Why does an increase in accounts payable appear as an addition on the statement of cash flows? Adjustments from Accrual to Cash on Statement of Cash Flows When the statement of cash flows (SCF, cash flow statement) is...
Why does an increase in accounts payable appear as an addition on the statement of cash flows? Adjustments from Accrual to Cash on Statement of Cash Flows When the statement of cash flows (SCF, cash flow statement) is...
What is the working capital turnover ratio? Definition of Working Capital Turnover Ratio The working capital turnover ratio is also referred to as net sales to working capital. It indicates a company’s effectiveness in...
Are fixed assets the same as plant assets? Definition of Fixed Assets and Plant Assets My experience indicates that people use the term fixed assets to mean the same as plant assets. As a result, I define both fixed...
How do you record a return deposit item on a bank statement? Definition of Return Deposit Item A return deposit item is usually a customer’s check that was part of a company’s bank deposit. When the company’s bank...
What is a voided check? A voided check is a check written or partially written but then canceled or deleted by the maker of the check. The notation of “void” is used because checks are prenumbered for control...
What is the accounts receivable turnover ratio? Definition of Accounts Receivable Turnover Ratio The accounts receivable turnover ratio (or receivables turnover ratio) is an important financial ratio that indicates a...
What is the debt ratio? Definition of Debt Ratio The debt ratio is also known as the debt to asset ratio or the total debt to total assets ratio. Hence, the formula for the debt ratio is: total liabilities divided by...
What is an outstanding check? Definition of Outstanding Check An outstanding check is a check that a company has issued and recorded in its general ledger accounts, but the check has not yet cleared the bank account on...
What is the difference between a debit and a debit balance? Definition of Debit A debit is an entry on the left side of a T-account. A debit entry is used to record assets, expenses, losses, and owner’s draws in their...
How do you calculate accrued vacation pay? Definition of Accrued Vacation Pay Accrued vacation pay is the amount of vacation pay that a company’s employees have earned, but the company has not yet paid. Example of...
What is a provision for discounts allowable? The provision for discounts allowable is likely to be a balance sheet account that serves to reduce the asset account Accounts Receivable. The provision account’s counter...
What is the proper use of the words lend and borrow? If a company is granted a loan from its bank, the company is borrowing money from its bank, and the bank is lending money to one of its customers. In other words, the...
What is the definition of capital market? Often, capital market refers to the structured market for trading stocks and bonds. Examples are the New York Stock Exchange, the American Stock Exchange, NASDAQ, and the New...
What is an early payment discount? Definition of Early Payment Discount An early payment discount is a reduction in the amount on a supplier’s invoice if the customer pays the supplier promptly. The early payment...
Where is interest on a note payable reported on the cash flow statement? Definition of Interest on a Note Payable The interest on a note payable is reported on the income statement as Interest Expense. Usually this means...
What is a dividend? Definition of Dividend Generally, the term dividend refers to a cash dividend, which is distribution of a portion of a corporation’s earnings to its stockholders in the form of cash. The cash...
What is an account payable? Definition of an Account Payable An account payable is an amount owed to a supplier or vendor for goods or services that were provided in advance of payment. However, some people use the term...
What is the entry when a contract is signed? Accounting Entry When Signing a Contract Merely signing a contract does not by itself require a journal entry. In other words, signing a contract for a future transaction does...
What is budgeting? Definition of Budgeting Budgeting is the process of preparing detailed projections of future amounts. Companies often engage in two types of budgeting: Operational budgeting, and Capital budgeting...
Is there a difference between work-in-process and work-in-progress? It depends on the user of the terms. Definition of Work-in-Process I use the term “work-in-process” to mean a manufacturer’s inventory that is not...
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…...
Should an owner's compensation be recorded as an expense or in the Drawing account? If the enterprise is a sole proprietorship, the owner’s compensation should be debited to the Drawing account. If the enterprise is a...
What is lead time in purchasing? In purchasing, lead time is the estimated time between ordering goods and receiving the goods. For instance, if 100 units of Product X are ordered on April 11 and are expected to be...
Why is a negative cash balance reported as a liability? The following will illustrate why a negative cash balance is reported as a liability instead of being reported as a negative asset amount. Company X writes checks...
Should receipts be recorded using the date the money was received or the date the money was deposited in the bank accounts? Cash receipts should be recorded with the date the money was received. For example, a church...
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...
Which accounts get closed at the end of a fiscal year? The temporary accounts get closed at the end of an accounting year. Temporary accounts include all of the income statement accounts (revenues, expenses, gains,...
How do drawings affect the financial statements? Definition of Drawings Drawings are the withdrawals of a sole proprietorship’s business assets by the owner for the owner’s personal use. The drawings or draws by the...
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...
How does the accounting equation stay in balance when the monthly rent is paid? How a Rent Payment Affects the Accounting Equation A company’s payment of each month’s rent reduces the company’s asset Cash. This is...
What is OEM and EOM? OEM is the acronym for original equipment manufacturer. EOM is the acronym for end of month. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting...
What is the statement of comprehensive income? Definition of Statement of Comprehensive Income The statement of comprehensive income is one of the five financial statements required in a complete set of financial...
What are accrued expenses and when are they recorded? Accrued Expenses Accrued expenses are expenses that have occurred but are not yet recorded in the company’s general ledger. This means these expenses will not...
What is a current asset? Definition of Current Asset A current asset is a company’s cash and its other assets that are expected to be converted to cash within one year of the date appearing in the heading of the...
Are salaried employees entitled to overtime pay? Some salaried employees are entitled to overtime pay. The salaried employees entitled to overtime pay are referred to as nonexempt employees. Nonexempt means that the...
What is a deferred credit? A deferred credit could mean money received in advance of it being earned, such as deferred revenue, unearned revenue, or customer advances. A deferred credit could also result from complicated...
What is the difference between bad debt and doubtful debt? Definition of Bad Debt and Doubtful Debt In accounting, the terms bad debt and doubtful debt usually refer to the amounts owed by a company’s customers who...
What is stockholders' equity? Definition of Stockholders’ Equity Stockholders’ equity (also known as shareholders’ equity) is reported on a corporation’s balance sheet and its amount is the difference between the...
What is a classified balance sheet? Definition of Classified Balance Sheet A classified balance sheet arranges the amounts from a company’s balance sheet accounts into a format that is useful for the readers. For...
What is the full disclosure principle? Definition of Full Disclosure Principle The full disclosure principle requires a company to provide the necessary information so that people who are accustomed to reading financial...
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