What is the cost of sales? Definition of Cost of Sales Cost of sales is often a line shown on a manufacturer’s or retailer’s income statement instead of cost of goods sold. The cost of sales for a manufacturer is the...
What is the cost of sales? Definition of Cost of Sales Cost of sales is often a line shown on a manufacturer’s or retailer’s income statement instead of cost of goods sold. The cost of sales for a manufacturer is the...
can see, the entry does not involve the account Cash. Hence, depreciation expense is referred to as a noncash expense. Example of Depreciation Assume that a sidewalk florist operates a cash only business. During the...
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...
) amount of retained earnings is reported as a separate line within stockholders’ equity. The owner’s drawing account in a sole proprietorship will have a debit balance. Hence, if it is reported as a separate line,...
What are the notes to the financial statements? Definition of Notes to Financial Statements The notes to the financial statements are a required, integral part of a company’s external financial statements. They are...
How do I record exterior cement work? Is it an asset or an expense? If the cement work was done to repair or maintain existing cement work, then the expenditure should be recorded as an expense. Even if the cost is very...
What is Notes Payable? Definition of Notes Payable In accounting, Notes Payable is a general ledger liability account in which a company records the face amounts of the promissory notes that it has issued. The balance in...
What is capital stock? Definition of Capital Stock Capital stock refers to the shares of ownership that have been issued by a corporation. The amount received by the corporation when its shares of capital stock were...
What does it mean to reclassify an amount? Definition of Reclassify an Amount To reclassify an amount likely means to move an amount from one general ledger account to another general ledger account. Example of...
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...
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...
on the balance sheet as a contra liability account along with Bonds Payable in the long-term liability section.) Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting...
. The landlord requires a security deposit of $1,000. The company debits the long-term asset Security Deposit for $1,000 and credits Cash for $1,000. The landlord debits Cash for $1,000 and credits a liability account...
What is Construction Work-in-Progress? Definition of Construction Work-in-Progress Construction Work-in-Progress is a noncurrent asset account in which the costs of constructing long-term, fixed assets are recorded. The...
Why Does Inventory Get Reported on Some Income Statements? Reporting of Inventory on Financial Statements Inventory is an asset and its ending balance is reported in the current asset section of a company’s balance...
Which date is used to record a credit card transaction? When a business uses its credit card, the transaction date is the date the credit card is used, not the date that the credit card statement is paid. For example, if...
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 gross margin? Definition of Gross Margin Gross margin is the amount remaining after a retailer or manufacturer subtracts its cost of goods sold from its net sales. In other words, gross margin is the retailer’s...
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 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 are fixed assets? Definition of Fixed Assets Fixed assets are a company’s tangible, noncurrent assets that are used in its business operations. The word fixed indicates that these assets will not be used up,...
What is the difference between a contingent liability and an estimated liability? Definition of a Contingent Liability A contingent liability is a potential liability (and a potential loss or potential expense). For a...
What is the payout ratio? The payout ratio indicates the percentage of a corporation’s earnings which are distributed as cash dividends to its stockholders. Typically, the payout ratio is computed by using the per...
What is equity? Definitions and Examples of Equity Equity has several definitions that pertain to accounting: Equity can indicate an ownership interest in a business, such as stockholders’ equity or owner’s equity....
What is callable stock? Callable stock is an ownership interest (shares) in a corporation that can be “called in” by the corporation at a specified price. For example, a corporation might issue 9% $100 Preferred...
What is a letter of credit? A letter of credit is a letter or document issued by a bank for use by one of its customers. The letter of credit states that the bank will guarantee payment up to the stated amount for...
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 pay...
is the cost of goods on hand, it makes sense to relate it to the cost of goods sold. Assume that during the past year a company’s inventory had an average cost of $10,000. (This was the average of the amounts in the...
How do you record the sale of land? Definition of Sale of Land Assume that a retailer sells land that it had been holding for a future store. The retailer must remove the cost of the land from its general ledger asset...
to Cash of $10,150,000; a credit to Bonds Payable of $10,000,000; and a credit of $150,000 to Premium on Bonds Payable (an adjunct liability account). Over the life of the bonds, the $150,000 premium is to be accounted...
Why is the distinction between product costs and period costs important? The distinction between product costs and period costs is important to: Properly measure a company’s net income during the time specified on its...
Why do companies use cost flow assumptions to cost their inventories? Cost flow assumptions are necessary because of inflation and the changing costs experienced by companies. If costs were completely stable, it...
How many years is the appropriate time for depreciating leasehold improvements? Leasehold improvements should be depreciated or amortized according to the lessee’s normal depreciation policy except that the time period...
for $500 Credit to Sales Taxes Payable for $30 Note that Sales Revenues did not include the $30 of sales taxes collected. When the retailer remits the sales taxes to the government, the retailer will reduces its...
What are the required financial statements? The required financial statements for U.S. business corporations are: Statement of income. This financial statement is also known as the statement of operations, statement of...
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 difference between par and no par value stock? Definition of Par Value Stock Some states’ laws require or may have required common stock issued by corporations residing in their states to have a par value....
Where does the interest paid on bank loans get reported on the statement of cash flows. Definition of Interest on Bank Loans The interest on bank loans is usually an expense of the accounting period in which the interest...
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...
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