What is the difference between interest expense and interest payable? Definition of Interest Expense Assuming the accrual method of accounting, interest expense is the amount of interest that was incurred on debt during...
What is the difference between interest expense and interest payable? Definition of Interest Expense Assuming the accrual method of accounting, interest expense is the amount of interest that was incurred on debt during...
Why does a bond's price decrease when interest rates increase? Definition of Bond’s Price A bond’s price is the present value of the following future cash amounts: The cash interest payments that occur every six...
Is a security deposit for a rental agreement recorded in a liability account? The person paying the security deposit would credit the asset account Cash and would debit the asset account Security Deposits. The person...
What is the difference between loan interest and bank loan repayment? Definition of Loan Interest Loan interest is the expense a borrower incurs for using a lender’s money. Loan interest is also the income earned by a...
What is the difference between information and data? I was taught that information is useful data. The point is there are lots of data (plural of datum) everywhere, and most of the data will not be useful to a decision...
Why is depreciation on the income statement different from the depreciation on the balance sheet? Definition of Depreciation Depreciation is the systematic allocation of an asset’s cost to expense over the useful life...
What is the purpose of depreciation? Purpose of Depreciation The purpose of depreciation is to achieve the matching principle of accounting. That is, a company is attempting to match the historical cost of a productive...
Where is interest on a note payable reported on the cash flow statement? Definition of Interest on a Note Payable The interest on a note payable is reported on the income statement as Interest Expense. Usually this means...
Cash Flow Statement (Flashcards) Download Single-Sided PDF Download Double-Sided PDF All Cards (29) Marked Wrong (0) Marked Right (0) statement of cash flows (or) SCF (or) cash flow statement This financial statement...
Working Capital and Liquidity For multiple-choice and true/false questions, simply press or click on what you think is the correct answer. For fill-in-the-blank questions, press or click on the blank space provided. If...
Debits and Credits (Flashcards) Download Single-Sided PDF Download Double-Sided PDF All Cards (30) Marked Wrong (0) Marked Right (0) debit (or) debit balance This is the left side of an account and also the normal...
Our Explanation of Adjusting Entries gives you a process and an understanding of how to make the adjusting entries in order to have an accurate balance sheet and income statement. Eight examples including T-accounts for...
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 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...
Accounting Equation For multiple-choice and true/false questions, simply press or click on what you think is the correct answer. For fill-in-the-blank questions, press or click on the blank space provided. If you have...
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...
Our Explanation of Chart of Accounts shows how a typical chart of accounts is organized and examples of possible account numbering. It concludes with a quick review of debits and credits.
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 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 Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
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.
Reducing the Need for Accruing Expenses One day I was explaining to the owner of a small business that I would have to accrue for the shipping expenses associated with his company’s sales. Since the shipping company...
What is an asset account? Definition of an Asset Account An asset account is a general ledger account used to sort and store the debit and credit amounts from a company’s transactions involving the company’s...
How do you estimate the amount of uncollectible accounts receivable? Definition of Estimating Uncollectible Accounts Receivable When a company sells goods and/or provides services on account (on credit) using the accrual...
What is OEM and EOM? OEM is the acronym for original equipment manufacturer. EOM is the acronym for end of month. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting...
What is the difference between par and no par value stock? Definition of Par Value Stock Some states’ laws require or may have required common stock issued by corporations residing in their states to have a par value....
How do you account for the rebate on an automobile? The rebate on the purchase of an automobile should be recorded as a reduction of the automobile’s cost. The lower automobile cost will result in lower depreciation...
Which accounts normally have debit balances? Definition of Debit Balance In accounting, a debit balance refers to a general ledger account balance that is on the left side of the account. This is often illustrated by...
What are cost flow assumptions? Definition of Cost Flow Assumptions The term cost flow assumptions refers to the manner in which costs are removed from a company’s inventory and are reported as the cost of goods sold....
What is the difference between the current ratio and the acid test ratio? The difference between the current ratio and the acid test ratio (or quick ratio) mainly involves the current assets inventory and prepaid...
What is a defined contribution pension plan? A defined contribution pension plan is one in which the employer contributes an amount into each eligible employee’s account within an established plan. The employee decides...
How do I write off old outstanding checks? Definition of an Old Outstanding Check We will assume that an outstanding check has appeared on the outstanding check list that is part of the company’s bank reconciliation...
If a customer pays for the same invoice twice, should the customer be informed? I say yes. If you become aware of the double payment when posting the customer’s second remittance, I would double check your records...
How do you record the sale of land? Definition of Sale of Land Assume that a retailer sells land that it had been holding for a future store. The retailer must remove the cost of the land from its general ledger asset...
Why is the accuracy of inventory valuation so important? Definition of Inventory Accuracy Inventory accuracy means the following: Accurate counts of the items in inventory Proper cost of each item in inventory (based on...
What is common stock? Definition of Common Stock Common stock refers to the shares of ownership interest in a U.S. corporation. The owners of the common stock are referred to as common stockholders, common shareholders,...
What is the difference between the terms capitalize and depreciate? Definition of Capitalize In accounting, the term capitalize refers to adding an amount to the balance sheet as an asset (as opposed to immediately...
What is gross pay? Definition of Gross Pay Gross pay is the amount an employee is paid before the employer withholds FICA (Social Security and Medicare payroll taxes), income taxes (federal, state, local) if applicable,...
How do I record a loan payment which includes paying both interest and principal? Definition of a Loan Payment A loan payment is likely to consist of three amounts: Total payment amount Interest payment Principal payment...
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