The balance sheet and income statement are connected. Definition of Balance Sheet and Income Statement The balance sheet reflects the accounting equation: Assets = Liabilities + Owner’s (Stockholders’) Equity When a...
The balance sheet and income statement are connected. Definition of Balance Sheet and Income Statement The balance sheet reflects the accounting equation: Assets = Liabilities + Owner’s (Stockholders’) Equity When a...
How is a short term bank loan recorded? Definition of Short Term Bank Loan When a company borrows money from its bank and agrees to repay the loan amount within a year, the company will record the loan by increasing its...
, and that your company prepares monthly financial statements. One way to enter the transaction is to debit the current asset Prepaid Subscriptions for $120 and to credit Cash for $120. At the end of each month an...
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...
of liability insurance coverage: On December 1 the company debits Prepaid Insurance for $2,400 and credits Cash for $2,400 On the last day of December and on the last day of the following 5 months the company needs to...
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...
entered as debits must be equal to the amounts entered as credits. Example of a Double-Entry System To illustrate double entry, let’s assume that a company borrows $10,000 from its bank. The company’s Cash account...
What is meant by owner's draws? Definition of Owner’s Draws Owner’s draws are withdrawals of a sole proprietorship’s cash or other assets made by the owner for the owner’s personal use. The account in which...
. 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...
Capital The adequacy of a company’s working capital depends on the industry in which it competes, its relationship with its customers and suppliers, and other factors such as the following: The types of current assets...
Why are wages reported as an expense when the work occurs, but the employees' tax records report them when they are paid? Accrual Method for the Corporation, Cash Method for the Employees The short answer is that...
What is the difference between cost and price? Definition of Cost and Price In accounting, the term cost can mean the cash or cash equivalent amount a company paid to acquire an asset or the amount of an expense it...
divided by the interest expense of $150,000). Since the interest coverage ratio is based on the net income under the accrual method of accounting, we recommend that you also review the corporation’s cash provided by...
, a company borrows $100,000 with an annual interest rate of 12%. The interest for each month is to be paid on the last day of the month. No principal payment is required until the loan comes due in two years. On July 1...
financial statements of a U.S. corporation consist of a complete set of the following: income statement (statement of earnings, statement of operations) statement of comprehensive income balance sheet (statement of...
to the company’s Cash account. However, the debit portion of the payment entry depends on whether the individual credit card purchases had been previously recorded in the company’s general ledger accounts. Example...
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...
in Accounts Payable. Select... Debit Credit 4. The Cash account will have a __________ balance if the amount of cash is negative. Select... debit credit 5. This will increase the balance in a liability account....
Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
. In other words, the calculation is: [cash + marketable securities + accounts receivable] divided by current liabilities. If a company had current assets of $300,000 (of which $180,000 was inventory) and current...
Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
are required by the __________ principle. 6. The adjusting entry for depreciation will include a debit to Depreciation Expense and a credit to __________ __________. 7. Adjusting entries help to convert accounting...
Obligations due within one year of the balance sheet date. (If a company’s operating cycle is longer than one year, an item is a current liability if it is due within the operating cycle.) Another condition is that...
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...
adjustments when reconciling the bank statement. For example, if a check is written in December but is voided in January, the Cash account in the company’s general ledger will need to be increased when the check is...
Stock and will credit the account Cash.) Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your current job Refresh your...
A corporation may want to see the effects of three possible financing options. Therefore, it prepares a projected balance sheet, income statement, and statement of cash flows for each of the three financing options....
A company’s receipts that appear on the company’s records but do not yet appear on the bank statement. For example, a retail store’s receipts of March 31 are deposited after banking hours on March 31 or...
A liability account that reports an insurance company’s premiums received from its insured that have not yet been earned. For example, if the insurance company receives $600 on January 27 for an insured’s...
The revenue classification used by nonprofit organizations to account for the amounts received as donations. It is also an expense classification for the donations made to another nonprofit organization. Contributions...
. The payment for the equipment is to be made on February 10. Under the accrual method, on December 29 the company should debit the asset account Equipment and credit the liability account Accounts Payable. (When the...
the asset and the liability to the credit card company should be recorded as of December 30. When the business pays the credit card company (perhaps 30 days later), the business will be reducing its cash and its...
A common fringe benefit given to employees during a period in which they do not have to work. If an employee earns one week of paid vacation to be taken after working one full year, the employer should recognize this...
are also referred to as permanent accounts. Examples of Real Accounts The real accounts are the balance sheet accounts which include the following: Asset accounts (cash, accounts receivable, buildings, etc.) Liability...
additional goods or services on credit (as opposed to paying with cash), the company will need to credit Accounts Payable so that the credit balance will increase accordingly. Definition of an Accounts Payable Debit If...
What is the difference between assets and fixed assets? Assets are resources owned by a company as the result of transactions. Examples of assets are cash, accounts receivable, inventory, prepaid insurance, land,...
another way, an automobile loan payment consists of two components: an interest payment and a principal payment. While the loan payment is a cash outflow or an expenditure, only the interest portion is an expense that...
Our Explanation of Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
Featured Review
"AccountingCoach PRO is an exceptional service. It not only provides all the essential material to succeed in learning accounting and finance, but also explains all the relevant details that make the difference when you need to understand the complexity of accounting systems. As a communication trainer and business coach, I had to pick up the language of accounting in no time in order to communicate more effectively with my clients. This website's benefits have exceeded my expectations. Many thanks for your great support." - Theirry F.
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: