One of the main financial statements (along with the balance sheet, the statement of cash flows, and the statement of stockholders’ equity). The income statement is also referred to as the profit and loss...
One of the main financial statements (along with the balance sheet, the statement of cash flows, and the statement of stockholders’ equity). The income statement is also referred to as the profit and loss...
A cost or expense where the total changes in proportion to changes in volume or activity. For example, if a company pays a sales commission on all of its sales, commission expense is a variable expense because...
What is a compilation? Definition of Compilation A compilation refers to a company’s financial statements that have been prepared or compiled by an outside accountant. A compilation is usually part of an accounting...
The third section of the statement of cash flows. To learn more, see Explanation of Cash Flow Statement.
receivable, net realizable value can also be expressed as the debit balance in the asset account Accounts Receivable minus the credit balance in the contra asset account Allowance for Uncollectible Accounts. In the...
What is gross pay? Definition of Gross Pay Gross pay is the amount an employee is paid before the employer withholds FICA (Social Security and Medicare payroll taxes), income taxes (federal, state, local) if applicable,...
A series of equal amounts at equal time intervals. Also see annuity due, annuity in advance, annuity in arrears, and ordinary annuity.
Under the accrual basis of accounting, this account reports the cost of the electricity, heat, sewer, and water used during the period indicated in the heading of the income statement. Because utility companies deliver...
Accounting reports that identify the differences between standard costs and actual costs, between budget amounts and actual amounts, etc.
Merchandise that was returned to the seller by a customer. This account is a contra sales account. When merchandise sold on credit is returned, this account is debited and Accounts Receivable is credited.
An asset account in a bank’s general ledger that indicates the amount at which the bank is reporting or carrying its investments.
See discount on bonds payable.
See freight-in.
This term is used in several ways. Some use the word interchangeably with revenues. Others use the word to signify a net amount, such as income from operations (revenues minus expenses in the company’s main...
How much do you depreciate an asset and when? Definition of How and When to Depreciate an Asset Depreciation begins when you place an asset in service and it ends when you take an asset out of service or when you have...
How do you compute a selling price if you know the cost and the required gross margin? Definition of Selling Price A selling price is the amount that a customer will pay to buy a product. If a retailer wants to earn a...
The systematic allocation of the cost of a natural resource from the balance sheet to the income statement.
General rules upon which more-detailed, specific accounting rules and standards are based. To learn more, see Explanation of Accounting Principles.
Reports too much. If an error overstates the inventory and the company’s net income, the amount of inventory and the amount of net income being reported is more than the correct amount.
The amount at which the holder of preferred stock or bonds must sell the stock or bonds back to the issuing corporation. The call price is disclosed in the indenture. The call price might be the face or par amount plus...
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...
Delivery expense to be paid by the seller when its merchandise is sold with terms of FOB destination. This is an operating expense and is not included in the cost of merchandise.
A balance on the left side of an account in the general ledger. Typically expenses, losses, and assets have debit balances.
The amounts earned on money invested. Often this is interest and dividends earned on a company’s investment in stocks and bonds of other companies.
The allocation to expense of the cost of an intangible asset such as a patent or goodwill.
A balance on the right side (credit side) of an account in the general ledger.
The ratio of current assets to current liabilities. This ratio is an indicator of a company’s ability to meet its current obligations. To learn more, see Explanation of Financial Ratios.
National Association of Accountants. This organization’s name was changed to Institute of Management Accountants and currently is referred to as IMA.
The amount of a long-term asset’s cost that has been allocated to Depreciation Expense since the time that the asset was acquired. Accumulated Depreciation is a long-term contra asset account (an asset account with...
marketing consulting services and is billed $10,000 with terms of 1/10, net 30. If the bill is paid within 10 days, the cost is $9,900 ($10,000 minus the 1% discount of $100). This means that Cash should be...
The cost associated with setting up a piece of production equipment. This would include the cost of the setup mechanic, the cost of scheduling, record keeping, moving the starting material, and testing the first few...
The change in total costs in response to the change in some activity. For example, some of the costs of owning and operating a vehicle will increase in total with an increase in miles driven. These are referred to as...
Under the accrual method of accounting, this account reports the employer’s expense for the company’s pension plan during the period indicated in the heading on the income statement. Information on pensions...
Net income divided by net sales.
Usually a claim on an asset that is pledged as collateral. The lien is usually filed with a government office.
Comparable amounts from several years are expressed as a percentage of the amount during a base year. For example, sales from each year of 2014 through 2023 are presented as a percentage of the sales during 2014.
In some countries turnover refers to sales. Turnover is also associated with some financial ratios such as the inventory turnover ratio, the accounts receivable turnover ratio, and asset turnover ratio.
than its par value, two accounts are involved: The account Common Stock is used to record the par value of the shares being issued The account Paid-in Capital in Excess of Par?Common Stock, or Premium on Common Stock...
The term used by manufacturers to indicate that the manufacturing overhead applied or assigned to its production is greater than the amount actually incurred.
The principle that requires a company to match expenses with related revenues in order to report a company’s profitability during a specified time interval. Ideally, the matching is based on a cause and effect...
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