What is working capital? Definition of Working Capital Working capital is the amount of a company’s current assets minus the amount of its current liabilities. Example of Working Capital Let’s assume that a...
What is working capital? Definition of Working Capital Working capital is the amount of a company’s current assets minus the amount of its current liabilities. Example of Working Capital Let’s assume that a...
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...
What is a noncurrent asset? Definition of Noncurrent Asset A noncurrent asset is an asset that is not expected to turn to cash within one year of date shown on a company’s balance sheet. (This assumes that the company...
In a bank reconciliation, what happens to the outstanding checks of the previous month? Definition of Outstanding Checks Outstanding checks are checks written by a company, but the checks have not cleared the bank...
What is revenue? Definition of Revenue Revenue is the amount a company receives from selling goods and/or providing services to its customers and clients. A company’s revenue, which is reported on the first line of its...
If a company issues stocks or bonds to pay outstanding debt, should this noncash transaction be included in the cash flow statement? If a company issues stocks or bonds for cash and then pays off the debt, the...
What is an adjusted trial balance? Definition of an Adjusted Trial Balance The adjusted trial balance is an internal document that lists the general ledger account titles and their balances after any adjustments have...
What is a bond sinking fund? Definition of Bond Sinking Fund A bond sinking fund is a corporation’s noncurrent asset that is restricted for the purpose of redeeming or buying back its bonds payable. Bonds that require...
What is a line of credit? In business a line of credit or credit line is an arrangement/commitment by a bank or other creditor with a customer. The agreement specifies an amount that the customer can borrow or use in the...
What is a financial statement? Definition of Financial Statement Generally, the term financial statement could be referring to: General-purpose, external financial reports that are distributed by a company to people...
the item before you can measure the profit. GAAP doesn’t allow the use of replacement cost since that violates the (historical) cost principle. During periods of inflation the amount of phantom or illusory profits...
What are the limitations of the balance sheet? Definition of Balance Sheet The balance sheet is one of the main required financial statements. It is also known as the statement of financial position. The balance sheet...
Are repairs to office equipment an expense? Repairing and maintaining office equipment is an immediate expense. This is true even if the repair cost is a very large amount. If a large expenditure is made to improve...
What is accrued interest? Definition of Accrued Interest Accrued interest is the amount of loan interest that has already occurred, but has not yet been paid by the borrower and not yet received by the lender. Under the...
What is preferred stock? Definition of Preferred Stock Preferred stock is a type of capital stock issued by some corporations in addition to its common stock. Preferred stock is also known as preference stock. The word...
of an interest payment of $500 and a principal payment of $1,500. The company’s entry to record the loan payment will be: Debit of $500 to Interest Expense Debit of $1,500 to Loans Payable Credit of $2,000 to Cash The...
What is a balance sheet and why is it prepared? Definition of Balance Sheet The balance sheet is prepared in order to report an organization’s financial position at the end of an accounting period, such as midnight on...
What is the meaning of systematic and rational allocation? Definition of Systematic and Rational Allocation Systematic and rational allocation is typically included in the definition of depreciation. In this context, it...
How do you calculate accrued vacation pay? Definition of Accrued Vacation Pay Accrued vacation pay is the amount of vacation pay that a company’s employees have earned, but the company has not yet paid. Example of...
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...
was $3,600,000 and the average cost of its inventory account during the year was $400,000. As a result, the company’s inventory turnover ratio is: cost of goods sold of $3,600,000 divided by average inventory of...
How do I calculate depreciation using the sum of the years' digits? Definition of the Sum-of-the-Years’-Digits Depreciation The sum-of-the-years’-digits depreciation (SYD depreciation) is one method for calculating...
on the company’s balance sheet is accurate. The additions and deductions on the bank statement are compared (or reconciled) with the items that are entered in the company’s general ledger Cash account. Some...
as the borrower or debtor and records the amount owed in a liability account such as Notes Payable. The person or organization that has the right to receive the money when the promissory note comes due is known as the...
Are LIFO inventory amounts ever written-up to their market value? LIFO inventory amounts will not be written-up, even when the current market value of the inventory is far greater than the amount reported on the balance...
How do you calculate staff turnover? To calculate staff turnover, I would use the W-2 wage statements for the most recent year. My first step would be to sort the W-2’s into meaningful groups such as full-time...
What is reported as property, plant and equipment? Definition of Property, Plant and Equipment Property, plant and equipment is the long-term asset or noncurrent asset section of the balance sheet that reports the...
If an accrual adjusting entry increases an expense and a liability, how does the balance sheet remain in balance? An expense is a temporary account which reduces owner’s equity or stockholders’ equity. The decrease...
If a mortgage payment is due on January 1, should the payment be accrued at December 31? The following answer assumes that the accrual basis of accounting (also known as the accrual method of accounting) is being used…...
A corporation has a large balance in retained earnings. Does that mean that its dividends to stockholders will be increasing? Definition of Retained Earnings Retained earnings is one part of a corporation’s...
is deferred to the balance sheet account Prepaid Rent (or Prepaid Expenses,) which is a current asset. During the three months of January 1 through March 31 (when the prepaid rent is expiring) the $3,000 prepayment must...
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...
Can a fully depreciated asset be revalued? A fully depreciated asset cannot be revalued because of accounting’s cost principle. Definition of a Fully Depreciated Asset A fully depreciated asset is one that has...
What is an invoice? Definition of Invoice An invoice is a dated bill prepared by the seller of goods sold (or services provided) which includes brief descriptions of the items, quantities of items and their unit prices,...
What is the meaning of arrears? In accounting we use the word arrears in at least two ways. One use involves the omitted dividends on cumulative preferred stock. For example, if a corporation has cumulative preferred...
What is the cost to store inventory? Definition of Cost to Store Inventory The cost to store, hold or carry inventory is the total of the following: Cost of the space used for storing inventory, such as rent, heat,...
needs permit A drawback of common stock is that the common stockholders are last in line to receive money if a corporation is dissolved. Common Stock is also the title of the general ledger account that is credited when...
What is the difference between wages and salary? You should be aware that some people use the terms wages and salary interchangeably. I and many others make the following distinction… Definition of Wages Wages are...
Where do preferred stocks go on the P&L? The amount received from issuing preferred stock is reported on the balance sheet within the stockholders’ equity section. Only the annual preferred dividend is reported on the...
What is budgeting? Definition of Budgeting Budgeting is the process of preparing detailed projections of future amounts. Companies often engage in two types of budgeting: Operational budgeting, and Capital budgeting...
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