The deferral of a payment to the balance sheet until it becomes an expense in a future accounting period The deferral of a receipt to the balance sheet until it is earned in a future accounting period Adjustments to...
The deferral of a payment to the balance sheet until it becomes an expense in a future accounting period The deferral of a receipt to the balance sheet until it is earned in a future accounting period Adjustments to...
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 assets and fixed assets? Assets are resources owned by a company as the result of transactions. Examples of assets are cash, accounts receivable, inventory, prepaid insurance, land,...
Is a loan payment an expense? Definition of Loan Payment Generally a loan payment consists of: An interest payment, which is an expense A principal payment, which reduces the loan’s principal balance If the interest...
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...
to be $15,000. As a result, its balance sheet will report inventory of $15,000 and its income statement will report cost of goods sold of $85,000 ($100,000 – $15,000). During January the company purchased $130,000 of...
What is an overdraft? Definition of Overdraft An overdraft (also known as a bank overdraft) generally means that the amount of a company’s checks being presented at the bank for payment exceeded the amount on deposit....
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...
Is the drawing account a capital account? Definition of Drawing Account A sole proprietorship will have a drawing account in which the owner’s withdrawals or draws of cash or other assets are recorded. The amounts of...
Why is there a large difference between share value and stockholders' equity? There can be many reasons why the market value of a corporation’s stock is much greater than the amount of stockholders’ equity reported...
Where in the chart of accounts is a suspense account located? Suspense Account in the Chart of Accounts A suspense account could be located in any one of these sections of an organization’s chart of accounts: Asset...
What is workers' compensation insurance? Workers’ compensation insurance is likely to be an insurance policy obtained by a company to cover the medical costs and lost wages for its employees’ work-related injuries...
are not part of the seller’s sales or revenues. This means the amount of sales taxes that were collected by the retailer will not be reported on its income statement. Instead, the sales taxes collected are reported on...
What is a cash cow? A cash cow is often a profitable product or service that dominates a market and generates far more cash than is needed to maintain its market position. Companies may use the money from the cash cow to...
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 the profit margin (after tax) ratio? Definition of Profit Margin Ratio The after tax profit margin ratio expresses the company’s net income or earnings as a percent of the company’s net sales. In other words,...
What is an ordinary annuity? Definition of Ordinary Annuity In accounting, an ordinary annuity refers to a series of identical cash amounts with each amount occurring at the end of equal time intervals. Another term for...
are credited to Inventory and are debited to the income statement account Cost of Goods Sold The costs of purchase returns, purchase allowances, and purchase discounts are credited to Inventory Companies often have...
What is materiality? Definition of Materiality In accounting, materiality refers to the relative size of an amount. Relatively large amounts are material, while relatively small amounts are not material (or immaterial)....
months. Between the interest payment dates, the company will have: Accrued interest income that is to be reported on the income statement Accrued interest receivable that is to be reported on the balance sheet Accrued...
to pay at a later date, the company records the sale with a debit to Accounts Receivable and a credit to the revenue account Sales. The Sales account is a temporary account used to keep a tally of the sales made during...
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...
How do I calculate the amount of sales tax that is included in total receipts? Sales Tax Calculation To calculate the sales tax that is included in a company’s receipts, divide the total amount received (for the items...
How do I calculate depreciation using the sum of the years' digits? Definition of the Sum-of-the-Years’-Digits Depreciation The sum-of-the-years’-digits depreciation (SYD depreciation) is one method for calculating...
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 Break-even Point illustrates how to determine the number of units or sales dollars that will result in zero net income. The techniques rely on a product's contribution margin or contribution margin...
Our Explanation of Bank Reconciliation will show you the needed adjustments to the balance on the bank statement and also the adjustments needed to the balance in the related general ledger account. A comprehensive...
What is a mortgage loan? Definition of Mortgage Loan A mortgage loan is a loan associated with the purchase of real estate, such as a home or buildings used in a business. As part of the loan process, the lender files a...
is a debit to the income statement account Bad Debts Expense. Some companies might use the description provision for bad debts on its income statement in order to report the credit losses that pertain to the period of...
What is the stated interest rate of a bond payable? Definition of Stated Interest Rate of a Bond The stated interest rate of a bond payable is the annual interest rate that is printed on the face of the bond and stated...
What is an account payable? Definition of an Account Payable An account payable is an amount owed to a supplier or vendor for goods or services that were provided in advance of payment. However, some people use the term...
that the company’s balance sheet will report the net realizable value of $194,800. If the balance in the Allowance account was $0, the company will write an adjusting entry to: Debit the income statement account such...
Why does our company's balance sheet report its land at cost when it is so much more valuable? Accountants are guided by the cost principle. This requires accountants to report assets at their cost when acquired—not...
What is a liability account? Definition of Liability Account A liability account is a general ledger account in which a company records the following which resulted from business transactions: Amounts owed to suppliers...
What are nonmanufacturing overhead costs? Definition of Nonmanufacturing Overhead Costs Nonmanufacturing overhead costs are the business expenses that are outside of a company’s manufacturing operations. In other...
of an asset’s cost that has been moved to the income statement in the form of depreciation expense since the asset was acquired. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to...
What are dividends? In accounting, dividends often refers to the cash dividends that a corporation pays to its stockholders (or shareholders). Dividends are often paid quarterly, but could be paid at other times. For a...
What is lead time in purchasing? In purchasing, lead time is the estimated time between ordering goods and receiving the goods. For instance, if 100 units of Product X are ordered on April 11 and are expected to be...
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 safety stock? Definition of Safety Stock Safety stock is an additional quantity of an item held by a company in inventory in order to reduce the risk that the item will be out of stock. Safety stock acts as a...
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