What is gross profit? Definition of Gross Profit Gross profit is defined as net sales minus the cost of goods sold. Gross profit is sometimes referred to as gross margin. (However, gross margin can also mean the gross...
What is gross profit? Definition of Gross Profit Gross profit is defined as net sales minus the cost of goods sold. Gross profit is sometimes referred to as gross margin. (However, gross margin can also mean the gross...
A listing of all of the accounts in the general ledger with account balances after the closing entries have been posted. This means that the listing would consist of only the balance sheet accounts with balances. The...
of the accounts will receive a debit entry and at least one other account will receive a credit entry. Further, the amounts entered as debits must be equal to the amounts entered as credits. You should think of a debit...
How do you calculate the cost of goods sold for a retailer? Formula for Calculating a Retailer’s Cost of Goods Sold A retailer’s cost of goods sold is: The cost of the retailer’s beginning inventory Plus the cost...
What is the profit margin (after tax) ratio? Definition of Profit Margin Ratio The after tax profit margin ratio expresses the company’s net income or earnings as a percent of the company’s net sales. In other words,...
to mean all forms of taxable compensation including wages, salaries, tips, commissions, bonuses, etc. Gross Wages vs Net Wages If an employee works 40 hours during the week of December 25-31 and earns $20 per hour, the...
on its investments. The investment interest and dividend amounts earned will be reported on the income statement as other income. To provide more clarity, accountants use the term net income to describe the amount...
for the company to recoup its investment. Example of Payback Period Assume a company invests $100,000 in a project that is expected to have the following positive net cash inflows: $30,000 in Year 1 $40,000 in Year 2...
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 Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
by reading our Nonprofit Accounting (Explanation). 1. A nonprofit's revenues and expenses are reported on its statement of __________ activities. 2. The accounting equation of a nonprofit is Assets = Liabilities +...
describes an __________. 3. Methods that compute the present value of future cash flows are referred to as __________ cash flow techniques. 4. Part of the difference between a company’s net income during a specific...
Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
Reports too little. If an error understates the inventory and the company’s net income, the amount of inventory and the amount of net income being reported are less than the correct amounts.
The reduction of an asset’s carrying amount. For example, we often reduce or write down inventory from its cost to its net realizable value when the net realizable value is lower.
Reports too much. If an error overstates the inventory and the company’s net income, the amount of inventory and the amount of net income being reported is more than the correct amount.
The result of dividing a corporation’s net income by the average amount of common stockholders’ equity during the time interval when the net income was earned. To learn more about this ratio, see Explanation...
A listing of the general ledger accounts and their account balances at a point in time after the adjusting entries have been posted. The grand total of the accounts with debit balances should equal the grand total of the...
The debit or credit balance that would be expected in a specific account in the general ledger. For example, asset accounts and expense accounts normally have debit balances. Revenues, liabilities, and...
What is the difference between dividends and interest expense? Definition of Dividends Dividends are a distribution of a corporation’s earnings to its stockholders. Dividends are not an expense of the corporation and...
years all expressed in easier to absorb amounts. Example of Trend Analysis Assume you want to see the trend of a service company’s revenues, net income, and number of clients during the years 2017 through 2023. With...
, if last year’s ending inventory was $100,000 and the current year’s ending inventory is $93,000, there will be a credit to Inventory for $7,000 and a debit to Inventory Change for $7,000. When the debit of $7,000...
Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
These journal entries are made after the financial statements have been prepared at the end of the accounting year. Most of the closing entries involve the income statement accounts (revenues, expenses, gains, losses,...
A method for recognizing bad debts expense arising from credit sales. Under this method there is no allowance account. Rather, an account receivable is written-off directly to expense only after the account is determined...
to the present. The rate that discounts the cash flows to a net present value of zero is the internal rate of return. Payback Wrong. The payback model uses the cash flows from the project to determine the time needed to...
Why are assets and expenses increased with a debit? Definition of Debit In accounting the term debit indicates the left side of a general ledger account or the left side of a T-account. (The right side of an account or a...
Our Explanation of Bank Reconciliation will show you the needed adjustments to the balance on the bank statement and also the adjustments needed to the balance in the related general ledger account. A comprehensive...
Our Explanation of Bank Reconciliation will show you the needed adjustments to the balance on the bank statement and also the adjustments needed to the balance in the related general ledger account. A comprehensive...
A type of financial analysis involving income statements and balance sheets. All income statement amounts are divided by the amount of net sales so that the income statement figures will become percentages of net sales....
What does NOI stand for? NOI is the acronym for net operating income. Net operating income is also referred to as income from operations. NOI excludes discontinued operations, extraordinary items, and nonoperating (or...
Debits and Credits (Flashcards) Download Single-Sided PDF Download Double-Sided PDF All Cards (30) Marked Wrong (0) Marked Right (0) debit (or) debit balance This is the left side of an account and also the normal...
. Examples for Using T-Accounts I regularly use T-accounts when preparing adjusting entries (accruals and deferrals). I begin by drawing two T-accounts, marking one as the balance sheet account, and one as the income...
. An entry in the general journal will include the date, the account with the amount that is to be debited, the account with the amount that is to be credited, and a brief description. After these relatively few...
What is the difference between a general ledger and a general journal? Definition of General Ledger The general ledger contains the accounts used to sort and store a company’s transactions. The general ledger is...
and reduces a company’s net income. However, the interest paid also causes a change in the company’s balance sheet and statement of cash flows. Reporting Interest Paid on the Statement of Cash Flows In the statement...
What is "deficit" appearing in stockholders' equity? Definition of Deficit Within Stockholders’ Equity The term deficit is used within the stockholders’ equity section of a corporation’s balance...
What is the total asset turnover ratio? Definition of Total Asset Turnover Ratio The total asset turnover ratio indicates the relationship between a company’s net sales for a specified year to the average amount of...
Featured Review
"I have a small bookkeeping company. Being a PRO user on AccountingCoach has been transformative for my bookkeeping and accounting skills. The comprehensive lessons and interactive quizzes provide a structured learning experience, demystifying complex accounting concepts. The clear explanations, coupled with real-world examples, have significantly improved my proficiency in my business. The platform's intuitive interface enhances accessibility, allowing me to seamlessly navigate through various topics. The PRO features, including in-depth Q&A sessions and additional resources, ensure I stay ahead in my financial endeavors. AccountingCoach is an indispensable tool for anyone seeking a profound grasp of accounting principles, and its PRO membership is worth every penny for the enriched learning journey." - Jonathon P.
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: