Preferred stock where past, omitted dividends do not have to be paid before a dividend can be paid to common stockholders. In the case of noncumulative preferred stock, only its current year dividend needs to be paid in...
Preferred stock where past, omitted dividends do not have to be paid before a dividend can be paid to common stockholders. In the case of noncumulative preferred stock, only its current year dividend needs to be paid in...
Also referred to as the P & L and the income statement. To learn more, see Explanation of Income Statement.
In activity-based costing this refers to the allocation of the cost of activities (determined by stage 1 allocations) to the cost objects such as products or services.
If a mortgage payment is due on January 1, should the payment be accrued at December 31? The following answer assumes that the accrual basis of accounting (also known as the accrual method of accounting) is being used…...
The depreciation method that results in the same equal amount of depreciation expense for each full year over the life of the asset. See Explanation of Depreciation for an illustration and further discussion of...
A restricted asset for the purpose of retiring a bond.
A government index that tracks the changes in prices in order to measure general inflation. This index can be used by small companies to obtain the benefits of LIFO without tracking individual units in inventory. See the...
The interest rate stated on a bond. This is also referred to as the face interest rate, nominal interest rate, and coupon rate.
The principal portion of an obligation that must be paid within one year of the balance sheet date. For example, if a company has a bank loan of $50,000 that requires monthly interest and principal payments, the next 12...
A term used in evaluating business investments. It represents the targeted rate that a company needs to earn. It is also referred to as the discount rate, because this rate is used to discount the future cash flows to...
A term used in cost accounting to arrive at the cost per unit. The term is associated with the units that are not completed at the end of an accounting period. For example, if 500 units are completed as far as materials,...
A bond without a stated interest rate. Because no interest is paid, the bond will sell for a discount from its maturity value. Rather than receiving interest, an investor’s compensation will be the difference...
See direct materials usage variance.
A variance arising in a standard costing system that indicates the difference between 1) the standard cost of the direct labor that should have been used (the standard hours times the standard rate) for the good output,...
The amount of rent that has been incurred by a tenant during an accounting period shown in the heading of the income statement, but it has not been paid as of the last day of the accounting period.
Could a company's statement of cash flows show a positive net cash flow from operating activities even though it reported a net loss on its income statement? Yes, a company with a net loss on its income statement could...
Under this method a company records detailed transactions and reports its net income by summarizing and reporting these detailed transactions. (A different approach is called the capital maintenance approach which...
An allocation of indirect costs based on the units of production, the number of machine hours, the number of labor hours, etc.
A variance arising in a standard costing system that indicates the difference between the standard cost of direct materials that should have been used (standard quantity times standard cost) for the good output and the...
What are gains? Definition of Gains In financial accounting, gains often pertain to some of a company’s transactions which occur outside of the company’s main business activities. Transactions which are outside of a...
An accounting guideline that requires information pertinent to an investing or lending decision to be included in the notes to financial statements or in other financial reports.
See contractual interest rate.
The most common method of preparing the statement of cash flows. Under this method the starting point is the net income reported on the income statement. To learn more, see Explanation of Cash Flow Statement.
The preferred method for systematically moving bond discount or premium from the balance sheet over to interest expense on the income statement over the life of the bond. This method is superior to the straight-line...
A multicolumn listing of each payment required during the period of a loan. Each payment is detailed by the amount of interest, the principal payment, and the remaining unpaid principal balance. The interest portion of...
The mathematical result of sales revenues divided by average total assets during the period of the sales.
The book value of a company equal to the recorded amounts of assets minus the recorded amounts of liabilities. To learn more, see Explanation of Balance Sheet.
What is capex? Definition of Capex Capex is a shortened form of the term capital expenditure or capital expenditures. Capex is often used when referring one or both of the following: Actual amounts that were spent during...
How can working capital be improved? Definition of Working Capital Working capital is defined as the amount by which a company’s current assets exceed its current liabilities. How Working Capital Can be Improved Some...
A journal entry with more than the minimum of one debit and one credit. Example: a debit to Cash of $500 and a credit to Sales of $475 and a credit to Sales Tax Payable of $25.
The amount owed to employees as of a specified date for the amount of vacation pay that has been earned but has not been taken. For example, the accrued vacation pay as of December 31, 2023 is the amount the employees...
The practice where an asset purchased within a year is assumed to have been purchased at the mid-point of the year. For example, an asset purchased during the calendar year 2024 is assumed to have been purchased on July...
See straight-line method of depreciation.
This ratio indicates the percentage of each sales dollar that is available to cover a company’s fixed expenses and profit. The ratio is calculated by dividing the contribution margin (sales minus all variable...
A variance arising in a standard costing system that indicates the difference between the standard amount of variable manufacturing overhead for the good units produced (standard hours times standard rate) and the...
What is the net book value of a noncurrent asset? The net book value of a noncurrent asset is the net amount reported on the balance sheet for a long-term asset. To illustrate net book value, let’s assume that several...
Insurance often required by states and paid for by the employer to compensate workers who were injured on the job. The amount of the insurance premiums vary by type of work performed. For example, rates are higher for...
The U.S. government agency responsible for federal income tax regulations.
Activities that are not specifically associated with a specific product or customer. For example, the costs of an audit and filing information with government agencies are examples of organization-sustaining activities.
The basic general rules upon which more detailed accounting standards are built. To learn more, see Explanation of Accounting Principles.
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