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...
What are reversing entries and why are they used? Definition of Reversing Entries Reversing entries are made on the first day of an accounting period to remove accrual adjusting entries that were made at the end of the...
Future Value of a Single Amount Future Value of a Single Amount The future value of a single amount is also known as the future value of 1. The amount is a single, one-time deposit made at time period 0, which is also...
Our Explanation of Financial Statements provides you with the highlights of each of the five external financial statements issued by U.S. corporations. Our insights will give you a good understanding of what the...
Under the accrual method of accounting, this account reports the employer’s portion of the Social Security and Medicare tax that pertains to the period indicated in the heading of the income statement, whether or...
Accounting estimates include the estimated salvage value and the estimated useful life of depreciable assets, estimated percentage of bad debts expense, estimated percentage of units to be repaired or replaced during a...
The principle that requires a company to match expenses with related revenues in order to report a company’s profitability during a specified time interval. Ideally, the matching is based on a cause and effect...
Under the accrual method of accounting, this account reports the employer’s portion of the health insurance cost incurred by the company during the period indicated in the heading of the income statement, whether...
A rolling budget adds a future accounting period’s budget to replace a budget for an accounting period that has past. For example, a company’s 2024 annual budget will become a rolling budget if in February...
Selling expenses are part of the operating expenses (along with administrative expenses). Selling expenses include sales commissions, advertising, promotional materials distributed, rent of the sales showroom, rent of...
Under the accrual method of accounting, this account reports the employer’s portion of the health insurance cost incurred by the company during the period indicated in the heading of the income statement, whether...
A measurement of net income arrived at by comparing the amount of total equity at the end of a period to the amount of total equity at the beginning of the period. For example, if Al Capone had $5 million of equity at...
Administrative expenses are part of the operating expenses (along with selling expenses). Administrative expenses include expenses associated with the general administration of the business. Examples include the salaries...
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 Accounting Principles provides you with clear and concise descriptions of the basic underlying guidelines of accounting. You will see how the accounting principles affect the balance sheet and income...
to the amount invested. The computed number of years is referred to as the payback period. To illustrate, assume that a company invests $100,000 today in a project that is expected to generate cash of $50,000 for two...
for the accounting period. If the income statement was prepared using the accrual method of accounting, the net income must be adjusted for expenses that were not paid during the current accounting period revenues which...
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...
. Costs that are used up or expire in the current accounting period are reported on the income statement as __________. 6. The Allowance for Doubtful Accounts reduces the amount reported on the balance sheet for the...
. the vendor's __________ invoice, and 11. the company's __________ receiving report or ticket. 12. A $1,000 invoice from a supplier has terms of 2/10, n/30. The amount that should be remitted to the...
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,...
that under the accrual basis of accounting: Revenues are reported in the accounting period in which they are earned (as opposed to when cash is collected) Expenses are reported in the accounting period when they best...
Our Explanation of Depreciation emphasizes what the depreciation amounts on the income statement and balance sheet represent. Learn why depreciation is an estimated expense that does not assist in determining the current...
cash inflows and cash outflows during the period of the income statement A reconciliation of the change in a company’s cash and cash equivalents from the beginning of the accounting period to the end of the accounting...
know that during this 15-day period, the shipping expense would be higher than any other 15-day period due to holiday sales.) He listened carefully as I explained the matching principle, accrual-type adjusting entries,...
What is the purpose of the cash flow statement? Definition of Cash Flow Statement The cash flow statement or statement of cash flows or SCF identifies a company’s major cash inflows and outflows that occurred the same...
cash inflows and cash outflows during the same period as the company’s income statement. The cash flow statement is important because the income statement reflects the accrual method of accounting. This means the...
What is accrued rent? Definition of Accrued Rent Accrued rent is the amount of rent that has not yet been paid by the tenant or received by the landlord for a past period of time. [If the tenant always pays the monthly...
in the company’s general ledger accounts. If it is the end of the accounting period, these amounts must be recorded to comply with the accrual method of accounting. By entering these on an adjusting entry dated for...
and utilities, and interest on loans are examples of expenses that are not assigned to the products. Instead, these costs are described as period costs since they are expensed immediately in the accounting period in...
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 cost of goods manufactured? Definition of Cost of Goods Manufactured The cost of goods manufactured is a calculation of the production costs of the goods that were completed during an accounting period. In...
.) Companies that use the net method will record the vendor’s invoice as follows: credit Accounts Payable for $980 and debit another account (Inventory, Purchases, etc.) for $980. If the company’s policy is to pay...
for the current period’s expense that is reported on the company’s income statement. If Provision for Doubtful Debts is the name of the account used for recording the current period’s expense associated with the...
Is the reversal of a previous year's accrued expense permanent? Definition of Reversal of Accrued Expense An accrued expense typically requires an accrual adjusting entry recorded at the end of an accounting year...
What is a deferral? Definition of Deferral A deferral often refers to an amount that was paid or received, but the amount cannot be reported on the current income statement since it will be an expense or revenue of a...
, gains and losses (except for items stipulated as other comprehensive income) for a period of time such as a year, quarter, 13 months, etc. Statement of comprehensive income. This financial statement begins with the...
of a company’s revenues, expenses, gains, losses, and the resulting net income that occurred during a year, quarter, or other period of time. Examples of Items Appearing in the Income Statement The main items reported...
in a year, each semimonthly pay period will have on average 2.16667 weeks per semimonthly payday. Example of Biweekly Payroll Let’s assume that a company pays its employees biweekly on every other Friday. If a new...
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.
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