may encounter a cash flow problem and/or losses due to obsolescence. Inventory also means some accounting complexities due to the changing costs of the items in inventory. Cost of Goods Sold For a retailer or...
may encounter a cash flow problem and/or losses due to obsolescence. Inventory also means some accounting complexities due to the changing costs of the items in inventory. Cost of Goods Sold For a retailer or...
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...
a negative balance. This will also result in bank fees for the company and the endorser/payee. It also signals to the endorser/payee that the company has a cash flow problem. The checks being presented are not...
that on December 31, a company paid $12,000 for a maintenance agreement covering the next 12 months. The transaction was recorded on December 31 with a debit of $12,000 to the current asset Prepaid Expense and a credit...
and crediting Purchase Returns and Allowances (or Inventory) for $60. If GoodCorp pays SalesMax by June 25, GoodCorp will record the payment as follows: Debit Accounts Payable for $1,140 ($1,200 – $60) Credit Sales...
of fertilizers and weed treatments for $300. However, the customer must prepay in December for the five treatments that will be done between April and September. When the company receives the $300 in December, it will...
entry to record this information is: Debit: Cash for $107,000 Credit: Sales (or Sales Revenues) for $100,000 Credit: Sales Taxes Payable for $7,000 When the company remits the $7,000 to the state, the company will...
liabilities when they come due. For example, if a company’s current assets consist mainly of slow-moving inventory and some slow-paying accounts receivable, the company may not be able to convert its current assets to...
under the heading of other income. Calculating a Gain To illustrate the calculation of a gain, let’s assume that the retailer sells its old van for $5,000 cash. At the time of the sale the van is on the retailer’s...
closer to the time of the sale or service, and The balance sheet will report a more realistic net amount of accounts receivable that will actually be turning to cash The allowance method can be applied in one or both of...
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...
by a patent and trademark, and the demand for the product is high, customers may accept a selling price that is unusually high. In other words, the value of the product is much greater than the costs identified with the...
amount) discounted by the market interest rate at the time of the bond sale. Example of a Bond Premium A person would buy a bond at a premium (pay more than its maturity value) because the bond’s stated interest rate...
to the condo project. Hence the drop ship allows XYZ to avoid some expensive non-value-added activities. When Premier ships the water heaters, it will bill XYZ and will send the invoice to XYZ. As a result XYZ will have...
produced. This is a challenging task because there may be no direct relationship. For example, the property taxes and insurance on the manufacturing buildings are based on the assets’ value and not on the number of...
-on experience. Don’t be overly concerned with the starting pay since your value will come after you demonstrate your proficiency as an effective bookkeeper. Join PRO to Track Progress Mark the Question as Read...
it will be scrapped for no salvage value. Using the straight-line depreciation method, the monthly depreciation will be $5,000 per month ($600,000/120 months). Therefore, each month for 10 years the company will...
it indicates that the company has paid more than the amount owed, has made an incorrect entry, etc.) Equity accounts including the stockholders’ equity accounts Common Stock, Paid-in Capital in Excess of Par Value,...
Is there a difference between an expense and an expenditure? Definition of Expense An expense is reported on the income statement in the period in which the cost matches the related sales, has expired, was used up, or...
Depreciation) The amount that has not yet been depreciated (the book value of the asset) Example of Accumulated Depreciation Let’s assume that at the beginning of the current year a company’s asset account Equipment...
the amounts of a and bx. a is the estimated total amount of fixed electricity costs during the month. It is the value of y, when x is zero. If the total cost line intersects the y-axis at $1,000 then it is assumed that...
period. These costs are expenses because they may have expired, may have been used up, or may not have a future value that can be measured. Some authors define operating expenses as only SG&A. In other words, they...
that has been in use for the past six years. In the decision, the original cost of the equipment and its carrying amount or book value does not have relevance (except in calculating a tax consequence). The reason is...
. Example of Systematic and Rational Allocation Assume that a retailer purchases new fixtures which are expected to have a useful life of 10 years with no salvage value. Therefore, if the retailer pays $120,000 for new...
at maturity. Let’s also assume that after the bonds are issued the market interest rates increase by one percentage point. As a result the 5% bond will lose some of its value because the contractual payment of $50 per...
of production method, let’s assume that a company has a machine with a cost of $500,000 and a useful life that is expected to end after producing 240,000 units of a component part. Further, the machine’s salvage...
. Examples of Cumulative Preferred Stock Assume that a corporation has issued and outstanding 10,000 shares of 6% cumulative preferred stock with a par value of $100. This means that the corporation must declare and pay...
What does capitalize mean? Definition of Capitalize In accounting, the word capitalize means to record an expenditure as an asset. The cost of this asset is then allocated to expense over its useful life. (If the...
What is the meaning of base year? In accounting, base year may refer to the year in which a U.S. business had adopted the LIFO cost flow assumption for valuing its inventory and its cost of goods sold. Under the...
in all of the capital accounts must be equal to the reported total of the company’s assets minus its liabilities. Because of the historical cost principle and other accounting principles, the total amount reported in...
, the company purchases a new machine for $300,000 that is expected to have no salvage value at the end of its 10-year useful life. If the company uses the straight-line method of depreciation, the depreciation expense...
it owes. On August 20, the retailer files for bankruptcy protection. Supplier Company learns that the retailer owes $2 million on bank loans that are secured by liens on all of the retailer’s assets (which have a...
life of the cell phones could be 10 years). Also assume that the company has purchased 100 smart phones at a total cost of $120,000. The company also estimates that the phones will have no salvage value at the end of...
costs of a retailer and the product costs of a manufacturer are also referred to as inventoriable costs, since the product costs are used to value their goods in inventory. When the goods are sold, the product costs...
Our Explanation of Working Capital and Liquidity provides you with an in-depth look at the components of working capital and the challenges of converting current assets to cash before obligations come due. You will see...
such as Cash, Accounts Receivable, and Equipment are examples of __________ accounts which will be reported on the balance sheet. 4. Notes Payable, Accounts Payable, and Wages Payable are examples of __________ accounts...
Our Explanation of Accounts Payable provides insights on the bill paying process in a large company. Included are discussions of the three-way match, early payment discounts, end of period accruals, and more.
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...
are overlooked initially, they will be adjusting items to the balance per books in the bank reconciliation. If a rubber check is not redeposited by the payee, the payee must also reduce its general ledger cash account...
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