receives cash of $500 but cannot readily determine the reason why it received the $500. Obviously, the company’s asset Cash is to be debited, but the account to be credited (required by the double-entry system) for...
receives cash of $500 but cannot readily determine the reason why it received the $500. Obviously, the company’s asset Cash is to be debited, but the account to be credited (required by the double-entry system) for...
; L. Webb, Draws; or L. Webb, Withdrawals. The other part of the entry will reduce the specific business asset. Example of Drawings If the owner (L. Webb) draws $5,000 of cash from her business, the accounting entry will...
Our Explanation of Bonds Payable covers the recording of bonds, the accrual of interest expense, and the amortization of the discount and premium on bonds payable. You gain an understanding on why the market value of...
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...
Our Explanation of Bonds Payable covers the recording of bonds, the accrual of interest expense, and the amortization of the discount and premium on bonds payable. You gain an understanding on why the market value of...
What is the difference between Present Value (PV) and Net Present Value (NPV)? Definition of Present Value (PV) Present value or PV is the result of discounting one or more future amounts to the present. The greater the...
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...
. 1. CB Corporation’s balance sheet as of December 31 reported the following: Cash and cash equivalents $20,000 Temporary investments $30,000 Accounts receivable $50,000 Inventory $150,000 Equipment $400,000 Total...
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...
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...
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...
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...
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...
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...
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...
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...
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...
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 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...
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 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...
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...
describes an __________. 3. Methods that compute the present value of future cash flows are referred to as __________ cash flow techniques. 4. Part of the difference between a company’s net income during a specific...
yield-to-maturity discount interest rate desired interest rate Market Interest Rates and the Value of Existing Bonds When market interest rates decrease, the value of existing bonds will increase. The reason is the...
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...
's withdrawal account This account is debited when the owner withdraws business cash (or other assets) for personal use. At the end of the accounting year, the balance is transferred (closed) directly to the...
amount of depreciation over an asset’s useful life should be the same regardless of which depreciation method is used. In other words, the difference is in the timing of when the same total amount of depreciation will...
. There is no regulation that requires the tax depreciation to be the same as the book depreciation in a given year. (However, over the life of an asset, the total depreciation expense for both will be limited to the...
purchasing power is assumed to be constant or stable over time. Select... conservatism cost economic entity full disclosure going concern industry practices matching materiality monetary unit time period 7. Allows...
per the books. Add To BANK Balance Wrong. The service charge already appears on the bank statement. Deduct From BANK Balance Wrong. The service charge is already deducted on the bank statement. 6. Interest credited to...
will be recorded with a debit of $4,000 to Accounts Receivable and a credit of $4,000 to Sales Revenues. Definition of Receipts A company’s receipts refers to the cash that the company received. Examples of Receipts...
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...
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...
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