Do corporations issue both common stock and preferred stock? Some corporations issue both common stock and preferred stock. However, most corporations issue only common stock. In other words, it is necessary that a...
Do corporations issue both common stock and preferred stock? Some corporations issue both common stock and preferred stock. However, most corporations issue only common stock. In other words, it is necessary that a...
How are fully depreciated assets reported on the balance sheet? Definition of Fully Depreciated Asset A fully depreciated asset is a depreciable asset for which no additional depreciation expense will be recorded. In...
What is the difference between liquidity and liquidation? Definition of Liquidity Liquidity usually refers to a company’s ability to pay its bills when they become due. Liquidity is often evaluated by comparing a...
Where is a manufacturer's inventory reported in the balance sheet? A manufacturer’s inventory will be reported in the current assets section of the balance sheet and in the notes to the financial statements. In the...
What is accounting for price level changes? In 1979 the Financial Accounting Standards Board (FASB) issued its Statement of Financial Accounting Standards No. 33 entitled Financial Reporting and Changing Prices. (You...
What does overstated mean? Definition of Overstated When an accountant uses the term overstated, it means two things: The reported amount is incorrect, and The reported amount is more than the true or correct amount. In...
What is the difference between expense and loss? Definition of Expense An expense is a cost that a company incurs or uses up when it earns revenues. Examples of Expenses A few examples of the many expenses that a company...
What is income smoothing? Definition of Income Smoothing Income smoothing involves reducing the fluctuations in a corporation’s earnings. The reductions in fluctuations can result from some legitimate business methods...
What is the difference between public companies and public sector? Definition of Public Companies Public companies are those businesses owned by individuals (and not by a government). Definition of Publicly-Held...
Where is a contingent liability recorded? Recording a Contingent Liability A potential or contingent liability that is both probable and the amount can be estimated is recorded as 1) an expense or loss on the income...
What is a bond sinking fund? Definition of Bond Sinking Fund A bond sinking fund is a corporation’s noncurrent asset that is restricted for the purpose of redeeming or buying back its bonds payable. Bonds that require...
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...
Why would a company use LIFO instead of FIFO? Definitions of FIFO and LIFO FIFO and LIFO are two of the cost flow assumptions used by U.S. companies with inventory items. FIFO moves the first/oldest costs from inventory...
Why does an inventory error affect two periods? Definition of Inventory Error An inventory error could be the result of any of the following: Omitting some items when physically counting inventory Double counting some...
What is the accounting cycle? Definition of Accounting Cycle The accounting cycle is often described as a process that includes the following steps: Identifying, collecting and analyzing documents and transactions...
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...
How do I learn more about the CPA Exam? You can learn more about the Uniform CPA Exam at our free Accounting Career Center. Within our Accounting Career Center are direct links to the state boards of accountancy, CPA...
Why is a product that sells for $50 reported in inventory at its cost of $40? Generally, items in inventory are valued at their cost—not their selling prices—because of the cost principle. Another reason for not...
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...
How do you calculate staff turnover? To calculate staff turnover, I would use the W-2 wage statements for the most recent year. My first step would be to sort the W-2’s into meaningful groups such as full-time...
What is present value? Definition of Present Value In accounting, present value refers to the amount after discounting future cash amounts to the present. The present is depicted on a timeline as the point 0, which is...
What is an annuity in present value calculations? In present value calculations, an annuity is a series of equal cash amounts occurring at equal time intervals. The identical cash amounts are sometimes referred to as...
What is the difference between an implicit cost and an explicit cost? Definition of Implicit Cost An implicit cost is present but it is not initially shown or reported as a separate cost. Definition of Explicit Cost An...
Why would someone buy a bond at a premium? Definition of Bond Premium Bond premium or premium on bonds occurs when the bond’s actual interest payments are greater than the interest payments expected by the market. The...
What is an implicit interest rate? Definition of Implicit Interest Rate An implicit interest rate is one that is not stated explicitly. Example of Implicit Interest Rate Assume that I lend you $4,623 and you agree to...
Should capital budgeting decisions be based on cash flows or revenues and expenses? Definition of Capital Budgeting Decisions Capital budgeting assists in the investment decisions regarding assets that will have an...
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...
The income statement format where the operating and nonoperating revenues are grouped and totaled and the operating and nonoperating expenses are grouped and totaled. Then there is one subtraction of the combined...
The supplier of goods or services.
An additional quantity of items held in inventory in order to minimize the chance of an item being out of stock.
See common-size balance sheet and common-size income statement.
See Explanation of Standard Costing.
A stock split, such as a 2-for-1, means that every stockholder will have twice as many shares as was held previously. Accordingly, the market price per share after the split should be one-half of the market price...
A company’s balance sheet that shows each item’s amount after it has been divided by the amount of total assets. In other words, current assets will be shown as a percentage of total assets. This will allow...
The number of shares of stock that a corporation may issue. The amount is specified in the corporation’s articles of incorporation.
The issued shares of common stock minus the shares of treasury stock. The weighted average of the outstanding shares is used to compute the earnings per share.
An income statement that has more than one subtraction in arriving at net income. An income statement showing gross profit is an indication it is a multiple-step income statement.
One of two broad functional categories for sorting and reporting a nonprofit organization’s expenses. (The other is program expenses.) Supporting services expenses consists of 1) management and general expenses,...
One component of the payroll tax referred to as FICA. (The other component of the FICA tax is the Medicare tax.) The Social Security tax is levied by the U.S. government on both the employee and the employer. In 2024 the...
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