are considered to be operating expenses and are presented on the income statement as SG&A expenses. (SG&A is the acronym for selling, general and administrative expenses.) Sales commissions are not part of the...
are considered to be operating expenses and are presented on the income statement as SG&A expenses. (SG&A is the acronym for selling, general and administrative expenses.) Sales commissions are not part of the...
, the company’s Marketing Consultants Expense will be the account that is understated by $20,000. As a result of the $20,000 understatement, the company’s income statement will report too little of SG&A expenses,...
Why aren't retained earnings distributed as dividends to the stockholders? Definition of Retained Earnings Retained earnings is one component of the stockholders’ equity section of a corporation’s balance sheet. Some...
What is a source document? Definition of Source Document A source document is an original record which contains the detail that supports or substantiates a transaction that will be (or has been) entered in an accounting...
. As the amount of prepaid insurance expires, the expired portion is moved from the current asset account Prepaid Insurance to the income statement account Insurance Expense. This is usually done at the end of each...
What is the meaning of aging? Definition of Aging In accounting, the term aging is often associated with a company’s accounts receivable. Accounts receivable arise when a company provides goods or services and allows...
What is premium on common stock? Definition of Premium on Common Stock If a corporation’s common stock has a par value and the corporation receives more than the par value when issuing a new share of the stock, the...
Will I be able to pass the CPA Exam after studying the accounting material on AccountingCoach.com? AccountingCoach.com contains introductory accounting material. While you need to master the principles and concepts...
What is the difference between public sector and private sector? Definition of Public Sector Public sector refers to: government-owned organizations, and government-provided services (Note: public sector entity is...
for the utility, its customers, and its stockholders. This is likely to attract investors wanting a steady stream of cash dividends which increase with inflation. To gain deeper insights for a specific corporation’s...
Why is income received in advance a liability? Definition of Income Received in Advance Under the accrual method of accounting, when a company receives money from a customer prior to earning it, the company will have to...
the company’s true amount of cash. Example of an Outstanding Check in the Bank Reconciliation In the bank reconciliation process, the total amount of outstanding checks is subtracted from the ending balance on the...
on the company’s balance sheet is an increase in current assets and an increase in owner’s or stockholders’ equity. The company’s income statement will also report the amount of the revenues earned. Example of...
In adjusting entries, how do I know which T-accounts to use? We illustrate the common adjusting entries with the use of T-accounts in the Explanation of the Topic Adjusting Entries available for your reading at no...
What is the book value of bonds payable? Definition of Book Value of Bonds Payable The book value of bonds payable is also known as the carrying value of bonds payable. The book value of bonds payable is the net or...
What is callable stock? Callable stock is an ownership interest (shares) in a corporation that can be “called in” by the corporation at a specified price. For example, a corporation might issue 9% $100 Preferred...
Are bonds payable reported as a current liability if they mature in six months? Definition of Bonds Payable Bonds payable are formal, long-term obligations that promise to pay interest every six months and the principal...
corporation can be computed using the before tax earnings and/or the after tax earnings. Example of Return on Assets Ratio Assume that during its most recent year, a company’s income statement reported net income...
How do you record an asset that was partially financed? Example of Recording an Asset that was Partially Financed Assume that your company purchased a car for $10,000 by paying cash of $4,000 and signing a promissory...
Accounts. This credit balance will cause the amount of accounts receivable reported on the balance sheet to be reduced. Any adjustment to the Allowance account will also affect Uncollectible Accounts Expense, which is...
What is a special journal? Definition of a Special Journal A special journal (also known as a specialized journal) is useful in a manual accounting or bookkeeping system to reduce the tedious task of recording both the...
What are the disclosures for a manufacturer's inventory? A manufacturer should disclose the following categories of inventory: raw materials, work-in-process, finished goods, manufacturing supplies, and packaging...
What is revenue? Definition of Revenue Revenue is the amount a company receives from selling goods and/or providing services to its customers and clients. A company’s revenue, which is reported on the first line...
What is a vendor? Definition of Vendor In the context of accounts payable, a vendor is a person or business that supplies goods or services to the company. Another term for vendor is supplier. The term vendor can also be...
What is a long-term asset? Definition of Long-term Asset A long-term asset is an asset that is not expected to be converted to cash or be consumed within one year of the date shown in the heading of the balance sheet....
What is a dividend and why is it needed? A dividend paid by a corporation is a distribution of profits to the owners of the corporation. The owners of a corporation are known as stockholders or shareholders. (In a sole...
What is the cost of goods sold? Definition of Cost of Goods Sold The cost of goods sold is the cost of the products that a retailer, distributor, or manufacturer has sold. The cost of goods sold is reported on the income...
is $6,000. Under the accrual basis of accounting, the retailer must report the $6,500 of accrued payroll as: An expense on its income statement for the period ended December 31 Current liability on its balance sheet as...
Why are expenses debited? Why Expenses Are Debited Expenses cause owner’s equity to decrease. Since owner’s equity’s normal balance is a credit balance, an expense must be recorded as a debit. At the end of the...
What is the expanded accounting equation? Definition of Expanded Accounting Equation The expanded accounting equation provides more details for the owner’s equity amount shown in the basic accounting equation. The...
When does a negative cash balance appear on the balance sheet? Definition of Negative Cash Balance A negative cash balance results when the cash account in a company’s general ledger has a credit balance. The credit or...
Why is Rent Expense a debit and Service Revenues a credit? Why Rent Expense is a Debit Rent expense (and any other expense) will reduce a company’s owner’s equity (or stockholders’ equity). Owner’s equity which...
Why is Accumulated Depreciation an asset account? Definition of Accumulated Depreciation The account Accumulated Depreciation reports the total amount of depreciation expense that has been recorded from the time the...
to the health insurance company. Then in account 4211 they can see the portion of the cost that was paid by the employees. The company’s income statement will report the combination of the amounts in accounts 4210 and...
When should costs be expensed and when should costs be capitalized? Definition of Costs In the context of the question, costs are the amounts paid in exchange for materials, products, or services. The costs could be:...
, average) for removing the costs from inventory and sending them to the cost of goods sold. Definition of Cost of Goods Sold The cost of goods sold is the cost of the products that have been sold to customers during the...
What are debits and credits? Definition of Debits and Credits Debits and credits are terms used in accounting and bookkeeping systems for the past five centuries. They are part of the double entry system which results in...
What is the net method? Definition of Net Method In accounting, the net method likely refers to the way a company records each vendor’s invoice that offers an early payment discount. Example of Net Method Assume that a...
statement after the subtotal Income from operations and will often appear with the caption Other income. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and...
How is working capital defined and measured? Definition of Working Capital Working capital is defined as the amount of a company’s current assets minus the amount of its current liabilities usually as of the final...
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