by customer and then by time since the sales invoice was issued. Generally, the older the unpaid sales invoice, the greater the likelihood of not collecting the full amount. Since the aging of accounts receivable is a...
by customer and then by time since the sales invoice was issued. Generally, the older the unpaid sales invoice, the greater the likelihood of not collecting the full amount. Since the aging of accounts receivable is a...
an opportunity cost, or some other amount. A concern with transfer pricing is whether the transfer price will cause a subunit’s manager to take the action that is best for the company as a whole. Example of Transfer...
over that life. Other intangible assets have an unlimited life and are not amortized. However, their reported cost is reviewed annually. If there is an impairment loss, the amount on the balance sheet is reduced and the...
What is the difference between a note payable and a bond payable? Definition of Note Payable and Bond Payable For accounting purposes, a note payable and a bond payable have the following similarities: Formal written...
with the miles driven. A manufacturer’s electricity cost is another example of a semivariable cost. Each month’s electricity bill will consist of the following amounts: A fixed amount based on the manufacturer’s...
will be required to report the precise amount of interest for the month and the accrued interest liability at the end of the month. The loan’s principal balance is a liability such as Loans Payable or Notes Payable....
accounting year will report the same amount of depreciation. The total amount of depreciation over the years of the asset’s useful life will be the asset’s cost minus any expected or assumed salvage value. In the...
of the equipment, the total amount of depreciation expense is likely to be the same. It is just a matter of timing as to when that total amount is reported on the financial statements versus the income tax returns. Join...
the insurance cost on $9 million of factory buildings, and less than the insurance premiums on $18 million of factory buildings. In the case of worker compensation insurance, the cost will vary with the amount of...
date the account(s) and amount(s) that will be debited the account(s) and amount(s) that will be credited a short description/memo/reference The journal entries appear in a journal in order by date and are...
report that is/was useful in a manual accounting system. If the trial balance did not “balance” it signaled an error somewhere between the journal and the trial balance. Often the cause of the difference was a...
cash. Then we add the decrease in accounts receivable. A decrease in accounts receivable indicates that the company collected more cash than the amount of its current year’s sales. Lastly, the increase in accounts...
What is a deposit in transit? Definition of Deposit in Transit A company’s deposit in transit is the currency and customers’ checks that have been received and are rightfully reported as cash on the date received,...
. An entry in the general journal will include the date, the account with the amount that is to be debited, the account with the amount that is to be credited, and a brief description. After these relatively few...
of goods and/or the providing of services Expenses, which include the cost of goods sold, SG&A expenses, and interest expense Gains and losses, such as the sale of a noncurrent asset for an amount that is...
the debtor pays the amount owed. A lien on a company’s assets should be disclosed in the company’s notes to the financial statements. Examples of Liens The following are examples of liens: A bank lends a retailer...
What is a multiple-step income statement? Multiple-Step Income Statement Definition A multiple-step income statement presents two important subtotals before arriving at a company’s net income. For a company that sells...
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...
, the expected net receipts will be $1,000. Often we need to know the present value of amounts expected in the future. We calculate the present value by discounting the future amounts. In this situation discounting means...
day, but the balance sheet amounts represent the amount at the instant or moment after all of the transactions of the specified day have been recorded. We avoid saying that the balance sheet is for the day, since the...
and divides their total by the total amount of current liabilities. Definition of Acid Test Ratio The acid test ratio uses only the following current assets (which are considered to be the “quick assets”) and...
or number of units sold. The company responsible for paying the sales commissions will report a selling expense. It will also report a liability for any unpaid commissions. The company or person that did the selling...
financial statements will need an accrual adjustment so that: its income statement for the month of December and for the current year will report all of the revenues earned by the utility, and its December 31 balance...
future cash flows back to the time when cash is invested. (The date that the cash is invested is often referred to as the “present” or the very beginning of the investment’s first year.) The greater the time value...
How can a company have a profit but not have cash? Definition of Profit Under the accrual basis of accounting, profit is the amount of revenues earned minus the amount of expenses incurred. Note that revenues are not...
, there will be no prepaid insurance nor will there be a liability for accrued worker comp expense. If the employer remits worker comp premiums to the insurance company in advance of the cost associated with wages and...
What is the meaning of a favorable budget variance? Definition of a Favorable Budget Variance A favorable budget variance means that the actual amount that occurred was better for the company (or organization) than the...
activities that did not involve cash Disclosing the amount of interest paid and income taxes paid Showing that the amounts reported agree with the change in the company’s amount of cash and cash equivalents during the...
What is an outstanding deposit? Definition of Outstanding Deposit An outstanding deposit refers to a company’s receipts (cash, checks from customers, etc.) which have been recorded in the company’s general ledger...
Why is there a large difference between share value and stockholders' equity? There can be many reasons why the market value of a corporation’s stock is much greater than the amount of stockholders’ equity...
What is the difference between break-even point and payback period? Definition of Break-Even Point The break-even point is the amount of sales required to cover a company’s costs and expenses that are reported on its...
. The coefficient of correlation is represented by “r” and it has a range of -1.00 to +1.00. When the coefficient of correlation is a positive amount, such as +0.80, it means the dependent variable is increasing when...
(with payment due 30 days later). Company A will record the amount of the sale with a credit to Sales and a debit to Accounts Receivable. Company B will record the purchase (perhaps as inventory) with a credit to...
not paid as of the end of the accounting period. For most companies the amounts in Notes Payable and Interest Payable are reported on the balance sheet as follows: the amount due within one year of the balance sheet...
cash inflows and cash outflows during the period of the income statement A reconciliation of the change in a company’s cash and cash equivalents from the beginning of the accounting period to the end of the accounting...
Should trademarks be included on the balance sheet? Definition of Trademark In the U.S. a trademark could be a word, phrase, logo, etc. registered with the U.S. Patent and Trademark Office. If a company purchases a...
and paid to the employees on Friday, January 8. The amount of the wages for the five days of December 27 through December 31 are calculated to be $5,000. In addition, the retailer incurred payroll taxes and fringe...
What is the difference between gross profit margin and gross margin? Definition of Gross Profit Gross profit is an amount that is computed as follows: A company’s net Sales minus its cost of goods sold A product’s...
Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
Why does a bond's price decrease when interest rates increase? Definition of Bond’s Price A bond’s price is the present value of the following future cash amounts: The cash interest payments that occur every six...
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