What is an outstanding check? Definition of Outstanding Check An outstanding check is a check that a company has issued and recorded in its general ledger accounts, but the check has not yet cleared the bank account on...
What is an outstanding check? Definition of Outstanding Check An outstanding check is a check that a company has issued and recorded in its general ledger accounts, but the check has not yet cleared the bank account on...
What is a debit balance? Definition of Debit Balance In accounting and bookkeeping, a debit balance is the ending amount found on the left side of a general ledger account or subsidiary ledger account. Examples of Debit...
What is the contribution margin ratio? Definition of Contribution Margin Ratio The contribution margin ratio is the percentage of sales revenues, service revenues, or selling price remaining after subtracting all of the...
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 cost behavior? Definition of Cost Behavior Cost behavior is an indicator of how a cost will change in total when there is a change in some activity. In cost accounting and managerial accounting, three types of...
What are nonmanufacturing overhead costs? Definition of Nonmanufacturing Overhead Costs Nonmanufacturing overhead costs are the business expenses that are outside of a company’s manufacturing operations. In other...
What is a trial balance? Definition of a Trial Balance A trial balance is a bookkeeping or accounting report that lists the balances in each of an organization’s general ledger accounts. (Often the accounts with zero...
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 the difference between depreciation expense and accumulated depreciation? Definition of Depreciation Expense Depreciation expense is the amount of depreciation that is reported on the income statement. In other...
What is an expense? Definition of Expense Under the accrual method of accounting, an expense is a cost that is reported on the income statement for the period in which: The cost best matches the related revenues The cost...
Where is a contract with a customer reported on the balance sheet? A contract to perform future services for a customer is not reported on the balance sheet of the company that will be providing the services. For...
Does sales commission get reported in the income statement? Definition of Sales Commissions Sales commissions are amounts earned by selling another company’s goods or services and paid by the company whose goods or...
What is a revenue expenditure? Definition of Revenue Expenditure A revenue expenditure is a cost that will be an expense in the accounting period when the expenditure takes place. Revenue expenditures are often discussed...
What is turnover? Definition of Turnover In accounting, the term turnover can have more than one meaning. In some countries turnover is used in place of sales. Turnover also pertains to certain financial ratios that...
What is the difference between revenues and receipts? Definition of Revenues A company’s revenues are amounts it has earned as the result of business activities such as selling merchandise or performing services. Under...
What are the limitations of the payback period? Definition of Payback Period The payback period is a common (but not the best) tool for screening a company’s potential investments. It uses the potential investment’s...
What is the break-even formula? Break-even Point in Units of Product The formula for determining the break-even point in units of product sold is: total fixed expenses divided by the contribution margin per unit. For...
What GPA is needed to be hired by a CPA firm? There is no single GPA (grade point average) that assures you of being hired by a CPA firm. I have seen firms pass over a student with a near-perfect GPA (3.97 out of 4.0)...
What is the gross profit method? Gross Profit Method Definition The gross profit method is a technique used to estimate the amount of ending inventory. The technique could be used for monthly financial statements when a...
Why is Accumulated Depreciation an asset account? Definition of Accumulated Depreciation The account Accumulated Depreciation reports the total amount of depreciation expense that has been recorded from the time the...
What is a responsibility center? Definition of Responsibility Center A responsibility center is a part or subunit of a company in which the manager has some degree of authority and responsibility. The company’s...
How are dividends paid when there are dividends in arrears? Definition of Dividends in Arrears Dividends in arrears exist when a corporation has: Cumulative preferred stock Omitted past dividends on the cumulative...
If I want a gross margin of 25%, what percent should I mark up my product? Definition of Gross Margin Gross margin as a percentage is the gross profit divided by the selling price. For example, if a product sells for...
What is a nonprofit organization? A nonprofit organization is an organization without commercial owners and which addresses the needs of society. Nonprofit organizations are also known as not-for-profits, NFP’s or...
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...
What is the accounting journal entry for depreciation? Definition of Journal Entry for Depreciation The journal entry for depreciation is: Debit to the income statement account Depreciation Expense Credit to the balance...
What is the break-even point? Definition of Break-even Point In accounting, the break-even point refers to the revenues necessary to cover a company’s total amount of fixed and variable expenses during a specified...
What are operating expenses? Definition of Operating Expenses Operating expenses are the costs that have been used up (expired) as part of a company’s main operating activities during the period shown in the heading of...
What does it mean to replenish the petty cash fund? Definition of Replenishing Petty Cash Replenishing the petty cash fund means the petty cash custodian requests and receives cash from the company’s regular checking...
How do you calculate the cost of carrying inventory? Definition of Cost of Carrying Inventory The cost of carrying inventory (or cost of holding inventory) is the sum of the following: Cost of money tied up in inventory,...
What is the purpose of the cash flow statement? Definition of Cash Flow Statement The cash flow statement or statement of cash flows or SCF identifies a company’s major cash inflows and outflows that occurred the same...
What is the earnings per share (EPS) ratio? Definition of Earnings per Share The earnings per share ratio, or simply earnings per share, or EPS, is a corporation’s 1) net income (or earnings) after tax that is...
Are there two ABC methods in accounting? Some accountants use ABC to mean Activity Based Costing. Under this ABC a manufacturer will use many cost drivers to assign overhead costs to products. The objective of Activity...
What is accounting for price level changes? In 1979 the Financial Accounting Standards Board (FASB) issued its Statement of Financial Accounting Standards No. 33 entitled Financial Reporting and Changing Prices. (You...
What is the difference between biweekly and semimonthly payroll? Definition of Biweekly Payroll Biweekly payroll refers to paydays that occur 26 times per year (52 weeks in a year divided by 2 weeks = 26 times per year)....
What is the difference between bad debt and doubtful debt? Definition of Bad Debt and Doubtful Debt In accounting, the terms bad debt and doubtful debt usually refer to the amounts owed by a company’s customers who...
What is marginal cost? Definition of Marginal Cost Marginal cost is a manufacturer’s cost to produce one more unit of product. In other words, marginal cost is the change in total costs when one additional unit is...
How do I calculate the after-tax cost of debt? Definition of After-Tax Cost of Debt The after-tax cost of debt is the interest paid on the debt minus the income tax savings as the result of deducting the interest expense...
What does capitalize mean? Definition of Capitalize In accounting, the word capitalize means to record an expenditure as an asset. The cost of this asset is then allocated to expense over its useful life. (If the...
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...
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