A loan in which the interest rate does not change over the life of the loan.
A loan in which the interest rate does not change over the life of the loan.
A commitment to purchase a specific number of items in the future at a fixed price. If the agreement is noncancelable, the company must report a loss when the current cost of the items falls below the contracted price.
The accounting term that means an entry will be made on the left side of an account. To learn more about debits and credits, see our Debits and Credits Outline.
An income statement account for expense items that are too insignificant to have their own separate general ledger accounts.
See deferred expense.
The amount of an asset’s cost that will be depreciated. It is the cost minus the expected salvage value. For example, if equipment has a cost of $30,000 but is expected to have a salvage value of $3,000 then 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...
A non-operating item resulting from the sale of this long-term asset for less than its carrying amount (or book value).
See absorption costing.
Pushing authority and decision making down to the managers and employees who are closer to the work.
The “bottom line” on the statement of activities. The change in net assets results from revenues, expenses, and the release of assets from restrictions. It is computed for an organization’s three...
An accounting guideline which allows the readers of financial statements to assume that the company will continue on long enough to carry out its objectives and commitments. In other words, the accountants believe that...
The result of subtracting all variable expenses from revenues. It indicates the amount available from sales to cover the fixed expenses and profit.
Assets such as Cash, Temporary Investments, and Accounts Receivable.
An income statement account at a financial institution used to record and report the amounts earned from fees charged to customers.
A section of a publicly traded corporation’s annual report to the SEC (Form 10-K). This section contains extensive information from management about the corporation’s financial condition and its operations.
Goodwill is a long-term (or noncurrent) asset categorized as an intangible asset. Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the...
A common fringe benefit given to employees during a period in which they do not have to work. If an employee earns one week of paid vacation to be taken after working one full year, the employer should recognize this...
A quality of accounting information that facilitates the comparison of financial reporting of one company to the financial reporting of another company.
Often a 1% or 2% reduction in the amount owed if an invoice is paid within 10 days of the invoice date instead of the customary 30 days.
Using debt in order to control more assets. Also known as financial leverage.
The optimum purchase (or production) quantity which minimizes the combined total cost of carrying inventory and processing additional purchase orders (or production setups).
Suppliers. Companies that provide goods or services.
Stock without a par value.
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...
Receivables due from customers. See accounts receivable.
See first in, first out (FIFO).
Savings accounts and certificates of deposits at a bank.
The allocation to expense of the cost of an intangible asset such as a patent or goodwill.
Also known as freight-out or as delivery expense. This is an operating expense further classified as a selling expense. It results when merchandise is sold with terms of FOB destination.
These journal entries are made after the financial statements have been prepared at the end of the accounting year. Most of the closing entries involve the income statement accounts (revenues, expenses, gains, losses,...
This indicates (on average) how many days it takes to sell the merchandise held in inventory. To learn more, see Explanation of Financial Ratios.
Temporary differences between the reporting of a revenue or expense for financial statements (books) and the reporting of the item for income tax purposes. For example, it is common for companies to depreciate equipment...
One of the types of donor-imposed temporary restrictions. An example of a purpose restriction is a cash donation with a donor-imposed requirement that the money be used only to purchase a vehicle for one of its programs....
The rate that will discount all cash flows to a net present value of zero.
Sometimes referred to in the context of cost or expense behavior such as “variable expenses increase as volume increases.” In this context volume might be an activity such as the number of machine hours, the...
A general ledger account containing the correct total amount without containing the details. For example, Accounts Receivable could be a control account in the general ledger. Each day the total of the day’s credit...
A term that refers to a negative checking account balance. It arises when a company writes checks in excess of the amount it has on deposit in its checking account.
What is a contingent liability? Definition of Contingent Liability A contingent liability is a potential liability that may or may not become an actual liability. Whether the contingent liability becomes an actual...
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