Is there a difference between the accounts Purchases and Inventory? Purchases Account Under the Periodic Inventory System The general ledger account Purchases is used to record the purchases of inventory items under the...
Is there a difference between the accounts Purchases and Inventory? Purchases Account Under the Periodic Inventory System The general ledger account Purchases is used to record the purchases of inventory items under the...
that the receivable be assigned to them as collateral for the loan. Assigning a specific account receivable usually results in recording the receivable in a separate general ledger account such as Accounts Receivable...
What is the days' sales in accounts receivable ratio? Definition of Days’ Sales in Accounts Receivable The days’ sales in accounts receivable ratio (also known as the average collection period) tells you the...
General ledger account numbers to be charged Authorizing signatures The voucher is then recorded in the voucher register. The unpaid vouchers provide the detail for the total amount reported as vouchers payable or...
Which accounts normally have debit balances? Definition of Debit Balance In accounting, a debit balance refers to a general ledger account balance that is on the left side of the account. This is often illustrated by...
What is the accounts receivable collection period? Definition of Accounts Receivable Collection Period The accounts receivable collection period is similar to the days sales outstanding or the days sales in accounts...
into categories such as current, 1-30 days past due, 31-60 days past due, and so on is the __________ of accounts receivable. 48. The contra asset account, __________ for Doubtful Accounts, reports the estimated amount...
Our Explanation of Financial Statements provides you with the highlights of each of the five external financial statements issued by U.S. corporations. Our insights will give you a good understanding of what the...
. If a company grants an early payment discount, the amount of the discount is debited to the contra revenue account Sales Discounts. Similarly, if a company gives a customer a sales allowance or accepts a return of...
ledger account Sales Discounts is a contra revenue account. Sales discounts are not reported as an expense. Example of Sales Discounts A company offers its business customer sales discounts of 1/10, net 30. For the...
How do you calculate the average balance in accounts receivable? The average will be more representative if you include additional balances in the computation. For example, if you compute the average balance for the year...
What is the difference between accounts payable and accrued expenses payable? Definition of Accounts Payable Accounts Payable is a liability account in which suppliers’ or vendors’ approved invoices are recorded. As...
Why would a business change its chart of accounts? There can be several reasons for a business to change its chart of accounts. One reason for changing the chart of accounts is to better match how the business is...
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...
Which accounts get closed at the end of a fiscal year? The temporary accounts get closed at the end of an accounting year. Temporary accounts include all of the income statement accounts (revenues, expenses, gains,...
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...
What is the difference between the accounts rent receivable and rent revenue? Definition of Rent Receivable Rent Receivable is the title of the balance sheet asset account which indicates the amount of rent that has been...
What is the normal balance of the direct materials variance accounts? I don’t believe there is a normal balance. If a company pays exactly the standard cost of its direct materials, there will be no balance in the...
for a customer on December 28 and allows the customer 10 days in which to pay its invoice of $850. On December 28, HRS records the $850 it has earned in the current asset account Accounts Receivable and in the revenue...
the owner’s capital account balance and the owner’s equity. The drawing account’s purpose is to report separately the owner’s draws during each accounting year. Since the capital account and owner’s equity...
What is a nominal account in accounting? Definition of Nominal Account In accounting, nominal accounts are the general ledger accounts that are closed at the end of each accounting year. The closing process transfers...
What is a general ledger account? Definition of General Ledger Account A general ledger account is an account or record used to sort, store and summarize a company’s transactions. These accounts are arranged in the...
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...
What is a real account? Definition of a Real Account A real account is a general ledger account that does not close at the end of the accounting year. In other words, the balances in the real accounts are carried over to...
On credit; not for cash.
A record in the general ledger that is used to collect and store similar information. For example, a company will have a Cash account in which every transaction involving cash is recorded. A company selling merchandise...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
balance for the new year. Permanent accounts are also known as real accounts. Examples of Permanent Accounts Generally, the balance sheet accounts are permanent accounts, except for the owner’s drawing account which...
similar to the sole proprietor’s Drawing account and Capital account which are part of owner’s equity. Both the Dividends account and the Drawing account are temporary balance sheet accounts since they are closed at...
Will every transaction affect an income statement account and a balance sheet account? Definition of Income Statement and Balance Sheet Accounts A company’s general ledger accounts are arranged into two categories...
What is a LIFO Reserve? Definition of LIFO Reserve The LIFO reserve is a contra inventory account that indicates the difference between the following: Inventory cost reported on the balance sheet under the LIFO cost flow...
and allowance) and freight-in Equals the cost of goods available Minus the cost of its ending inventory Equals the cost of goods sold A second formula for calculating a retailer’s cost of goods sold is: The cost of...
entries. Temporary accounts are also referred to as nominal accounts. All of the income statement accounts are classified as temporary accounts. A few other accounts such as the owner’s drawing account and the income...
or to the proprietor’s capital account at the end of each accounting year.) Contra-revenue accounts including Sales Discounts, Sales Returns, etc. (The debit balances in these accounts allow for the reporting of both...
entry will affect a minimum of two accounts. For example, paying the rent usually means an entry to the account Cash and to the account Rent Expense. In addition, double entry requires that at least one account will be...
Does paying an account payable affect net income? Definition of Paying Accounts Payable Under the accrual basis of accounting, expenses are recorded when they have occurred, not when they are paid. Therefore, if an...
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