: $10,000 of assets = $0 of liabilities + $10,000 of owner’s equity. Next, let’s assume the company purchases equipment at a cost of $3,000 and signs a promise to pay the $3,000 within six months. Now the company’s...
: $10,000 of assets = $0 of liabilities + $10,000 of owner’s equity. Next, let’s assume the company purchases equipment at a cost of $3,000 and signs a promise to pay the $3,000 within six months. Now the company’s...
How do you compute a selling price if you know the cost and the required gross margin? Definition of Selling Price A selling price is the amount that a customer will pay to buy a product. If a retailer wants to earn a...
can be converted to cash much faster than inventory. The nature of the company’s sales and how customers pay. If a company has very consistent sales via the Internet and its customers pay with credit cards at the time...
a corporation issues $10,000,000 of bonds having a stated interest rate of 6% and maturing in 10 years. This means that the corporation agrees to pay interest of $300,000 semiannually ($10,000,000 X 6% X 1/2 year)...
What is a cash discount? Definition of Cash Discount A cash discount is a deduction allowed by some sellers of goods or by some providers of services to motivate customers to pay within an earlier specified time. The...
(Based on Pay Dates) The retailer’s payroll department must report to the IRS the wages paid. Therefore, the amount reported to the IRS is based on the pay dates. Since January 4 is the first time the employees will...
What is the interest coverage ratio? Definition of Interest Coverage Ratio The interest coverage ratio is a financial ratio used as an indicator of a company’s ability to pay the interest on its debt. (The required...
What is interest income? Definition of Interest Income Interest income is the amount of interest earned on investments (that promise to pay interest) and/or compensation for agreeing to receive cash payments from...
What is the advantage of issuing bonds instead of stock? Definition of Bonds Bonds payable are a form of long-term debt, which include a formal agreement to pay interest semiannually and the principal amount at maturity....
What is liquidity? Definition of Liquidity Liquidity is a company’s ability to convert its assets to cash in order to pay its liabilities when they are due. Current Assets Generally, the assets that are expected to...
cost. The cost of workers’ compensation insurance for the office staff will be a period cost and will be expensed immediately as part of SG&A. The cost of workers’ compensation insurance varies by the type of...
will be paying investors more than the interest required by the market ($300,000 semiannually instead of $295,000 semiannually), the investors will pay more than $10,000,000 for the bonds. If we assume the investors pay...
What are bonds payable? Definition of Bonds Payable Bonds payable are a form of long term debt usually issued by corporations, hospitals, and governments. The issuer of bonds makes a formal promise/agreement to...
that a company uses the accrual basis of accounting. In its first month of operations, it provides $10,000 of services to its clients and allows them to pay 30 days later. It also incurs $2,000 of expenses of which it...
for the manufacturer’s cash to be used to: pay for the raw materials needed in its products pay for the labor and overhead costs needed to convert the raw materials into products hold the finished products in...
these bonds will be paying the investors less than the market rate of interest ($300,000 semiannually instead of $305,000), the investors will pay less than $10,000,000 for the bonds. Assume the investors pay $9,800,000...
get back to Company X’s checking account, Company X’s bank will have two options when Company X’s checking account does not have sufficient funds to cover the checks: 1. The bank could pay the checks and allow...
), and the targeted or required interest rate. Example of the Effective Interest Rate Assume that a corporation issues a $1,000 bond with a stated, contractual, face, or nominal interest rate of 5%. This means that the...
What is the difference between Notes Payable and Accounts Payable? Definition of Notes Payable The account Notes Payable is a liability account in which a borrower’s written promise to pay a lender is recorded. (The...
. FOB shipping point This term indicates that the ownership of goods will transfer to the buyer when the goods leave the seller’s warehouse. Mark as wrong Mark as right accrued expenses These expenses have occurred but...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
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...
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...
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.
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...
for this topic. For more insight regarding a specific question, use the search box at the top of the page. 1. Normal practice is for the buyer of a bond to pay the quoted price plus any accrued __________. 2. If a...
balance sheet since it will report accounts receivable and prepaid expenses plus accounts payable, deferred revenues and other liabilities. 2. Under the accrual method of accounting, in which month should a company...
What is a lump sum payment? A lump sum payment is often associated with a single amount paid to acquire a group of items. For instance, a corporation might pay $50,000 for the inventory and equipment of a small...
The additional amount given to employees for the overtime hours. Usually this is the “half-time” in time and one-half. For example, if an employee’s hourly pay rate is $10 per hour and the employee...
to the modifications. Irrevocable letters of credit are often used to facilitate international trade because of the additional risks involved. The irrevocable letter of credit assures the seller that it will be paid by...
One component of the FICA tax (the other component is Social Security). This payroll tax is withheld from employees’ payroll checks and is also matched by the employer. The employee and the employer each pay the...
of Direct Labor Variances Direct labor variances often consist of two parts: Direct Labor Rate Variance which reports the difference between the actual pay rate and the standard pay rate Direct Labor Efficiency Variance...
to the company’s weak financial position it would normally have to pay a high interest rate if it were able to borrow money. In this example, the promissory note does not show an explicit interest cost. However, due...
. The company will then have to pay the endorsers/payees the amounts on the checks plus any fees their banks charged for handling the NSF checks. The payees may require the company to pay for future transactions...
is the electricity that is used in December where neither the bill nor the payment will be processed until January. The December electricity should be recorded as of December 31 with an accrual adjusting entry that...
statement account Repairs Expense for $6,000, and credits the balance sheet current liability account Accrued Expenses Payable for $6,000. Examples of other expenses that typically require an accrual adjusting entry...
. When a company pays its May rent on May 1, its asset account Cash decreases and its income statement account Rent Expense increases. When the company records its accrued interest expense, its liability account Interest...
account and its bank statement is documented in the __________ reconciliation of the bank statement. 15. Accrued expenses are likely to pertain to transactions that have __________ been paid. Already Wrong. Not Yet...
businesses in the U.S. QuickBooks This accounting and bookkeeping software from Intuit is widely used by small businesses in the U.S. Mark as wrong Mark as right biweekly This word indicates that an employee is paid...
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