Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
Our Explanation of Depreciation emphasizes what the depreciation amounts on the income statement and balance sheet represent. Learn why depreciation is an estimated expense that does not assist in determining the current...
be included with a company’s financial statements. Mark as wrong Mark as right materiality This accounting guideline allows large corporations to issue financial statements with amounts rounded to the nearest thousand...
for Questions 25 - 28: Supplies are a significant expense and a significant asset of a local mail order business. At the beginning of the year, its account Supplies Inventory reported a cost of $12,000. During the year...
Our Explanation of Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
What is boilerplate? In business, boilerplate is a term to describe the standard wording that is contained in warranties and other documents. Generally, the information that is boilerplate is not subject to change....
What is practical capacity? Definition of Practical Capacity Practical capacity is a manufacturer’s level of output (often expressed in machine hours, barrels, pounds, etc.). Practical capacity is less than its...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
in the Explanation or Practice Quiz for this topic. For more insight regarding a specific question, use the search box at the top of the page. 1. Accounts receivable result from __________ sales as opposed to cash...
current liability amount on its balance sheet. It also means that the accounts and amounts recorded as debits will better reflect the historical cost principle. If a company uses the net method, but fails to remit the...
%). It also indicates that a company without sufficient cash to pay within the early payment discount period will experience a huge opportunity cost. Join PRO to Track Progress Mark the Question as Read Must-Watch Video...
. For example, a retailer with 100 small stores finds that the annual cost for property insurance to cover all 100 stores is $100,000. If the total actual property damages for the stores never exceeded $40,000 in a year,...
could be less than the cost of not filing a customer’s order on time or having to stop its production line. Example of Safety Stock Assume that a company uses the economic order quantity (EOQ) model to determine the...
electricity to customers for up to one month before it reads the customers’ meters, calculates the bills and records the billings as revenues and accounts receivable. As a result, the electric utility will have up to...
at the end of each accounting period. As a result, Accumulated Depreciation is viewed as a permanent account. Example of Depreciation Accounts Assume a company has equipment which is used in its business. The...
Treasury stock – total cost Retained earnings Accumulated other comprehensive income or loss Total stockholders’ equity Examples of the Descriptions for the Rows or Lines Appearing on the Statement Some typical...
be: Revenues (sales, service fees) that were earned during the accounting period Expenses (cost of goods sold, salaries, rent, advertising, etc.) that match the revenues being reported or have expired during the...
amount for warehouse rent (and every other expense) for the next budget is $0. Any budgeted expense greater than $0 must be justified. While zero-based budgeting will be more time consuming than focusing on incremental...
contingent liability is the warranty that automakers provide on new cars. Since it is probable (not merely possible) that some vehicles will require work during the warranty period and the automakers can estimate that...
Why would a company use double-declining depreciation on its financial statements? Definition of Double-Declining-Balance Depreciation The double-declining-balance method of depreciation is a form of accelerated...
What is depreciation expense? Definition of Depreciation Expense Depreciation expense is the appropriate portion of a company’s fixed asset’s cost that is being used up during the accounting period shown in the...
$1,000 bond. An investor will purchase the 5% bond only if the cost is low enough to yield 6% over the remaining life of the bond. In other words, the investor will pay less than the $1,000 so that the effective...
is Accumulated Depreciation. Let’s assume that a company has property, plant and equipment with a cost of $200,000. The accumulated depreciation associated with these assets is $130,000. Therefore, the total assets...
of goods and/or the providing of services Expenses, which include the cost of goods sold, SG&A expenses, and interest expense Gains and losses, such as the sale of a noncurrent asset for an amount that is...
in all of the capital accounts must be equal to the reported total of the company’s assets minus its liabilities. Because of the historical cost principle and other accounting principles, the total amount reported in...
the financial statements with the management and owners of the company. The accountant will also be involved in budgeting of operations and capital improvements, cost accounting, reports to government agencies, and...
What causes a corporation's market value to be greater than its book value? One cause of a corporation’s market value being greater than its book value is the accountant’s cost principle. In order for an item to...
in the current accounting period: Depreciation expense for equipment that was paid for in a prior year Insurance expense for which the premium was paid in a prior year Cost of goods sold from the sale of inventory items...
income statement accounts used in a business include Sales, Sales Returns and Allowances, Service Revenues, Cost of Goods Sold, Salaries Expense, Wages Expense, Fringe Benefits Expense, Rent Expense, Utilities Expense,...
with the accrual basis of accounting Fixed asset accounting Cost accounting Budgeting and profit planning, and more Common titles for accountants include corporate accountant, chief accountant, controller, assistant...
impairment test at least once per year. (Beginning in 2015, private companies may opt to amortize goodwill generally over a 10-year period and thereby minimize the cost and complexity involved with testing for...
What is a deferred expense? Definition of Deferred Expense A deferred expense refers to a cost that has occurred but it will be reported as an expense in one or more future accounting periods. To accomplish this, the...
Are there two ABC methods in accounting? Some accountants use ABC to mean Activity Based Costing. Under this ABC a manufacturer will use many cost drivers to assign overhead costs to products. The objective of Activity...
many income statements in the form of depreciation expense and/or as part of a manufacturer’s cost of goods sold. The total capex amount that was spent in a recent accounting period is reported in the statement...
hours). Improvements in technology can also result in time and cost reductions beyond those in the learning curve. For example, software may become available to assist in the design and coding, computer processing...
on the meters’ readings. The retailer receives its first utility bills on January 8th and must remit the amount by February 2. Under the accrual basis of accounting, the retailer’s income statement for the month of...
and equipment. This classification includes land, buildings, machinery, equipment, vehicles, fixtures, etc. that are used in the business. These assets are reported at cost and the contra asset accumulated depreciation...
of the balance sheet, reports assets at their original cost less accumulated depreciation. However, the current value of some of these assets may be much greater. Some intangible assets such as trade names, patents,...
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