What is annualizing? Definition of Annualizing Annualizing means taking a partial year amount and converting it to a full year amount. We will use several examples to illustrate how this works. Examples of Annualizing A...
What is annualizing? Definition of Annualizing Annualizing means taking a partial year amount and converting it to a full year amount. We will use several examples to illustrate how this works. Examples of Annualizing A...
What is a deferred credit? A deferred credit could mean money received in advance of it being earned, such as deferred revenue, unearned revenue, or customer advances. A deferred credit could also result from complicated...
What is premium on bonds payable? Definition of Premium on Bonds Payable Premium on bonds payable (or bond premium) occurs when bonds payable are issued for an amount greater than their face or maturity amount. This is...
Where do credit card payments get recorded? Definition of Credit Card Payments We define a credit card payment as the amount a company remits to the credit card company for the purchases that occurred by using the credit...
How do you calculate the gain or loss when an asset is sold? Definition of Gain or Loss on Sale of an Asset The gain or loss on the sale of an asset used in a business is the difference between 1) the amount of cash that...
What is the difference between an adjunct account and a contra account? Definition of Adjunct Account An adjunct account is a general ledger account that is related to another general ledger account. The combination of...
What is a comparative income statement? A comparative income statement will consist of two or three columns of amounts appearing to the right of the account titles or descriptions. For example, the income statement for...
In a bank reconciliation, what happens to the outstanding checks of the previous month? Definition of Outstanding Checks Outstanding checks are checks written by a company, but the checks have not cleared the bank...
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...
What is gross profit? Definition of Gross Profit Gross profit is defined as net sales minus the cost of goods sold. Gross profit is sometimes referred to as gross margin. (However, gross margin can also mean the gross...
Where can I get official information for federal payroll taxes? For official information on federal payroll taxes we recommend the Internal Revenue Service Publication 15 which is known by two names: Circular E and...
What are invoice payment terms? Definition of Invoice Payment Terms Invoice payment terms appear as part of the information shown on the invoice (or bill) prepared by a seller of goods or a provider of services....
How do you account for a project under construction? Accounting for a Project Under Construction If a company is constructing a major project such as a building, assembly line, etc., the amounts spent on the project will...
What are some tips to make learning debits and credits easy? Here are five tips to make learning debits and credits easier: The accounts for expenses are nearly always debited. For example, when a company pays its...
What is the definition of capital market? Often, capital market refers to the structured market for trading stocks and bonds. Examples are the New York Stock Exchange, the American Stock Exchange, NASDAQ, and the New...
Is an entry made for outstanding checks when preparing a bank reconciliation? Definition of Outstanding Checks Outstanding checks are checks written by the company, recorded in the company accounts, but not yet appearing...
With regard to depreciation, what does the term mid-month convention mean? Definition of Mid-Month Convention In depreciation, the mid-month convention means that an asset placed into service anytime during a given...
What is the accounting equation? Definition of Accounting Equation The accounting equation of a sole proprietorship is assets = liabilities + owner’s equity. For a corporation, the accounting equation is assets =...
What is the difference between the accounts rent receivable and rent revenue? Definition of Rent Receivable Rent Receivable is the title of the balance sheet asset account which indicates the amount of rent that has been...
Why is there a difference in the amounts for Bad Debts Expense and Allowance for Doubtful Accounts? Amount Reported as Bad Debts Expense The amount reported in the income statement account Bad Debts Expense pertains to...
What is Subchapter S? Subchapter S refers to a section of Chapter 1 of the U.S. Internal Revenue Code. A subchapter S corporation, which is also referred to as an S corporation, is a corporation that does not pay the...
What is Big 4 Accounting? In accounting, the Big 4 refers to the four largest public accounting and auditing firms: Deloitte PricewaterhouseCoopers (PwC Ernst & Young (EY) KPMG These certified public accounting (CPA)...
Why is it necessary to allocate a lump sum payment to individual items? It is necessary to allocate a lump sum payment to individual items in order to record a fair portion of the lump sum in each of the proper general...
Is a security deposit a current asset? Definition of Security Deposit A security deposit is often an amount paid by a tenant to a landlord to hold until the tenant moves. The amount of the security deposit is refundable...
What is the provision for bad debts? Definition of Provision for Bad Debts The provision for bad debts could refer to the balance sheet account also known as the Allowance for Bad Debts, Allowance for Doubtful Accounts,...
What is the accounting treatment for an asset that is fully depreciated, but continues to be used in a business? An asset that is fully depreciated and continues to be used in the business will be reported on the balance...
How does one prepare a company's first bank statement reconciliation? To prepare a bank reconciliation for a company that never prepared one previously, I would first make a list of outstanding checks. For example, if...
What is a deferred expense? Definition of Deferred Expense A deferred expense refers to a cost that has occurred but it will be reported as an expense in one or more future accounting periods. To accomplish this, the...
Are payroll withholding taxes an expense or a liability? Definition of Payroll Withholding Taxes Payroll withholding taxes are amounts withheld from employees’ wages and salaries. The amounts withheld are actually the...
What is a rubber check? A rubber check is a check that is not paid (or honored) by the bank on which it is drawn. The reason the check is not paid is the maker’s account had insufficient funds or not sufficient funds...
What is a trade discount? Definition of Trade Discount A trade discount is a routine reduction from the regular, established price of a product. The use of trade discounts allows a company to vary the final price based...
Where do you account for payroll taxes on the income statement? Definition of Payroll Taxes Payroll taxes are based on the wages (salaries, commissions, bonuses, etc.) of a company’s employees and on a self-employed...
What are sundry expenses? Definition of Sundry Expenses In accounting and bookkeeping, sundry expenses are expenses that are small in amount and rare in occurrence. For these rare and insignificant expenses, a company...
What are some examples of financing activities? Definition of Financing Activities Financing activities often refers to the cash flows from financing activities, which is one of the three main sections of the statement...
How does petty cash affect expenses? Definition of Petty Cash Petty cash is a small amount of currency and coins that a company has available to make very small payments instead of requesting and processing a company...
What are the effects of overstating inventory? Definition of Overstating Inventory Overstating inventory means that the reported amount for the cost of a company’s inventory is greater than the actual true cost based...
What is meant by nonoperating expenses and losses? Definition of Nonoperating Expenses and Losses Nonoperating expenses are business expenses that are outside of a company’s main or central operations. (Some describe...
A credit is not a normal balance for what accounts? Definition of Credit Balance A credit balance refers to the balance on the right side of a general ledger account or T-account. Normally, the liability and owner’s...
What is Notes Payable? Definition of Notes Payable In accounting, Notes Payable is a general ledger liability account in which a company records the face amounts of the promissory notes that it has issued. The balance in...
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...
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