to the company’s balance sheet where it will be reported as a liability. The title of the general ledger liability account may have the title of Unearned Revenues, Deferred Revenues, or Customer Deposits. As the...
to the company’s balance sheet where it will be reported as a liability. The title of the general ledger liability account may have the title of Unearned Revenues, Deferred Revenues, or Customer Deposits. As the...
How do you calculate ending inventory? Physically Counting the Items in Inventory One method for calculating the cost of a company’s ending inventory is to 1) physically count the quantity of each of the items in...
What is the annual wage limit? Definition of Annual Wage Limit Annual wage limit is a payroll accounting term that is associated with the Social Security payroll tax. (The annual wage limit is also known as the annual...
) and the income statement will report supplies expense of $7,500 (1,500 units at $5). Assume that a company purchases a delivery truck to be used in its business. Initially the truck’s cost will be recorded in the...
What is the advantage of issuing bonds instead of stock? Definition of Bonds Bonds payable are a form of long-term debt, which include a formal agreement to pay interest semiannually and the principal amount at maturity....
What is a condensed income statement? A condensed income statement is one that summarizes much of the income statement detail into a few captions and amounts. For example, a retailer’s condensed income statement will...
What is a lease? Definition of a Lease Typically, a lease is a written agreement between an owner of property (land, building, equipment, vehicle, etc.) and a person or business that will use the property for a stated...
If I want a gross margin of 25%, what percent should I mark up my product? Definition of Gross Margin Gross margin as a percentage is the gross profit divided by the selling price. For example, if a product sells for...
Does a company have to use the IRS years of useful life for depreciation? For the company’s financial statements, the economic life of the asset should be used—not the years of useful life required for income tax...
What is apportionment? An apportionment is an allocation based on some proportions. I associate the term apportionment with a corporation’s taxable income that was earned in many states within the U.S. In that...
What is the return on assets ratio? Definition of Return on Assets Ratio The return on assets ratio, or return on total assets ratio, relates a company’s net income during a specific year, to the company’s average...
What does it mean to rotate stock? Definition of Rotating Inventory Stock To rotate stock means to arrange the oldest units in inventory so they are sold before the newer units. The goal is to avoid losses due to getting...
Is income tax an expense or liability? Definition of Income Tax In the accounting for a regular U.S. corporation, income tax usually refers to the federal, state, local, and foreign countries’ taxes that are levied...
What is the effective interest rate for a bond? Definition of Effective Interest Rate of a Bond The effective interest rate of a bond is usually the market interest rate and the bond’s yield-to-maturity (as opposed to...
What is the days' sales in inventory ratio? Definition of Days’ Sales in Inventory The financial ratio days’ sales in inventory tells you the number of days it took a company to sell its inventory during a recent...
of bonds payable. Instead of charging the $500,000 to expense in the year that the fees are paid, the corporation will defer the $500,000 to the contra liability account Bond Issue Costs. Then over the bonds’ life of...
How do you calculate the cost of carrying inventory? Definition of Cost of Carrying Inventory The cost of carrying inventory (or cost of holding inventory) is the sum of the following: Cost of money tied up in inventory,...
What is the conservatism principle? Definition of Conservatism Principle In accounting, the conservatism principle (or accounting constraint) directs an accountant, who is faced with doubt between two possible...
What is self-insurance? Self-insurance means no insurance. For example, if a retailer decides to self-insure its buildings, the retailer will not have an insurance policy to pay for losses that may occur to its...
Why are wages reported as an expense when the work occurs, but the employees' tax records report them when they are paid? Accrual Method for the Corporation, Cash Method for the Employees The short answer is that the...
is the cost of goods on hand, it makes sense to relate it to the cost of goods sold. Assume that during the past year a company’s inventory had an average cost of $10,000. (This was the average of the amounts in the...
Is it a requirement for a small business to have a CPA? Generally, a small business is not required to have a CPA or certified public accountant. A CPA would be needed if the small business must have its financial...
Where does the interest paid on bank loans get reported on the statement of cash flows. Definition of Interest on Bank Loans The interest on bank loans is usually an expense of the accounting period in which the interest...
What is a fiscal year? Definition of Fiscal Year A fiscal year is an accounting year that does not end on December 31. (Accounting years of January 1 through December 31 are known as calendar years.) A fiscal year could...
Does the income statement explain the change in the equity section of a balance sheet? The income statement could explain the change in the equity section of a balance sheet. However, there are likely to be some other...
If cash and a note are exchanged for a plant asset, is the amount of the note used in the depreciation calculation? A plant asset’s cost is depreciated, unless the asset is land. Cost is defined as the cash or cash...
ledger account that reports the cost of the goods that are on the factory floor. In this current asset account are the cost of the direct materials, direct labor and the allocation of manufacturing overhead for the...
and ready for use. If a company purchases goods with terms such as FOB shipping point, the company will be responsible for any costs to get the products from the seller to the company’s warehouse. In that situation,...
Why are the amounts on the financial statements rounded to thousands or millions? Definition of Rounding Amounts on Financial Statements Rounding the amounts on a company’s financial statements means dropping the less...
What is a fringe benefit rate? Definition of Fringe Benefit Rate A fringe benefit rate is a percentage that results from dividing the cost of an employee’s fringe benefits by the wages paid to the employee for the...
What is an intangible asset? Definition of Intangible Asset An intangible asset is an asset that you cannot touch, since it lacks physical substance. Accountants record intangible assets at their cost when they are...
How do you balance a checkbook? Definition of Balance a Checkbook To balance a company checkbook means comparing the amounts on the bank statement (or other bank account detail) to the amount in the company’s...
What is an asset's useful life? Definition of Asset’s Useful Life An asset’s useful life is the estimated period of time (or total amount of activity) that a long-lived asset will be economically feasible for use in...
If an accrual adjusting entry increases an expense and a liability, how does the balance sheet remain in balance? An expense is a temporary account which reduces owner’s equity or stockholders’ equity. The decrease...
and asked that his billing period be changed to cover the calendar month. They were pleased to make the change. Next, the owner called his bank and asked if the bank would be able to deduct the current month’s loan...
What are direct materials? Definition of Direct Materials Direct materials are defined as: Traceable matter that is converted by a manufacturer into products Part of manufacturer’s production costs A variable cost of a...
How should a mortgage loan payable be reported on a classified balance sheet? Definition of a Mortgage Loan Payable The account Mortgage Loan Payable contains the principal amount owed on a mortgage loan. (Any interest...
Is depreciation expense an administrative expense? Definition of Depreciation Expense Depreciation expense is the systematic allocation of a depreciable asset’s cost to the accounting periods in which the asset is...
What is carriage outwards? Definition of Carriage Outwards Carriage outwards refers to the transportation costs that a seller must pay when it sells merchandise with the terms FOB Destination. Carriage outwards is also...
Which date is used to record a credit card transaction? When a business uses its credit card, the transaction date is the date the credit card is used, not the date that the credit card statement is paid. For example, if...
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