Why isn't the direct write off method of uncollectible accounts receivable the preferred method? Definition of Direct Write Off Method Under the direct write off method of accounting for credit losses pertaining to...
Why isn't the direct write off method of uncollectible accounts receivable the preferred method? Definition of Direct Write Off Method Under the direct write off method of accounting for credit losses pertaining to...
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 is the direct write-off method? Definition of Direct Write-off Method The direct write-off method is one of the two methods normally associated with reporting accounts receivable and bad debts expense. (The other...
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...
Why would a company use double-declining depreciation on its financial statements? Definition of Double-Declining-Balance Depreciation The double-declining-balance method of depreciation is a form of accelerated...
What is comprehensive income? Definition of Comprehensive Income Comprehensive income for a corporation is the combination of the following amounts which occurred during a specified period of time such as a year,...
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...
What is a promissory note? Definition of Promissory Note A promissory note is a written promise to pay an amount of money by a specified date (or perhaps on demand). The maker of the promissory note agrees to pay the...
What is a current liability? Definition of Current Liability A current liability is: An obligation that will be due within one year of the date of the company’s balance sheet, and Will require the use of a current...
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 carriage outwards? Definition of Carriage Outwards Carriage outwards refers to the transportation costs that a seller must pay when it sells merchandise with the terms FOB Destination. Carriage outwards is also...
What is the accounting entry to close the sole proprietorship drawing account? Definition of Sole Proprietorship Drawing Account The drawing or withdrawal account for a sole proprietorship is a temporary owner equity’s...
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...
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 a lien? Definition of Lien A lien is a legal document filed by a creditor (lender) in order to record its claim on certain assets of the debtor (borrower). The lien is likely filed at the county government office...
What is a journal entry? Definition of a Journal Entry In manual accounting or bookkeeping systems, business transactions are first recorded in a journal…hence the term journal entry. Journal entries that are recorded...
What are external financial statements? Definition of External Financial Statements External financial statements are those distributed outside of the company’s management. Some of the recipients of the external...
What is opportunity cost? Definition of Opportunity Cost Opportunity cost is the profit that was lost or missed because of some action or failure to take some action. Some refer to opportunity cost as opportunity lost....
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...
What is net realizable value? Definition of Net Realizable Value Net realizable value (NRV) is the cash amount that a company expects to receive. Hence, net realizable value is sometimes referred to as cash realizable...
What is an imprest system of petty cash? Definition of Petty Cash Petty cash refers to a small amount of currency and coins that a company uses to pay small amounts without writing a check. The amount of petty cash (also...
Why is interest expense a nonoperating expense? Definition of Interest Expense as a Nonoperating Expense Interest expense is the cost of borrowing money. For most companies the borrowing of money is not part of their...
Are dividend payments shown as an expense on the income statement? Definition of Dividend Payments The cash dividends paid to stockholders are a distribution of the corporation’s earnings. Dividends are not an expense...
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,...
What is financial reporting? Definition of Financial Reporting Financial reporting includes all of a company’s communication of financial information to people outside of the company. Examples of Financial Reporting...
What is capex? Definition of Capex Capex is a shortened form of the term capital expenditure or capital expenditures. Capex is often used when referring one or both of the following: Actual amounts that were spent during...
Why is a product that sells for $50 reported in inventory at its cost of $40? Generally, items in inventory are valued at their cost—not their selling prices—because of the cost principle. Another reason for not...
What is a cash cow? A cash cow is often a profitable product or service that dominates a market and generates far more cash than is needed to maintain its market position. Companies may use the money from the cash cow to...
What is the entry when a company lends money to an employee? Definition of Employee Loan When a company lends money to one of its employees, the company is reducing its Cash and increasing another asset such as Other...
What is an account? Definition of Account In accounting, an account is a record in the general ledger that is used to sort and store transactions. For example, companies will have a Cash account in which to record every...
What is leverage? Definition of Leverage In accounting and finance, leverage is the use of a significant amount of debt to purchase an asset, operate a company, acquire another company, etc. Since the cost of debt is...
What does it mean to recognize an expense? Definition of Recognize an Expense To recognize an expense means to report the proper amount of an expense on the income statement for the appropriate accounting period. When...
What is accrued rent? Definition of Accrued Rent Accrued rent is the amount of rent that has not yet been paid by the tenant or received by the landlord for a past period of time. [If the tenant always pays the monthly...
What is a purchase allowance? Definition of Purchase Allowance A purchase allowance is a reduction in the buyer’s cost of merchandise that had been purchased. The purchase allowance is granted by the supplier because...
What is deferred revenue? Deferred Revenue Deferred revenue is money received by a company in advance of having earned it. In other words, deferred revenues are not yet revenues and therefore cannot yet be reported on...
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...
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...
What is scrap value? Definition of Scrap Value In cost accounting, scrap value refers to a relatively insignificant amount that a manufacturer receives from the sale of production materials that remain after the...
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...
Is a loan payment an expense? Definition of Loan Payment Generally a loan payment consists of: An interest payment, which is an expense A principal payment, which reduces the loan’s principal balance If the interest...
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