What is the cash flow statement? Definition of Cash Flow Statement The cash flow statement (officially known as the statement of cash flows) is one of the required financial statements issued by U.S. businesses (and by...
What is the cash flow statement? Definition of Cash Flow Statement The cash flow statement (officially known as the statement of cash flows) is one of the required financial statements issued by U.S. businesses (and by...
What is cumulative preferred stock? Definition of Cumulative Preferred Stock Cumulative preferred stock is a type of preferred stock for which any omitted dividends must be paid before the corporation is allowed to pay a...
Why are bonds payable less costly than common stock? Bonds payable are less costly than common stock because the bonds issued by a corporation contain a formal contract to pay the investor a fixed amount of interest...
How do I calculate IRR and NPV? Definition of IRR The internal rate of return (IRR) method or model determines the interest rate that discounts all cash inflows and cash outflows to a net present value of $0. In other...
What is the production volume variance? Definition of Production Volume Variance The production volume variance is associated with a standard costing system used by some manufacturers. This variance arises when there is...
Are LIFO inventory amounts ever written-up to their market value? LIFO inventory amounts will not be written-up, even when the current market value of the inventory is far greater than the amount reported on the balance...
What is a credit balance? Definition of Credit Balance In accounting and bookkeeping, a credit balance is the ending amount found on the right side of a general ledger account or subsidiary ledger account. Examples of...
Are liabilities always a bad thing? Definition of Liabilities Liabilities are a company’s obligations and are usually defined as a claim on the company’s assets. However, liabilities (and stockholders’ equity) can...
What is a customer deposit? Definition of Customer Deposit A customer deposit could be money that a company receives from a customer prior to the company earning it (by providing the customer with goods or services). In...
What is the difference between cost and price? Definition of Cost and Price In accounting, the term cost can mean the cash or cash equivalent amount a company paid to acquire an asset or the amount of an expense it...
How does the aging of accounts receivable determine bad debts expense? Definition of Aging of Accounts Receivable The aging of accounts receivable sorts the amounts that a company is owed (from customers who had...
What is a LIFO Reserve? Definition of LIFO Reserve The LIFO reserve is a contra inventory account that indicates the difference between the following: Inventory cost reported on the balance sheet under the LIFO cost flow...
Is the rental cost of a building considered overhead? Definition of Rent as Overhead The rental cost of a building used in manufacturing is part of manufacturing overhead. Manufacturing overhead is assigned or allocated...
What is the break-even formula? Break-even Point in Units of Product The formula for determining the break-even point in units of product sold is: total fixed expenses divided by the contribution margin per unit. For...
What is a product cost? Definition of a Retailer’s Product Cost In accounting, a retailer’s product cost is the cost paid to a supplier plus any other costs that are necessary to get the product in place and ready...
What is the difference between correlation and cause and effect? Definition of Correlation Correlation refers to the association between two or more variables. The association is measured by a statistic known as the...
What are the two methods for recording prepaid expenses? Definition of Prepaid Expenses Prepaid expenses refers to payments made in advance and part of the amount will become an expense in a future accounting period. A...
Is it possible to have a balance sheet for a single day? A balance sheet presents the amounts of a company’s assets, liabilities, and owner’s equity as of an instant or moment in time within a day. Usually it is the...
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...
What is the conservatism principle? Definition of Conservatism Principle In accounting, the conservatism principle (or accounting constraint) directs an accountant, who is faced with doubt between two possible...
What is FIFO? Definition of FIFO In accounting, FIFO is the acronym for First-In, First-Out. It is a cost flow assumption usually associated with the valuation of inventory and the cost of goods sold. Under FIFO, the...
What is meant by overabsorbed? Overabsorbed is usually used in the context of a manufacturer’s production overhead costs. Since manufacturing overhead costs are not directly traceable to products, they need to be...
What is bank balance and book balance? Definition of Bank Balance The term bank balance is commonly used when reconciling the bank statement. It is also known as the balance per bank or balance per bank statement....
What is the effect on financial ratios when using LIFO instead of FIFO? Definition of Effect of LIFO Instead of FIFO During periods of significantly increasing costs, the LIFO cost flow assumption instead of the FIFO...
What is cash from operating activities? Definition of Cash from Operating Activities Cash from operating activities usually refers to the first section of the statement of cash flows. Cash from operating activities...
What is the normal balance of the direct materials variance accounts? I don’t believe there is a normal balance. If a company pays exactly the standard cost of its direct materials, there will be no balance in the...
What is the difference between cash flow and free cash flow? Definition of Cash Flow Cash flow refers to the amounts of cash that a company, investment or project generates. The cash that a company generates is different...
Which financial statement tells the value of a business? None of the financial statements will report the value of a business. The main financial statements (balance sheet, income statement, statement of cash flows,...
Is income tax an expense or liability? Definition of Income Tax In the accounting for a regular U.S. corporation, income tax usually refers to the federal, state, local, and foreign countries’ taxes that are levied...
What does the term arrears mean in accounting? Definition of Arrears In accounting, the term arrears will be used in the following situations: If a corporation does not declare and pay the dividend on its cumulative...
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...
How do the responsibilities of a bookkeeper differ from those of an accountant? I see a bookkeeper’s responsibilities as getting the business transactions into the company’s general ledger. This involves a tremendous...
What are semivariable costs? Definition of Semivariable Costs Semivariable costs are costs or expenses whose behavior is partially fixed and partially variable. That is, part of the total cost does not increase or...
How should an interest only loan be recorded? Defintion of an Interest Only Loan An interest only loan specifies that only interest payments are required during the life of the loan. No principal payment is required...
What is the difference between reserve and provision? Definition of Reserve Many decades ago, U.S. accountants decided to eliminate the word reserve when reporting the balances in contra asset accounts. The accounting...
What is par value? Definition of Par Value Par value is a per share amount that will appear on some stock certificates and in the corporation’s articles of incorporation. (Some states may require a corporation to have...
What is the difference between a land improvement and a leasehold improvement? Definition of Land Improvement A land improvement is a long-term (long-lived) asset resulting from a physical addition to a company’s land....
What is the traditional method used in cost accounting? Definition of Traditional Method in Cost Accounting The traditional method of cost accounting refers to the allocation of manufacturing overhead costs to the...
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...
What is the effective interest rate? Definition of Effective Interest Rate The effective interest rate is the true rate of interest earned. It can also mean the market interest rate, the yield to maturity, the discount...
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