was only 4% of its revenue ($12,000/$300,000). Calculating Revenue The best way to calculate a company’s revenue during an accounting period (year, month, etc.) is to sum up the amounts earned (as opposed to the...
was only 4% of its revenue ($12,000/$300,000). Calculating Revenue The best way to calculate a company’s revenue during an accounting period (year, month, etc.) is to sum up the amounts earned (as opposed to the...
Where do I record the refund of a registration fee? If the registration fee refers to a fee expense that you had originally paid but the amount is now being refunded to you, I would credit the same expense account that...
When a company writes a check, the company records it with a credit to the Cash account in the company’s general ledger. Whether the check has or hasn’t cleared the bank account, the company’s Cash account...
its liability Accounts Payable and will credit Cash. Company A will debit Cash and will credit its current asset Accounts Receivable. Symmetry with Accounts Receivable and Accounts Payable Our examples show that there...
What is the operating cycle? Operating cycle definition The operating cycle is the time required for a company’s cash to be put into its operations and then return to the company’s cash account. Operating cycle...
How do you record an asset that was partially financed? Example of Recording an Asset that was Partially Financed Assume that your company purchased a car for $10,000 by paying cash of $4,000 and signing a promissory...
, June 30, etc.) Statement of cash flows. This statement reports the major causes for the change in cash and cash equivalents during the accounting period. The cash flows are presented as operating, investing, or...
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...
balance. When a bank credits a company’s checking account, the bank’s liability account Customer Deposits is increased. However, the company must debit its Cash account to increase the company’s asset Cash. Credit...
to as a draw.) A corporation’s board of directors, which is elected by the stockholders, decides if a cash dividend is needed. The considerations for paying or not paying a dividend include the stockholders’ wishes,...
for a total of $2,000 and the stock’s par value is $1 per share, the accounting entry is a debit to Cash for $2,000 and a credit to Common Stock—Par $100, and a credit to Paid-in Capital in Excess of Par for...
the Sales account is logical, think of a $100 cash sale. The asset account Cash is debited for $100 and therefore the Sales account will have to be credited for $100. Also the accounting equation will remain in balance...
What is a customer deposit? Definition of Customer Deposit A customer deposit could be money that a company receives from a customer prior to the company earning it (by providing the customer with goods or services). In...
Why is income received in advance a liability? Definition of Income Received in Advance Under the accrual method of accounting, when a company receives money from a customer prior to earning it, the company will have to...
. The landlord requires a security deposit of $1,000. The company debits the long-term asset Security Deposit for $1,000 and credits Cash for $1,000. The landlord debits Cash for $1,000 and credits a liability account...
to manually posting them to the accounts in the general ledger or subsidiary ledger. Examples of Journals in a Manual Accounting System Manual systems usually had a variety of journals such as a sales journal, purchases...
noncurrent asset section of the corporation’s balance sheet. This section is likely to have the heading Investments. The bond sinking fund is a noncurrent (or long-term) asset even if the fund contains only cash. The...
What are sales discounts? Definition of Sales Discounts Sales discounts (if offered by sellers) reduce the amounts owed to the sellers of products, when the buyers pay within the stated discount periods. Sales discounts...
. The entry will debit Loan to Employee for $5,000 and will credit Cash for $5,000. Under the accrual method of accounting, at each balance sheet date the company should record any accrued interest by debiting Interest...
, the expense will be recorded as part of the entry. When the company pays the invoice, the balance in Accounts Payable is reduced and the balance in the company’s Cash account is reduced. The payment does not affect...
Why do you separate current liabilities from long-term liabilities? Definition of Current Liabilities and Long-term Liabilities Generally, current liabilities are a company’s obligations that are due within one year of...
prepares monthly financial statements. When the $2,400 payment is made on January 1, the company debits Prepaid Insurance and credits Cash. It also sets up automatic monthly adjusting entries to debit Insurance Expense...
balances have the total of the debit balances equal to the total of the credit balances. This occurs because every transaction must have the debit amounts equal to the credit amounts. For example, if a company borrows...
debit and credit entries, but profitable corporations usually have credit balances Examples of Debits and Credits To illustrate, let’s assume that a company borrows $10,000 from its bank. The company will enter...
for any commissions earned but not yet received. Examples of Sales Commission Under the accrual basis of accounting (as opposed to the cash basis) the parties involved should record the sales commissions as follows: The...
. However, a company’s liquidity is dependent on converting the current assets to cash in time to pay its obligations. Example of Current Ratio If a company’s current assets are $600,000 and its current liabilities...
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,...
How do you calculate staff turnover? To calculate staff turnover, I would use the W-2 wage statements for the most recent year. My first step would be to sort the W-2’s into meaningful groups such as full-time...
What are prepaid expenses? Definition of Prepaid Expenses Prepaid expenses are future expenses that have been paid in advance. In other words, prepaid expenses are costs that have been paid but are not yet used up or...
Do variance accounts have an impact on financial statements? Or are they for performance evaluation only? Since the financial statements must reflect the cost principle, both the standard costs and the variances must be...
proof is $30,000 of sales + $2,100 of sales tax = $32,100. In general journal form the accounting entry to record this information is: debit Cash $32,100; credit Sales $30,000; credit Sales Tax Payable $2,100. Join PRO...
What is a source document? Definition of Source Document A source document is an original record which contains the detail that supports or substantiates a transaction that will be (or has been) entered in an accounting...
What is a revenue expenditure? Definition of Revenue Expenditure A revenue expenditure is a cost that will be an expense in the accounting period when the expenditure takes place. Revenue expenditures are often discussed...
What is the difference between a deferred expense and a prepaid expense? Definition of Deferred Expense and Prepaid Expense Deferred expense and prepaid expense both refer to a payment that was made, but due to the...
Are commissions considered to be revenues or expenses? Definition of Commissions Revenues or Expenses The company or person earning and receiving commissions (such as a percentage of sales) will have commissions revenue....
What is a contra expense account? Definition of Contra Expense Account A contra expense account is a general ledger expense account that will intentionally have a credit balance (instead of the debit balance that is...
What is the profit margin (after tax) ratio? Definition of Profit Margin Ratio The after tax profit margin ratio expresses the company’s net income or earnings as a percent of the company’s net sales. In other words,...
What is the three-way match? Definition of Three-Way Match In the accounting and bookkeeping area of accounts payable, the three-way match refers to a procedure used when processing an invoice received from a vendor or...
What is the accounting cycle? Definition of Accounting Cycle The accounting cycle is often described as a process that includes the following steps: Identifying, collecting and analyzing documents and transactions...
What is a contingent asset? Definition of Contingent Asset A contingent asset is a potential asset that is associated with a potential gain. The asset and gain are contingent because they are dependent upon some future...
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