What is illusory profit? Illusory profit, also called phantom profit, is the difference between 1) the profit reported using historical costs required by US GAAP, and 2) the profit computed using replacement costs....
What is illusory profit? Illusory profit, also called phantom profit, is the difference between 1) the profit reported using historical costs required by US GAAP, and 2) the profit computed using replacement costs....
Where do dividends appear on the financial statements? Definition of Dividends Cash dividends are a distribution of a company’s profits. Financial Statements of a Corporation The main financial statements of a...
See bond sinking fund.
A “clean” auditor’s report. That is, the auditor has concluded that the financial statements present fairly the results of the company’s operations and its financial position according to...
An asset having accumulated depreciation equal to its depreciable cost (cost minus estimated salvage value). The use of an asset after it is fully depreciated will mean no depreciation expense for those accounting...
What is depreciation? Definition of Depreciation In accounting, depreciation is the assigning or allocating of the cost of a plant asset (other than land) to expense in the accounting periods that are within the...
See inventory conformity rule.
The remainder or difference. In depreciation the residual value is the estimated scrap or salvage value at the end of the asset’s useful life. In the accounting equation, owner’s equity is considered to be...
See endowment fund.
That part of the accounting system which contains the balance sheet and income statement accounts used for recording transactions.
The British term for controller.
See chief operating officer.
Officers of a corporation are appointed by the board of directors to execute the policies that have been established by the board of directors. The officers include the chief executive officer (CEO), the chief operations...
Also referred to as draws. These are a reduction of owner’s equity, but are not a business expense and they do not appear on the sole proprietorship’s income statement.
A graph’s vertical scale that usually indicates the total dollars for the volume or units indicated by the x-axis.
A symbol that represents 1000.
Long term assets of a company such as minerals, oil reserves, timberland, stone quarries, etc. The term depletion is associated with natural resources.
The multiplication of a quantity times its cost. For example, if 100 items are in inventory at a cost of $3.46 each, the inventory extension is $346.
What is the monthly close? Definition of Monthly Close In accounting, monthly close is a series of steps and procedures that are followed so that a company’s monthly financial statements are in compliance with the...
Which financial ratios are considered to be efficiency ratios? I consider the efficiency ratios to be the ratios also known as asset turnover ratios, activity ratios, or asset management ratios. These efficiency ratios...
See membership dues.
The record of journal entries appearing in order by date. Some refer to the journal as the book of original entry, since the entries are first recorded in a journal. From the journal the entries will be posted to the...
A series of equal amounts occurring at the beginning of each equal time interval. Also known as an annuity in advance. An example would be the monthly rent on an apartment.
See stockholders’ equity.
What are consolidated financial statements? Definition of Consolidated Financial Statements Consolidated financial statements are financial statements for a group of separate legal entities that are controlled by one...
A company’s profit before nonoperating or other items. Other or nonoperating items include interest income, interest expense, and gains and losses on sale of assets used in the business, loss on lawsuit, etc.
Will the adjusting entry amounts appear in the balance sheet and income statement? Absolutely. The adjusting entry amounts must be included on the income statement in order to report all revenues earned and all expenses...
See next-in, first-out cost flow assumption (NIFO).
Management information system.
A promise to repair, replace, refund, etc. a product during a specified period. The company making the promise has a contingent liability and a warranty expense that should be recorded at the time the product is sold.
See American Institute of Certified Public Accountants.
A written opinion of an independent certified public accountant that a company’s financial statements are a fair representation of the company’s financial performance and financial position. The...
An entry without debit or credit amounts. For example, assume that a corporation has 100,000 shares of $0.50 par value common stock before a 2-for-1 stock split. At the time of the split a memo entry would be entered in...
See Internal Revenue Service (IRS).
What are some examples of investing activities? Definition of Investing Activities Investing activities often refers to the cash flows from investing activities, which is one of the three main sections of the statement...
Usually a claim on an asset that is pledged as collateral. The lien is usually filed with a government office.
The amount by which actual costs exceed the standard costs or budgeted costs. Also, the amount by which actual revenues are less than the budgeted revenues.
What are external financial statements? Definition of External Financial Statements External financial statements are those distributed outside of the company’s management. Some of the recipients of the external...
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,...
Terms indicating that the seller will incur the delivery expense to get the goods to the destination. With terms of FOB destination the title to the goods usually passes from the seller to the buyer at the destination....
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