service, etc. When deciding which of the non-necessary projects should be undertaken, companies likely use various techniques for ranking the projects from a financial point of view. The following are four common...
service, etc. When deciding which of the non-necessary projects should be undertaken, companies likely use various techniques for ranking the projects from a financial point of view. The following are four common...
What are the limitations of the payback period? Definition of Payback Period The payback period is a common (but not the best) tool for screening a company’s potential investments. It uses the potential investment’s...
of the page. 1. ABC Co.’s bank statement indicates that its checking account was credited when one of ABC’s customers transferred $500 into ABC’s checking account. How will this be recorded by ABC Co. in its...
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...
that consider the time value of money. They are: Net present value Internal rate of return Both of these models are also referred to as discounted cash flow (DCF) models. Discounting Future Cash Flows To recognize the...
The withdrawal of business cash or other assets by the owner for the personal use of the owner. Withdrawals of cash by the owner are recorded with a debit to the owner’s drawing account and a credit to the cash...
The number of years needed to recover the cash amount invested in a project. The calculation uses cash flows rather than accounting income flows. Generally the cash flows are not discounted to reflect the time value of...
In business decision-making, payback means the number of years before the cash invested in a project is returned. It involves the cash flows from the project but generally the cash flows are not discounted to reflect the...
Why does a company prepare a bank reconciliation? Reasons for Preparing a Bank Reconciliation There are several reasons for a company to prepare a bank reconciliation: To safeguard the company’s cash. Performing a bank...
How do I calculate IRR and NPV? Definition of IRR The internal rate of return (IRR) method or model determines the interest rate that discounts all cash inflows and cash outflows to a net present value of $0. In other...
How do you calculate the payback period? Definition of Payback Period The payback period is the expected number of years it will take for a company to recoup the cash it invested in a project. Examples of Payback Periods...
What is the payout ratio? The payout ratio indicates the percentage of a corporation’s earnings which are distributed as cash dividends to its stockholders. Typically, the payout ratio is computed by using the per...
What is a dividend? Definition of Dividend Generally, the term dividend refers to a cash dividend, which is distribution of a portion of a corporation’s earnings to its stockholders in the form of cash. The cash...
corporations may have negative retained earnings, which are reported as a deficit. State laws require corporations to have a positive amount of retained earnings in order to pay cash dividends. It is important to note...
will reduce the corporation’s retained earnings which is reported in the stockholders’ equity section of the balance sheet. (A cash dividend also reduces the corporation’s current asset Cash.) Example of a...
Advertising Expense. The accounts for revenues are almost always credited. When a bakery sells its products, it credits Sales. When a bank earns interest on its loans, it credits Loan Interest Revenues. When a company...
sheet. Here are some of the changes: Owner’s equity or stockholders’ equity will increase by the positive amount of net income Accounts receivable will change by the amount of sales/services provided with...
profits Issuing common stock or preferred stock for cash Borrowing money on a long-term basis Replacing short-term debt with long-term debt Selling long-term assets for cash In addition to increasing working capital, a...
What is the quick ratio? Definition of Quick Ratio The quick ratio is a financial ratio used to gauge a company’s liquidity. The quick ratio is also known as the acid test ratio. The quick ratio compares the total...
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...
by management 2. Which method or basis of accounting best measures the net income earned by a company during a short period of time? Select... Accrual Cash 3. Which of the following would you expect in the heading of a...
by reading our Accounting Basics (Explanation). 1. Which financial statement reports the revenues and expenses for a period of time such as a year or a month? Balance Sheet Wrong. The balance sheet reports assets,...
to the bank’s balance, the bank reconciliation will not reconcile unless the amount is also included in the company’s general ledger Cash account. To record the bank credit memo the company will debit Cash and...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
at the top of the page. 1. A current asset is a company’s resource that is expected to be converted to cash within one year or within the operating cycle, whichever is ____________. Select... longer shorter View...
Is a money market account a current asset or a fixed asset? A money market account is a current asset unless it is restricted for a long-term purpose. The amount of an unrestricted money market account will likely be...
that are expected to be converted to cash within one year of the balance sheet’s date. (However, in industries having operating cycles that are longer than one year, the current assets are the resources that are...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
Which assets are classified as current assets? Definition of Current Assets Current assets include cash and assets that are expected to turn to cash within one year of the balance sheet date. Current assets also include...
a vendor’s invoice within the vendor’s early payment discount period. Purchase Discounts Lost is considered to be an interest expense or a financing charge resulting from the buyer not being able to pay the cash...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
entry will affect a minimum of two accounts. For example, paying the rent usually means an entry to the account Cash and to the account Rent Expense. In addition, double entry requires that at least one account will be...
Our Explanation of Nonprofit Accounting includes a chart that contrasts the financial statements of a nonprofit (or not-for-profit) organization with those of a for-profit business corporation. There are many examples to...
! The amounts needed (total current assets and total current liabilities) are reported on the balance sheet. Cash Flow Statement Wrong. Income Statement Wrong. More Than One Will Be Needed Wrong. 3. The operating cycle...
dollars. Examples of Non-discount Methods of Capital Budgeting One example of a non-discount method is the payback method, since it does not consider the time value of money. The payback method simply computes the...
The amount of cash received is debited to the company’s Cash account If the cash received is greater than the asset’s book value, a Gain on Sale of a Plant Asset is recorded. If the cash received is less than the...
or Practice Quiz for this topic. For more insight regarding a specific question, use the search box at the top of the page. 1. A check that has been written and recorded in the general ledger Cash account, but has not...
the returns on the owner’s cash investment to be amplified. That is, with financial leverage: an increase in the value of the assets will result in a larger gain on the owner’s cash, when the loan interest rate is...
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