software may allow you to go into a previous period’s (as well as the current period’s) activity and remove a voided check or change the amount to zero. This will also increase the balance in the Cash account and...
software may allow you to go into a previous period’s (as well as the current period’s) activity and remove a voided check or change the amount to zero. This will also increase the balance in the Cash account and...
Is advertising an asset or an expense? Definition of Advertising Expense Advertising is the amount a company incurs to promote its products, brands, and image via television, radio, magazines, Internet, etc. Since the...
amount due for the sales invoice and might even show a negative amount due from the customer. If your company mails statements to its customers, the customer should be able to see its double payment when reviewing the...
than $1,000,000. The difference between the $1,000,000 of face value and the amount the bond market is willing to pay is the discount on bonds payable. The amount of the discount is a function of 1) the number of years...
at a cost of $500,000. It is expected that the equipment will have no salvage value at the end of an estimated useful life of 10 years. For its financial statements the corporation will usually charge the same amount...
offering a credit customer an early-payment discount of 2% for paying an invoice in 10 days instead of paying the full amount in 30 days. In this example the supplier is giving up 2% of the invoice amount in order to be...
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...
to be included in the total accumulated depreciation amount that appears as a subtraction or negative amount in the Property, Plant and Equipment section. The cost and accumulated depreciation will continue to be...
Should a cash discount be recorded as a reduction to an expense? Yes, a cash discount should be a reduction to an expense. After all, accountants define cost as the cash amount (or cash equivalent amount) at the time of...
Retained Earnings is debited for the total amount of the dividend that will be paid and the current liability account Dividends Payable is credited for the same amount. (Some corporations will debit the temporary...
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 are turnover ratios? Definition of Turnover Ratios In accounting, turnover ratios are the financial ratios in which an annual income statement amount is divided by an average asset amount for the same year....
is recording its obligation/liability to provide merchandise or services for the amount of the certificate sold. Accounting for the Redemption of a Gift Certificate When a gift certificate is presented to the...
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...
the classified balance sheet shows the total amount of the company’s current assets and the total amount of its current liabilities. A classified balance sheet is likely used by companies and is organized as follows:...
What is the acid test ratio? Definition of Acid Test Ratio The acid test ratio, which is also known as the quick ratio, compares the total of a company’s cash, temporary marketable securities, and accounts receivable...
How can working capital be improved? Definition of Working Capital Working capital is defined as the amount by which a company’s current assets exceed its current liabilities. How Working Capital Can be Improved Some...
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...
amount. The amount of interest paid must also be disclosed. This is usually done as supplementary information at the end of the statement of cash flows or in the notes to the financial statements. Join PRO to Track...
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...
as follows: net annual sales divided by the average amount of working capital during the same year. Example of Working Capital Turnover Ratio To illustrate the working capital turnover ratio, let’s assume that a...
What is cash flow net of tax? I view cash flow net of tax as the amount of cash spent minus the income tax savings when the amount is deductible on the corporation’s income tax return. To illustrate this, let’s...
accounts to a balance sheet account such as a corporation’s Retained Earnings account When recording a reversing entry for a previous accrual adjusting entry involving an expense When recording a deferral adjusting...
What does an unfavorable volume variance indicate? An unfavorable volume variance indicates that the amount of fixed manufacturing overhead costs applied (or assigned) to the manufacturer’s output was less than the...
If the fully depreciated car continues to be used, there will be no further depreciation. The company cannot depreciate more than the car’s cost. If the fully depreciated car is sold or scrapped, the following...
.] Example of Interest Payable Let’s assume that on December 1 a company borrowed $100,000 at an annual interest rate of 12%. The company agrees to repay the principal amount of $100,000 plus 9 months of interest when...
with significant amounts of inventory and plant assets. For example, when inventory is measured by using the first-in, first-out cost flow assumption under US GAAP, the actual historical cost of inventory that is...
to describe the amount that it is subtracting from its sales revenue to report the amount of its gross profit or gross margin. Companies that provide services will use the term cost of services or cost of service...
card means that the bank (or other financial institution) is making a loan or providing credit to the cardholder. Usually the cardholder will receive a monthly statement showing the credit card transactions and must...
. The break-even point could be determined by using an electronic spreadsheet or by using a formula. The key is to determine how each of the company’s costs and expenses behave in order to compute the total amount of...
What is an escrow payment? An escrow payment is an amount deposited with another party and it is to be released only for its specified purpose. The following is one example of an escrow payment. A borrower and lender...
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...
sheet. Here are some of the changes: Owner’s equity or stockholders’ equity will increase by the positive amount of net income Accounts receivable will change by the amount of sales/services provided with...
What is the difference between Rent Receivable and Rent Payable? Definition of Rent Receivable Rent Receivable is an asset account in the general ledger of a landlord which reports the amount of rent that has been earned...
mean an amount that is prior to income tax expense. Some people might use the word earnings to mean an amount before all expenses are considered. Some people use the word profits to mean net income before income tax...
on its products and its allowance for uncollectible accounts receivable will need to be estimates. Providing an estimated amount is better than ignoring reality and reporting a zero amount. I recommend that the...
How do you amortize goodwill? Definition of Amortize Goodwill Prior to 2001, to amortize goodwill meant to consistently and in uniform increments move the reported amount of the intangible asset goodwill from the balance...
consists of all of the revenues, gains, expenses, and losses that caused stockholders’ equity to change during the accounting period. The amount of net income for the period is added to retained earnings, while the...
What is the effect on the income statement when the allowance for uncollectible accounts is not established? Definition of Allowance for Uncollectible Accounts The Allowance for Uncollectible Accounts or Allowance for...
Our Explanation of Improving Profits will assist you in focusing on the costs and revenues that are relevant (and ignoring those which are not relevant) for improving profits and eliminating losses. Examples of the...
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