What is the difference between periodic and perpetual inventory systems? Periodic Inventory System In a periodic system the account Inventory: Has only the ending balance from the previous accounting year Excludes the...
What is the difference between periodic and perpetual inventory systems? Periodic Inventory System In a periodic system the account Inventory: Has only the ending balance from the previous accounting year Excludes the...
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 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....
Are the sales taxes part of a retailer's sales? Definition of Sales Taxes Sales taxes are likely state and local taxes collected by the sellers of specified goods and the providers of specified services. The sales taxes...
Where do you account for payroll taxes on the income statement? Definition of Payroll Taxes Payroll taxes are based on the wages (salaries, commissions, bonuses, etc.) of a company’s employees and on a self-employed...
) as a source of the business assets. Example of Owner’s Equity If a sole proprietorship’s accounting records indicate assets of $100,000 and liabilities of $70,000, the amount of owner’s equity is $30,000. Due to...
of the year. Accumulated Depreciation is a matching principle. In each accounting period, part of the cost of certain assets (equipment, building, vehicle, etc.) will be moved from the balance sheet to depreciation...
of the monetary unit assumption, accountants at a U.S. corporation do not hesitate to add the cost of a parcel of land purchased in 2024 to the cost of another parcel of land that had been purchased in 2004. (See...
What is a natural business year? Definition of Natural Business Year A natural business year is the period of 12 consecutive months (or 52-53 consecutive weeks) ending at a low point of the organization’s activities...
during the month, but the transactions had not been recorded in the accounts as of the end of the month To record the expenses, losses, and their related liabilities which were incurred during the month, but the...
What does it mean to check the extensions and to foot an invoice? To check the extensions on a purchase invoice means to verify that the number of units of each item multiplied by its unit cost agrees with the total...
In adjusting entries, how do I know which T-accounts to use? We illustrate the common adjusting entries with the use of T-accounts in the Explanation of the Topic Adjusting Entries available for your reading at no...
In a bank reconciliation, what happens to the outstanding checks of the previous month? Definition of Outstanding Checks Outstanding checks are checks written by a company, but the checks have not cleared the bank...
, the sale and the related receivable occur when the goods are shipped (FOB shipping point) or when the goods are received by the customer (FOB destination). While there is no accounting entry in the general ledger, it...
Where can I find a sample of a cash flow statement? A cash flow statement or statement of cash flows should be presented with a U.S. corporation’s annual financial statements. If a corporation’s stock is publicly...
What is window dressing? Definition of Window Dressing Window dressing refers to actions taken or not taken prior to issuing financial statements in order to improve the appearance of the financial statements. Example...
Why would Prepaid Insurance have a credit balance? Definition of Prepaid Insurance Generally, Prepaid Insurance is a current asset account that has a debit balance. The debit balance indicates the amount that remains...
Can you help me understand the golden rules of accounting? The golden rules of accounting are not presented in any of the U.S. accounting books that I have reviewed. I assume the reason for omitting the golden rules of...
What are fixed assets? Definition of Fixed Assets Fixed assets are a company’s tangible, noncurrent assets that are used in its business operations. The word fixed indicates that these assets will not be used up,...
Why is income received in advance a liability? Definition of Income Received in Advance Under the accrual method of accounting, when a company receives money from a customer prior to earning it, the company will have to...
What items are added to the balance per bank on the bank reconciliation? Bank Reconciliation Adjustments to Bank Balance The items that are added to the balance per bank when doing a bank reconciliation include: Deposits...
Which accounts normally have debit balances? Definition of Debit Balance In accounting, a debit balance refers to a general ledger account balance that is on the left side of the account. This is often illustrated by...
A classic example of the materiality concept is a company expensing a $20 wastebasket in the year it is acquired instead of depreciating it over its useful life of 10 years. The matching principle directs you to record...
deducting the cost of goods sold and all other expenses including income tax expense. The calculation is: Net Income after Tax divided by Net Sales. The profit margin ratio is most useful when it is compared to 1) the...
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,...
How do I learn of new accounting rules? The U.S. accounting rules issued by the Financial Accounting Standards Board (FASB) can be found on its free website www.fasb.org/st/. There you will find: FASB Statements...
When do you adjust the amount of prepaid expenses? Definition of Adjusting Prepaid Expenses The balance in the current asset account Prepaid Expenses should be adjusted prior to a company issuing its financial...
Where should a business report cash which is restricted to purchase a long-term asset? The cash which a business has restricted to purchase a long-term asset should be reported on the balance sheet under the asset...
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 maximum amount of earnings subject to the Social Security tax in 2022 and 2023? 2022 Annual Earnings Limit for Social Security Payroll Tax The maximum amount of an employee’s 2022 earnings (and a...
What is the three-way match? Definition of Three-Way Match In the accounting and bookkeeping area of accounts payable, the three-way match refers to a procedure used when processing an invoice received from a vendor or...
How do you calculate the actual or real interest rate on a bond investment? Definition of Actual or Real Interest Rate on a Bond Investment The actual or real interest rate on a bond payable is also known as effective...
What is a toxic asset? I would define a toxic asset as an investment whose value has dropped significantly and there is no market in which to sell the asset. To illustrate, let’s assume that at the peak of the real...
proof is $30,000 of sales + $2,100 of sales tax = $32,100. In general journal form the accounting entry to record this information is: debit Cash $32,100; credit Sales $30,000; credit Sales Tax Payable $2,100. Join PRO...
What is meant by events after the balance sheet date? Definition of Events After Balance Sheet Date Events after the balance sheet date are significant financial events that occur after the date of the balance sheet but...
to the company’s Cash account. However, the debit portion of the payment entry depends on whether the individual credit card purchases had been previously recorded in the company’s general ledger accounts. Example...
What is a lump sum payment? A lump sum payment is often associated with a single amount paid to acquire a group of items. For instance, a corporation might pay $50,000 for the inventory and equipment of a small...
year is January 1 through December 31 and the company sells only one type of product. In its beginning inventory are 2 units with a cost of $10 each. The company sells 1 unit on March 1. On April 1, the company...
What is the distinction between debtor and creditor? Definition of Debtor A debtor is a person or enterprise that owes money to another party. The party to whom the money is owed might be a supplier, bank, or other...
Withholdings for Health Insurance Assume that the cost of a company’s health insurance plan is $300 per biweekly pay period and that the employee is responsible for paying 25% of the cost through payroll withholding....
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