of the owner’s capital account and a drawing account. The drawing account is a temporary account in which the owner’s current year draws or withdrawals are recorded. The sole proprietor withdraws money for personal...
of the owner’s capital account and a drawing account. The drawing account is a temporary account in which the owner’s current year draws or withdrawals are recorded. The sole proprietor withdraws money for personal...
What is a credit? Definition of a Credit In bookkeeping and accounting, a credit likely refers to the amount entered on the right side of a general ledger account or to the right side of a T-account. A credit could also...
What is a dividend and why is it needed? A dividend paid by a corporation is a distribution of profits to the owners of the corporation. The owners of a corporation are known as stockholders or shareholders. (In a sole...
What is the difference between information and data? I was taught that information is useful data. The point is there are lots of data (plural of datum) everywhere, and most of the data will not be useful to a decision...
Will I be able to pass the CPA Exam after studying the accounting material on AccountingCoach.com? AccountingCoach.com contains introductory accounting material. While you need to master the principles and concepts...
What is the monetary unit assumption? Definition of Monetary Unit Assumption The monetary unit assumption as it applies to a U.S. corporation is that the U.S.dollar (USD) is stable in the long run. That is, the USD does...
for the current period’s expense that is reported on the company’s income statement. If Provision for Doubtful Debts is the name of the account used for recording the current period’s expense associated with the...
What is the difference between the current ratio and the acid test ratio? The difference between the current ratio and the acid test ratio (or quick ratio) mainly involves the current assets inventory and prepaid...
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....
What is "deficit" appearing in stockholders' equity? Definition of Deficit Within Stockholders’ Equity The term deficit is used within the stockholders’ equity section of a corporation’s balance sheet in place 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...
reconciliation the outstanding checks are a deduction from the bank balance (or balance per the bank statement). If an outstanding check from the previous month did not clear the bank account in the current month, the...
How do I learn more about the CPA Exam? You can learn more about the Uniform CPA Exam at our free Accounting Career Center. Within our Accounting Career Center are direct links to the state boards of accountancy, CPA...
What is the entry for a loan to an employee? Definition of Loan to Employee A loan to an employee is money advanced by the company to assist the employee. If the employee is expected to repay the loan within one year of...
The deferral of a payment to the balance sheet until it becomes an expense in a future accounting period The deferral of a receipt to the balance sheet until it is earned in a future accounting period Adjustments to...
How does petty cash affect expenses? Definition of Petty Cash Petty cash is a small amount of currency and coins that a company has available to make very small payments instead of requesting and processing a company...
What is a transposition error? Definition of Transposition Error A transposition error occurs when an amount is recorded incorrectly as the result of switching the positions of two (or more) digits. The switching of the...
on the income statement. Therefore the plant asset’s carrying amount will be decreasing each period. The going concern assumption implies that the company will be continuing in business. Since it is assumed that the...
computed using replacement costs. This smaller amount of costs charged to the income statement means reporting greater profit. The difference in the profit is said to be illusory. In the case of plant assets used during...
What is the bookkeeping equation? Definition of Bookkeeping Equation The bookkeeping equation (or accounting equation) is similar to the structure of the balance sheet: For a sole proprietorship: Assets = Liabilities +...
. On January 31, the company pays the invoice and debits Accounts Payable and credits Cash for $300. The January 31 payment affected two balance sheet accounts. No expense or other income statement account was affected....
How do you record an asset that was partially financed? Example of Recording an Asset that was Partially Financed Assume that your company purchased a car for $10,000 by paying cash of $4,000 and signing a promissory...
Why are expenses debited? Why Expenses Are Debited Expenses cause owner’s equity to decrease. Since owner’s equity’s normal balance is a credit balance, an expense must be recorded as a debit. At the end of the...
What is the difference between assets and fixed assets? Assets are resources owned by a company as the result of transactions. Examples of assets are cash, accounts receivable, inventory, prepaid insurance, land,...
What are sales discounts? Definition of Sales Discounts Sales discounts (if offered by sellers) reduce the amounts owed to the sellers of products, when the buyers pay within the stated discount periods. Sales discounts...
An unfavorable budget variance (e.g. an actual expense is more than the budgeted amount, or actual revenues are less than the budgeted amount) An amount that is being subtracted The meaning of a negative amount in a...
What is the employer's Social Security tax rate for 2022 and 2023? Employer’s Social Security Payroll Tax for 2022 The employer’s Social Security payroll tax rate for 2022 (January 1 through December 31, 2022) is the...
What is a source document? Definition of Source Document A source document is an original record which contains the detail that supports or substantiates a transaction that will be (or has been) entered in an accounting...
When are expenses credited? Definition of Expenses Credited Normally, the general ledger accounts for expenses are debited and are expected to have debit balances. The reason they are debited is they cause the normal...
What causes a reduction in Accumulated Depreciation? Definition of Accumulated Depreciation Accumulated Depreciation is a general ledger contra asset account associated with a company’s property, plant and equipment....
receivable is $92,000. Adjustments to the Allowance account are reported on the income statement as bad debts expense. Now, let’s assume that a company’s inventory has a cost of $15,000. However, at the end of the...
What is a customer deposit? Definition of Customer Deposit A customer deposit could be money that a company receives from a customer prior to the company earning it (by providing the customer with goods or services). In...
What are the accounting entries for a fully depreciated car? Definition of a Fully Depreciated Car A fully depreciated car is one where the car’s historical cost has already been allocated to expense (except for the...
statement will report the commissions revenues and its balance sheet will report the commissions receivable. Accounting for Commissions Expense Under the accrual basis of accounting, the commissions do not have to be...
Where do I record the refund of a registration fee? If the registration fee refers to a fee expense that you had originally paid but the amount is now being refunded to you, I would credit the same expense account that...
and Allowances for $500 and will credit Accounts Receivable for $500. Company K’s income statement will report the gross Sales of $100,000 minus the sales returns and allowances of $500 and the resulting net sales of...
What is the double declining balance method of depreciation? Definition of Double Declining Balance Method of Depreciation The double declining balance method of depreciation, also known as the 200% declining balance...
months. Between the interest payment dates, the company will have: Accrued interest income that is to be reported on the income statement Accrued interest receivable that is to be reported on the balance sheet Accrued...
prepares a bank reconciliation, the outstanding checks are subtracted from the bank statement balance in order to determine the correct or adjusted bank balance. There is no need for the company to write a journal...
What is accounts payable? Definition of Accounts Payable Accounts payable involves the amounts owed by a company to its suppliers (vendors) for goods or services the company received on credit. Accounts payable is also...
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