assets during the period shown in...
A financial statement that reports the current year information contained in the general ledger account Retained Earnings. The statement will include the beginning balance, prior period adjustments, net income for the...
Our Explanation of Stockholders' Equity covers the unique terminology for a corporation's paid-in capital, retained earnings, treasury stock, and accumulated other comprehensive income. Included are cash dividends, stock...
in the business minus the owner’s draws or withdrawals from the business plus the net income (or minus the net loss) since the business began. Owner’s equity is viewed as a residual claim on the business assets...
accounts as of the final moment of the date shown in the heading. Note: Typically the final moment of the balance sheet is the last instant of the last day of an accounting period, such as midnight of December 31, June...
. The accounting rule requires inventory to be reported at the lower of its cost or its net realizable value (NRV). The amount of the inventory write-down is reported on the current income statement. To illustrate,...
What is a provision for discounts allowable? The provision for discounts allowable is likely to be a balance sheet account that serves to reduce the asset account Accounts Receivable. The provision account’s counter...
What is a credit balance? Definition of Credit Balance In accounting and bookkeeping, a credit balance is the ending amount found on the right side of a general ledger account or subsidiary ledger account. Examples of...
, a $20,000 amount will likely be immaterial for a large corporation with a net income of $900,000. However, the same $20,000 amount will be material for a small corporation with a net income of $40,000. Another view of...
statements. The reason is that it causes the company’s net income in the early years of an asset’s life to be lower than it would be under the straight-line method. One reason for using double-declining-balance...
amount of debt in relationship to owner’s equity. 16. In financial ratios, debt refers to the total amount of __________. 17. In the vertical analysis of a retailer, each amount on its income statement will be divided...
See Statement of Financial Accounting Standard No. 121. Under this standard if the undiscounted future cash flows from the asset (including sale amount) are less than its carrying amount, a loss is recognized. The amount...
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...
Used in the periodic inventory method to compute the value of inventory and the cost of goods sold. This average cost is based on the total cost of goods available for sale for the entire year (after all purchases for...
This is the expression for replacement cost, which is not an acceptable cost flow, since it violates the cost principle. However, an economist and decision makers would argue that the cost to replace the item is the...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
The amount of free cash flow divided by the weighted average number of common shares of stock outstanding during the year.
Our Explanation of Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
Why Does Inventory Get Reported on Some Income Statements? Reporting of Inventory on Financial Statements Inventory is an asset and its ending balance is reported in the current asset section of a company’s balance...
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...
have increased in value, the depreciation and cost of goods sold reported on the income statement will be less than the value of the economic capacity being used up. As a result, the reported net income will be greater...
How do I calculate the after-tax cost of debt? Definition of After-Tax Cost of Debt The after-tax cost of debt is the interest paid on the debt minus the income tax savings as the result of deducting the interest expense...
the calculation and recording of depreciation, establishing allowances for uncollectible accounts, etc.). After making the adjusting entries, the accountant prepares the company’s financial statements (income...
many income statements in the form of depreciation expense and/or as part of a manufacturer’s cost of goods sold. The total capex amount that was spent in a recent accounting period is reported in the statement...
account Accumulated Depreciation. Examples of Capital Expenditures Examples of capital expenditures include the amounts spent to acquire or significantly improve assets such as land, buildings, equipment, furnishings,...
Which financial statement tells the value of a business? None of the financial statements will report the value of a business. The main financial statements (balance sheet, income statement, statement of cash flows,...
adjustments related to these purchases of goods will be credited to a general ledger contra account such as Purchases Discounts or Purchases Returns and Allowances. When the balances of these three purchases accounts...
. Another example of a non-discount method in capital budgeting is the accounting rate of return method, which is similar to the return on investment (ROI). [To overcome the above shortcomings, capital budgeting should...
in a revenue account. A contra revenue account allows a company to see the original amount sold and to also see the items that reduced the sales to the amount of net sales. Examples of Contra Revenue Accounts Two...
What is gross pay? Definition of Gross Pay Gross pay is the amount an employee is paid before the employer withholds FICA (Social Security and Medicare payroll taxes), income taxes (federal, state, local) if applicable,...
What is the difference between gross profit margin and gross margin? Definition of Gross Profit Gross profit is an amount that is computed as follows: A company’s net Sales minus its cost of goods sold A product’s...
of cash flows. 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 re-enter the...
liabilities. To help recognize the difference between a company’s profits and its cash flows, the statement of cash flows is one of the required external financial statements. Join PRO to Track Progress Mark the...
flows: cash from operating activities cash dividends paid (part of the cash flows from financing activities) For a U.S. corporation with stock that is publicly traded, it is wise to review the pertinent parts of its...
How do you reduce a company's break-even point? Definition of Break-even Point The break-even point is the level of sales where a company’s income statement will report exactly zero net income. The level of sales...
An unfavorable budget variance (e.g. an actual expense is more than the budgeted amount, or actual revenues are less than the budgeted amount) An amount that is being subtracted The meaning of a negative amount in a...
Featured Review
"As a bookkeeper, I want to strive for excellence and continual improvement. I don't have an accounting degree, but I have learned through mentors and experience. I started taking the courses in AccountingCoach to help me better see the big picture—to increase my confidence by understanding the “why” behind the books. AccountingCoach is exactly what I needed. The core concepts are thoroughly explained, the quizzes help cement my knowledge, and I love that I can watch them over and over again as needed. AccountingCoach is an incredible resource and provides great value." - Jen C.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: