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...
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...
this topic by reading our Working Capital and Liquidity (Explanation). 1. Working capital is __________ net working capital. The Same As Right! Different From Wrong. 2. The amounts needed to compute a company's...
accounting amounts to see how the investments will impact its future Internal rate of return Net present value The discounting of cash flows can be done using computer software, financial calculators, or present value...
. Software, financial calculators, and online calculators provide a quicker and more accurate answer. Definition of NPV The net present value (NPV) method or model discounts all of the cash inflows and outflows by a...
Website Services Corp (WSC) completed extensive and unique services for a client and agreed to a single payment of $100,000 to be made two years from now. The client’s financial condition would require it to pay...
in Allowance for Doubtful Accounts reduces the amount reported on a company’s balance sheet for accounts receivable to the amount that is expected to be collected. The balance sheet account Allowance for Doubtful...
balance is an internal accounting report that merely documents the equality of debits and credits. It is not a financial statement. The trial balance was crucial internal report when the accounting records were...
-30 days past due, 31-60 days past due, etc. A receivable that is current (not past due) is usually not a problem. However, when customers are past due it is a sign that they are experiencing some financial difficulties....
classified into three groups: Raw materials used in the product Direct labor used to make the product Manufacturing overhead incurred to make the product Since the manufacturing overhead costs are indirect costs, they...
What is the current ratio? Definition of Current Ratio The current ratio is a financial ratio that shows the proportion of a company’s current assets to its current liabilities. The current ratio is often classified as...
are paying interest. However, our agreement did not specify any interest, nor did it state an interest rate. To find the interest rate that is implicit in this arrangement, you need to carry out what’s known as a...
. On the other hand, some companies are required by government regulations to end their accounting years on December 31, even though it is not the end of their natural business year. The term fiscal year is associated...
and development for the future leaders of the company. A disadvantage of decentralization occurs if a subunit makes a decision that is good for the subunit’s financial results, but it results in less than optimal...
by reading our Nonmanufacturing Overhead (Explanation). 1. Selling expenses should be allocated to the cost of goods sold for external financial reporting. True Wrong. False Right! 2. According to U.S. accounting...
of significant noncash changes in the above sections Definition of Free Cash Flow Free cash flow is a metric often used by financial analysts. It is calculated by using two amounts reported on a company’s statement of...
should normally be reported at its net realizable value. (U.S. income tax rules require conformity between tax and financial reporting. As a result, there are complexities involved.) Join PRO to Track Progress Mark the...
that will be turning to cash.) For financial statement purposes the allowance method is the better method since 1) the balance sheet will be reporting a more realistic amount that will be collected from the company’s...
What is the interest coverage ratio? Definition of Interest Coverage Ratio The interest coverage ratio is a financial ratio used as an indicator of a company’s ability to pay the interest on its debt. (The required...
for both the payee and for the person writing the check. A check returned as not sufficient funds could be an indication that the financial condition of the maker of the check may be suspect. Example of Not Sufficient...
to maturity) is the interest rate that will discount the interest stream (an ordinary annuity) and the maturity amount (a lump sum) to $287,832. This can be done with software, a financial calculator, or via trial and...
to cash in 10 to 40 days. However, inventory may require several months to be sold and the money collected. Hence, inventory is not considered to be a “quick asset.” To assist in evaluating a company’s liquidity,...
What is the inventory turnover ratio? Definition of Inventory Turnover Ratio The inventory turnover ratio is an important financial ratio that indicates a company’s past ability to sell its goods. Converting inventory...
or within the operating cycle, whichever is longer. To assist you in computing and understanding accounting ratios, we developed 24 forms that are available as part of AccountingCoach PRO. You can also read our...
they are depreciated over their useful lives. The accumulated depreciation for these assets is also reported as part of the property, plant and equipment. The amount of capital expenditures for an accounting period is...
What is double-entry bookkeeping? Definition of Double-Entry Bookkeeping Double-entry bookkeeping refers to the 500-year-old system in which each financial transaction of a company is recorded with an entry into at least...
on the company’s balance sheet as follows: $188,000 as a long-term or noncurrent liability such as noncurrent portion of mortgage loan $12,000 as a current liability such as current portion of mortgage loan When the...
of Long-term Assets Long-term assets include long-term investments in financial securities, property, plant, equipment, and intangible assets. Definition of Proceeds from Long-term Assets The money a company receives...
usually accept a fixed cash dividend that will be paid by the corporation before the common stockholders are paid a dividend. In exchange for this preferential treatment of dividends, the preferred stockholders...
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 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...
What are byproducts? Byproducts, or by-products, are products with relatively little value that emerge from a common process along with the main products. The main products have significant value and are referred to as...
. Accounting for Office Supplies The cost of office supplies on hand at the end of an accounting period should be the balance in a current asset account such as Supplies or Supplies on Hand. The cost of the office...
How do I determine my payroll tax liabilities? Your payroll tax liabilities will include the following: Federal, state, and local income taxes withheld from employees’ wages, salaries, bonuses, etc. but not yet...
year is reported under investment activities on the statement of cash flows. Definition of Revenue Expenditure A revenue expenditure is an amount that is spent for an expense that will be matched immediately with the...
Which accounts get closed at the end of a fiscal year? The temporary accounts get closed at the end of an accounting year. Temporary accounts include all of the income statement accounts (revenues, expenses, gains,...
What is working capital? Definition of Working Capital Working capital is the amount of a company’s current assets minus the amount of its current liabilities. Example of Working Capital Let’s assume that a...
What are the journal entries for a stock split? Definition of a Stock Split A stock split usually increases the number of shares of a corporation’s common stock with the intention of reducing the market price of each...
, plant and equipment for a cash amount that is less than the carrying amount (or book value) of the asset sold. Nonoperating expenses and losses are often reported on the income statement after the subtotal Income from...
What is a purchase allowance? Definition of Purchase Allowance A purchase allowance is a reduction in the buyer’s cost of merchandise that had been purchased. The purchase allowance is granted by the supplier because...
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...
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