The long term asset category of a classified balance sheet which appears immediately after the current assets. Listed in this category would be a bond sinking fund, funds held for construction, the cash surrender value...
The long term asset category of a classified balance sheet which appears immediately after the current assets. Listed in this category would be a bond sinking fund, funds held for construction, the cash surrender value...
An expense reported on the income statement that did not require the use of cash during the period shown in the heading of the income statement. The typical example is depreciation expense. Also, the write-down of an...
In the 1970’s the Financial Accounting Standards Board (FASB) articulated three objectives of financial reporting. In summary, financial information should (1) be useful to investors and lenders, (2) be helpful in...
The combined amount of the debit balance in the current asset account Accounts Receivable and the credit balance in the contra asset account Allowance for Doubtful Accounts. The difference between the balances in these...
Also known as the periodicity assumption. The accounting guideline that allows the accountant to divide up the complex, ongoing activities of a business into periods of a year, quarter, month, week, etc. The precise time...
Accounts that have some restrictions. For example, an investment account and a cash account might be restricted for the construction of a new factory. The restrictions mean that these accounts be reported as a long-term...
See Statement of Financial Accounting Standard No. 121. Under this standard if the undiscounted future cash flows from the asset (including sale amount) are less than its carrying amount, a loss is recognized. The amount...
In the context of inventory, net realizable value or NRV is the expected selling price in the ordinary course of business minus the costs of completion, disposal, and transportation. In the context of accounts receivable...
Retailers’ normal operating activities would include the purchase and sale of merchandise and selling and administrative expenses. A retailer’s investing of its idle cash is a nonoperating activity. However,...
The process of comparing the amounts in the Cash account in the general ledger to the amounts appearing on the bank statement. The objective is to be certain that there is consistency between the amounts and that the...
The technique of recording accounts payable at the amount that will be paid after deducting any discount that is available for paying within the discount period. This has a theoretical advantage over the gross method...
A detailed plan with dollar amounts. Examples of budgets used in business include the cash budget, sales budget, production budget, department budgets, the master budget, and the capital expenditures budget. Some budgets...
What is the dividend yield? The dividend yield is the annual cash dividend per share of common stock divided by the market price of a share of the common stock. Usually, fast growing corporations have a low dividend...
A current asset resulting from selling goods or services on credit (on account). Invoice terms such as (a) net 30 days or (b) 2/10, n/30 signify that a sale was made on account and was not a cash sale. To learn more...
The contra owner’s equity account that reports the amount of withdrawals of business cash or other assets by the owner for personal use during the current accounting year. At the end of the accounting year, the...
Refers to the accounting associated with the preparation of the main financial statements: income statement, balance sheet, statement of cash flows, statement of retained earnings, statement of stockholders’...
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...
of a corporation’s earnings to its cash flows from __________ activities is often used to assess the quality of earnings. Select... financing investing operating 3. A highly profitable corporation with $30 million in...
time it takes for a retailer’s cash to go into inventory and then return to cash is known as the __________ cycle. 4. The amount of credit sales for a year divided by the average balance of accounts receivable is the...
Our Explanation of Present Value of a Single Amount discusses the time value of money and the need to discount future amounts to the time of an investment or other transaction. The present value of 1 table is used to...
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...
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...
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...
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...
How does revenue affect the balance sheet? Effect of Revenue on the Balance Sheet Generally, when a corporation earns revenue there is an increase in current assets (cash or accounts receivable) and an increase in the...
suppliers $10,000 and the supplier gives the company a written promissory note to repay the amount in six months along with interest at 8% per year. The company will debit its current asset account Notes Receivable for...
% and will mature in 3 years. The cash that the investor will be receiving is $2,500 every six months ($100,000 X 5% X 1/2 year) for 3 years and then $100,000 at the end of 3 years. The bond’s current price is...
What is the cost principle? Definition of Cost Principle The cost principle is one of the basic underlying guidelines in accounting. It is also known as the historical cost principle. The cost principle requires that...
in the accounting periods in which the asset is being used. More Information on the Depreciation Entry It is important to understand the following: The depreciation entry will cause a decrease in the company’s net...
statement amounts are best calculated for a specific period of time by using the accrual basis of accounting. Under the accrual basis the revenues are the amounts that were earned (not the amount of cash received), and...
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...
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...
, 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...
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...
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...
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...
not involve a cash payment. As a result, a statement of cash flows prepared under the indirect method will add back the depreciation expense that had been deducted on the income statement. Methods for Computing...
rate of a bond payable is also known as the face interest rate, nominal interest rate, contractual interest rate, and the coupon interest rate. The stated interest rate multiplied by the bond’s face amount (or par...
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...
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