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Also referred to as the useful life. This differs from the physical life of an asset. For example, a computer may have a physical life of 50 years, but its economic or useful life might be five years.
A lease that “in substance” is a purchase and financing arrangement. When a lease meets certain criteria, the asset being “rented” is recorded as an asset and a liability is also recorded. A lease...
See accrued payroll.
See discount on bonds payable.
Someone who performs a task for a company, but is not an employee. The IRS has criteria to assist in distinguishing between an independent contractor and an employee.
A discount that often varies by customer. For example, a company may sell its products to a variety of resellers. Some of the resellers might buy $1 million of products each year, other resellers might purchase $100,000,...
A current liability account that reports the amounts of cash dividends that have been declared by the board of directors but not yet distributed to the stockholders.
Savings accounts and certificates of deposits at a bank.
Also known as a CD. A bank time deposit (savings deposit) that cannot be withdrawn until a specified date. For example, a CD might mature in 6, 9, 12, or 18 months. If the amount deposited in a CD needs to be withdrawn...
One of the steps in effective internal control. An example of separation of duties is to have the money handling be performed by someone who does not update the records. This means that the money counters at a church...
Classifying expenses according to the type of work such as selling, administration, general, and financing.
The compensation earned by employees who are paid on an hourly basis. It is common for production workers to earn wages, since they are usually paid via an hourly rate.
Life insurance without a cash value.
An average that changes with an additional purchase. See perpetual moving average in Explanation of Inventory and Cost of Goods Sold.
The long term asset category of a classified balance sheet which appears immediately after the current assets. Listed in this category would be a bond sinking fund, funds held for construction, the cash surrender value...
To loan money for a limited time in exchange for the borrower’s promise of repayment and interest compensation.
. The amounts paid to the corporation by the original stockholders are reported as paid-in (or contributed) capital within the stockholders’ equity section of the corporation’s balance sheet. Join PRO to Track...
Advertising Expense to Marketing Supplies. The term reclassify has a gentler tone than the phrase to correct an account coding error. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to...
An employee that is not entitled to overtime wages or salaries. Examples of exempt employees include executives, managers and other highly-paid employees.
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 workforce Pass your accounting class Understand your small...
A term meaning behind, such as dividends in arrears, or something occurring at the end of a period, such as the recurring payment in an annuity in arrears.
The repeated elimination of products without a corresponding decrease in overhead costs. As a result the amount of overhead allocated to each unit of product increases. If selling prices are increased to cover the higher...
See bearer bond.
A corporation’s cost of capital is its weighted average after-tax cost of its debt, preferred stock, common stock, retained earnings, and other components of stockholders’ equity. The cost of capital is...
The recording of a company’s transactions into the accounts contained in the general ledger. It is usually associated with the accounting tasks prior to the preparation of the trial balance. To learn more about...
See line of credit.
Usually a person without a four-year or five-year accounting degree employed to record routine financial transactions for smaller companies.
See next-in, first-out cost flow assumption (NIFO).
. The actual unit costs must be consistent with the cost flow assumption (FIFO, weighted-average, etc.) that was elected by the company. Special attention is required for items that are on consignment or are in transit....
liability. When a company receives money in advance of earning it, the accounting entry is a debit to the asset Cash for the amount received and a credit to the liability account such as Customer Advances or Unearned...
Free Alongside Ship. Terms indicating that the seller’s price includes delivery of goods at a ship’s pier. Title to the goods will transfer to the buyer alongside the ship.
The price at which one division or subsidiary of a company transfers products to another division or subsidiary of the company.
money to the business, the entry will be to debit Cash and credit a liability account such as Notes Payable. (If Amy invests an asset other than cash, the business will record the cash equivalent or fair market value of...
and transferred to the owner’s capital account, thereby increasing owner’s equity. (At a corporation, the credit balances in the revenue accounts will be closed and transferred to Retained Earnings, which is a...
The day after the record date for a cash dividend on shares of stock. Theoretically, the market price of the stock should drop on this day by the amount of the dividend.
For example.
Goodwill is a long-term (or noncurrent) asset categorized as an intangible asset. Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the...
An intangible asset that is reported at cost (or lower) on the balance sheet. It might consist of a name or a logo. Trademarks should be registered with the U.S. Patent and Trademark Office. Also see trade names.
Paper evidence of ownership in a corporation. The certificate would indicate the type of stock (common, preferred), any restrictions pertaining to the sale of the stock, the number of shares, the par value, etc. Today,...
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