account and the only authorized check signer is the owner. The owner is going to take a short vacation and will have the office manager be in charge. In case a payment must be made when the owner is on vacation, the...
account and the only authorized check signer is the owner. The owner is going to take a short vacation and will have the office manager be in charge. In case a payment must be made when the owner is on vacation, the...
What is a liquidity ratio? Definition of Liquidity Ratio A liquidity ratio is a financial ratio that indicates whether a company’s current assets will be sufficient to meet the company’s obligations when they become...
the $560 of wages payable that Jane had earned and the company owes as of December 31. (The company’s income statement for the year that ends on December 31 must also report the $560 as part of its wages expense.) The...
will move all the income statement account balances to Retained Earnings. Let’s assume that today a corporation sold goods on credit. The corporation’s current asset Accounts Receivable will increase and the company...
31. The adjusting entry will consist of a debit of $2,000 to Interest Expense (an income statement account) and a credit of $2,000 to Interest Payable (a balance sheet account). Balance Sheet: Retail/Wholesale –...
its bank and signs a promissory note due in six months. Local Retailer records $20,000 as a credit to its current liability account Notes Payable (and debits its Cash account). The bank records the $20,000 promissory...
Should inventories be reported at their cost or at their selling prices? Definition of Inventory Cost Inventories are reported at cost, not at selling prices. A retailer’s inventory cost is the cost to purchase the...
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 the difference between an invoice and a statement? Definition of an Invoice An invoice received from a supplier shows the items purchased, the cost per unit, the total cost or extension of each item, the total of...
Why are some plastic cards called debit cards? I assume the name debit card relates to the reduction in the cardholder’s checking account balance at the time that the card is used. The checking account balances of a...
What is a sale on credit? Definition of Sale on Credit A sale on credit is revenue earned by a company when it sells goods and allows the buyer to pay at a later date. This is also referred to as a sale on account....
get back to Company X’s checking account, Company X’s bank will have two options when Company X’s checking account does not have sufficient funds to cover the checks: 1. The bank could pay the checks and allow...
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 bookkeeping? Definition of Bookkeeping Bookkeeping includes the recording, storing and retrieving of financial transactions for a business, nonprofit organization, individual, etc. Examples of Bookkeeping Tasks...
What are the reasons for high inventory days? Definition of Inventory Days I assume that inventory days is referring to the days’ sales in inventory. If so, then inventory days is also related to the inventory turnover...
What is the debt ratio? Definition of Debt Ratio The debt ratio is also known as the debt to asset ratio or the total debt to total assets ratio. Hence, the formula for the debt ratio is: total liabilities divided by...
to a balance sheet account until a later accounting period when it will be moved to the income statement. Deferral is also used to describe the type of adjusting entries used to defer amounts at the end of an accounting...
What is the difference between income and profit? Definition of Income The term income is used differently by many people. For some, income means the money coming in, such as What is your family income? What is your...
What entry is made when selling a fixed asset? Defining the Entries When Selling a Fixed Asset When a fixed asset or plant asset is sold, there are several things that must take place: The fixed asset’s depreciation...
(and the related depreciation expense) are associated with constructed assets such as buildings, machinery, office equipment, furniture, fixtures, vehicles, etc. Accumulated Depreciation is also the title of the contra...
What is interest expense? Definition of Interest Expense Interest expense is the cost of borrowing money during a specified period of time. Interest expense is occurring daily, but the interest is likely to be paid...
Are fixed assets the same as plant assets? Definition of Fixed Assets and Plant Assets My experience indicates that people use the term fixed assets to mean the same as plant assets. As a result, I define both fixed...
Are earnings different from profits? Earnings and profits are often used interchangeably. Others might make a distinction between the two words. In the case of earnings per share, earnings means a corporation’s net...
How do you record the interest that is unpaid on a note payable? Definition of Interest Unpaid on Note Payable Interest that has occurred, but has not been paid as of a balance sheet date, is referred to as accrued...
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...
What is the difference between the terms capitalize and depreciate? Definition of Capitalize In accounting, the term capitalize refers to adding an amount to the balance sheet as an asset (as opposed to immediately...
How are fully depreciated assets reported on the balance sheet? Definition of Fully Depreciated Asset A fully depreciated asset is a depreciable asset for which no additional depreciation expense will be recorded. In...
Where is a manufacturer's inventory reported in the balance sheet? A manufacturer’s inventory will be reported in the current assets section of the balance sheet and in the notes to the financial statements. In the...
Do corporations issue both common stock and preferred stock? Some corporations issue both common stock and preferred stock. However, most corporations issue only common stock. In other words, it is necessary that a...
What is liquidity? Definition of Liquidity Liquidity is a company’s ability to convert its assets to cash in order to pay its liabilities when they are due. Current Assets Generally, the assets that are expected to...
and it purchases goods with terms FOB shipping point. As a result the company is responsible for paying the cost of the carriage inwards. The company will record the amount in the general ledger account Carriage Inwards...
for a corporation to make a dividend payment: The corporation’s board of directors must declare the dividend, and The corporation must distribute the cash Example of Recording a Dividend Payment to Stockholders On the...
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 the difference between liquidity and liquidation? Definition of Liquidity Liquidity usually refers to a company’s ability to pay its bills when they become due. Liquidity is often evaluated by comparing a...
What does overstated mean? Definition of Overstated When an accountant uses the term overstated, it means two things: The reported amount is incorrect, and The reported amount is more than the true or correct amount. In...
in a general ledger intangible asset account. If a company designs and registers its trademark, the amount recorded is limited to its cost. Costs incurred to defend a trademark are also recorded in the trademark...
Why not use Sales in the Inventory Turnover Ratio? The short answer is: Because Inventory is at cost. Inventory is not on the company’s books at selling prices. The Inventory Turnover Ratio is Cost of Goods Sold...
What is the difference between correlation and cause and effect? Definition of Correlation Correlation refers to the association between two or more variables. The association is measured by a statistic known as the...
What is stockholders' equity? Definition of Stockholders’ Equity Stockholders’ equity (also known as shareholders’ equity) is reported on a corporation’s balance sheet and its amount is the difference between the...
Featured Review
"AccountingCoach is one of the best investments I've made in my life. I can't believe how easy and well structured it is. They deserve their success. I don't recommend many things, but this one I do. I really thought Accounting was a hard course by the way people used to speak in college about it, but when I study with this one it's not. Thank you for all your experience in putting together this course." - Brenda S.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: