Taking out a loan or issuing bonds in order to acquire an asset or another business.
Taking out a loan or issuing bonds in order to acquire an asset or another business.
A company might construct a building and then sell the building to an investor who in turn leases the building back to the company.
A lender such as a bank who has placed a lien on a borrower’s assets. As a result, the lender has collateral until the loan amount is repaid.
Benefits provided by a company to retirees. Typical examples of potential benefits are pensions, life insurance, and health insurance.
A formal written promise to pay interest every six months and the principal amount at maturity.
Errors made by the bank on a company’s bank account. These are usually infrequent but could include an incorrect amount of a check or deposit or a check or deposit recorded in the wrong account.
A payment. The expenditure might be for a significant long term asset (capital expenditure), a short term asset (prepaid insurance), a reduction in a liability, or for an immediate expense such as rent.
Financial ratios such as current ratio, quick ratio, receivables turnover ratio, and inventory turnover ratio. To learn more, see Explanation of Financial Ratios
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.
The inability to pay liabilities as they become due. Some consider a company to be insolvent when its current liabilities exceed its current assets.
What is an escrow payment? An escrow payment is an amount deposited with another party and it is to be released only for its specified purpose. The following is one example of an escrow payment. A borrower and lender...
The systematic allocation of the cost of a natural resource from the balance sheet to the income statement.
The amount received from the sale of an asset, from the issuance of bonds or stock, or from a bank loan.
A simple form of business where there is one owner. Legally the owner and the sole proprietorship are the same. However, for accounting purposes the economic entity assumption results in the sole proprietorship’s...
This is the period of time that it will be economically feasible to use an asset. Useful life is used in computing depreciation on an asset, instead of using the physical life. For example, a computer might physically...
In estimating the ending inventory under the retail method the cost ratio is the cost of goods available divided by the retail value of the goods available.
The best fitting line through a series of points as determined by the least-squares method.
A formal, written promise to pay interest and to repay the principal amount.
The acronym for original equipment manufacturer.
What is premium on common stock? Definition of Premium on Common Stock If a corporation’s common stock has a par value and the corporation receives more than the par value when issuing a new share of the stock, the...
A technique for estimating the number of years or the interest rate necessary to double your money. Divide 72 by the interest rate and you will have the approximate number of years needed to double your money. If your...
See manufacturing costs.
Using debt (such as loans and bonds) to acquire more assets than would be possible by using only owners’ funds. Also referred to as trading on equity.
Money set aside for a specific purpose. An individual’s monthly mortgage payment might include $300 per month for the real estate taxes due at the end of the year. The $300 is said to be put into escrow each...
Raw materials that are a traceable component of a manufactured product. For example, the direct material of a baseball bat is the wood. Flour, sugar, and vegetable oil are direct materials of a company that manufactures...
The expense associated with a commitment to repair or replace a product for a specified period of time. The expense should be reported on the income statement at the time that the sale of the product is reported in order...
Using capital stock (common stock or preferred stock) instead of debt in order to finance an investment such as a plant asset.
See U.S. Treasury bills.
An official pronouncement by the Financial Accounting Standards Board that involves a previously issued FASB Standard. FASB Interpretations are part of the generally accepted accounting principles.
Why does a bond's price decrease when interest rates increase? Definition of Bond’s Price A bond’s price is the present value of the following future cash amounts: The cash interest payments that occur every six...
See direct labor efficiency variance and variable manufacturing overhead efficiency variance.
Manufactured products that are often expressed in units, machine hours, etc.
Is the direct method still used in the statement of cash flows? The direct method is one of two methods allowed for preparing the statement of cash flows (or cash flow statement). The direct method is recommended by the...
See incremental cost.
See income statement. To learn more, see Explanation of Income Statement.
See inventory: work-in-process (WIP).
The total of interest and principal payments required to be paid on loans payable.
Inventory that is less than the expected amount. It might be associated with theft or damage.
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