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 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 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 Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
in the Explanation or Practice Quiz for this topic. For more insight regarding a specific question, use the search box at the top of the page. 1. Accounts receivable result from __________ sales as opposed to cash...
Why is Interest Expense Included in the Operating Activities Section of the Cash Flow Statement? Definition of Interest Expense Interest expense is the cost of borrowing money. Under the accrual method of accounting,...
What is the internal rate of return? Definition of Internal Rate of Return The internal rate of return is the interest rate that will discount an investment’s future cash amounts to be equal to cash paid at the...
expense over its useful life Depreciable assets are reported on the balance sheet under the asset heading property, plant and equipment. Examples of Depreciable Assets Some examples of depreciable assets include the...
Building. The $400,000 allocated cost of the land is not depreciated, while the warehouse building’s allocated costs of $1,200,000 will be depreciated over the warehouse building’s years of useful life. Join PRO to...
machine hours needed to meet the company’s production schedules. Normal capacity is the annual machine hours that have occurred over a span of several years. Example of Practical Capacity Assume that a manufacturer...
during their useful lives. Plant assets (other than land) are depreciated over their useful lives and each year’s depreciation is credited to a contra asset account Accumulated Depreciation. Plant assets and the...
in a business. They are reported in the Property, Plant and Equipment section of the balance sheet. The fixed/plant assets are depreciated over their estimated useful lives (except for land which is not...
of land. Depreciation attempts to match an asset’s cost (minus any expected salvage value) with the revenues that the asset will be generating over an estimated number of accounting periods. Example of Depreciation...
years of an asset’s life Less depreciation in the later years of the asset’s life Since the total amount of depreciation over the asset’s life will be the same regardless of the depreciation method used, the...
is a debit balance. In other words, the corporation has a negative amount of retained earnings. Example of Deficit Within Stockholders’ Equity Assume a corporation was formed just over three years ago. In its first...
involved when a company constructs its own building is also a deferred cost. The reason is that the interest will be added to the cost of the building and then depreciated over the life of the building—instead of...
during the past year.) Also assume that during the year the company has sales of $60,000 and its cost of goods sold was $40,000. On average, the inventory turned over 4 times ($40,000 of cost of goods sold during the...
What are the effects of depreciation? Definition of Depreciation Depreciation is the systematic allocation of the cost of a company’s assets used in its business from the balance sheet to the income statement (as an...
, the building’s cost (including the capitalized interest) is depreciated over its useful life. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping...
be referred to as a deferred charge. Example of a Deferred Asset Assume that an electric utility spent $300,000 for a project before it had to be abandoned. The state regulators ruled that the utility may recover the...
on the income statement over the asset’s useful life. Accountants point out that depreciation is an allocation process which does not result in reporting the asset’s market value. Example of Recording Depreciation...
How is a voucher used in accounts payable? Definition of Voucher A voucher is often a prenumbered form used in the accounts payable department to standardize and enhance a company’s internal control over payments to...
the cost over the useful life. However, if the amount of the addition or the improvement is relatively small, the accounting concept of materiality allows you to expense the entire amount immediately. Join PRO to Track...
is to develop an average for the year that considers every month’s inventory. This is preferred over an annual average that is based on just two points: (the amount of inventory at December 31, 2022 plus the inventory...
about its future pension expense and liabilities. It also means simpler accounting. As a result, more companies are choosing defined contribution pension plans over defined benefit pension plans. Join PRO to Track...
. The combination of net income + other comprehensive income is known as __________ income. Comprehensive Right! Net Wrong. Total Wrong. 13. Which basis of accounting best measures profitability during a short time...
What is net present value? Definition of Net Present Value Net present value is the combination of 1) the present value of cash inflows, and 2) the present value of the cash outflows. To arrive at these present value...
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...
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...
What is DCF? In accounting, DCF refers to discounted cash flows or to the discounted cash flow techniques such as net present value or internal rate of return. DCF is a preferred method for evaluating capital...
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...
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...
Cash and other resources that are expected to turn to cash or to be used up within one year of the balance sheet date. (If a company’s operating cycle is longer than one year, an item is a current asset if it will...
; 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...
What is burn rate? In business, burn rate is usually the monthly amount of cash spent in the early years of a start-up business. Burn rate is an important metric since the new business must spend time and money...
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...
What is a current asset? Definition of Current Asset A current asset is a company’s cash and its other assets that are expected to be converted to cash within one year of the date appearing in the heading of the...
Why does the internal rate of return equate to a net present value of zero? Internal rate of return and net present value are discounted cash flow techniques. To discount means to remove the interest contained within the...
What is NPV? Definition of NPV NPV is the acronym for net present value, which can be calculated as follows: The present value of the future cash inflows Minus the cash investment Example of NPV Assume that a company...
Should a company focus on cash flows or accounting profits when making a capital expenditure decision? Using the incremental cash flows and discounting them to reflect the time value of money is the preferred method. The...
Where should a business report cash which is restricted to purchase a long-term asset? The cash which a business has restricted to purchase a long-term asset should be reported on the balance sheet under the asset...
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