Is a utility bill an expense? The utility bill for a retailer or for a service company is an expense. Under the accrual basis of accounting, the utility bill is an expense for the period indicated by the meter reading...
Is a utility bill an expense? The utility bill for a retailer or for a service company is an expense. Under the accrual basis of accounting, the utility bill is an expense for the period indicated by the meter reading...
What is a vendor? Definition of Vendor In the context of accounts payable, a vendor is a person or business that supplies goods or services to the company. Another term for vendor is supplier. The term vendor can also be...
What is the cost of capital? Definition of Cost of Capital The cost of capital is the weighted-average, after-tax cost of a corporation’s long-term debt, preferred stock (if any), and the stockholders’ equity...
What is the monthly close? Definition of Monthly Close In accounting, monthly close is a series of steps and procedures that are followed so that a company’s monthly financial statements are in compliance with the...
How does one prepare a company's first bank statement reconciliation? To prepare a bank reconciliation for a company that never prepared one previously, I would first make a list of outstanding checks. For example, if...
What are sales taxes? In the United States, most of its 50 States assess a sales tax, which is a tax on sales to the end user. For example, in the state of Wisconsin a retailer must collect a 5% sales tax and perhaps...
How do I calculate the amount of sales tax that is included in total receipts? Sales Tax Calculation To calculate the sales tax that is included in a company’s receipts, divide the total amount received (for the items...
What is materiality? Definition of Materiality In accounting, materiality refers to the relative size of an amount. Relatively large amounts are material, while relatively small amounts are not material (or immaterial)....
Why are some expenses deferred? Definition of Deferred Expenses Under the accrual basis of accounting, an expense is a cost that is used up, has expired, or is directly related to revenues reported on a company’s...
What is inventory? Definition of Inventory Inventory is a very significant current asset for retailers, distributors, and manufacturers. Inventory serves as a buffer between 1) a company’s sales of goods, and 2) its...
What is a deposit in transit? Definition of Deposit in Transit A company’s deposit in transit is the currency and customers’ checks that have been received and are rightfully reported as cash on the date received,...
What is a favorable variance? Definition of a Variance In accounting the term variance usually refers to the difference between an actual amount and a planned or budgeted amount. For example, if a company’s budget for...
What is a general ledger? Definition of General Ledger A general ledger is a grouping of perhaps hundreds of accounts that are used to sort and store information from a company’s business transactions. The general...
If a mortgage payment is due by December 31, but the payment is not made until the following month, should the loan payment be accrued at December 31? The interest portion of the mortgage payment should be accrued as of...
What is Additional Medicare Tax? Definition of Additional Medicare Tax The Additional Medicare Tax is one of the U.S. government’s payroll withholding taxes that is paid solely by employees and the self-employed. In...
Is the drawing account a capital account? Definition of Drawing Account A sole proprietorship will have a drawing account in which the owner’s withdrawals or draws of cash or other assets are recorded. The amounts of...
What is meant by owner's draws? Definition of Owner’s Draws Owner’s draws are withdrawals of a sole proprietorship’s cash or other assets made by the owner for the owner’s personal use. The account in which the...
What does it mean to replenish the petty cash fund? Definition of Replenishing Petty Cash Replenishing the petty cash fund means the petty cash custodian requests and receives cash from the company’s regular checking...
What is the days' sales in accounts receivable ratio? Definition of Days’ Sales in Accounts Receivable The days’ sales in accounts receivable ratio (also known as the average collection period) tells you the number...
What is bank balance and book balance? Definition of Bank Balance The term bank balance is commonly used when reconciling the bank statement. It is also known as the balance per bank or balance per bank statement....
What are sundry expenses? Definition of Sundry Expenses In accounting and bookkeeping, sundry expenses are expenses that are small in amount and rare in occurrence. For these rare and insignificant expenses, a company...
How do I record exterior cement work? Is it an asset or an expense? If the cement work was done to repair or maintain existing cement work, then the expenditure should be recorded as an expense. Even if the cost is very...
Why would a business change its chart of accounts? There can be several reasons for a business to change its chart of accounts. One reason for changing the chart of accounts is to better match how the business is...
What are debits and credits? Definition of Debits and Credits Debits and credits are terms used in accounting and bookkeeping systems for the past five centuries. They are part of the double entry system which results in...
What is the rationale for not reporting plant assets at their liquidation value? I will assume that the plant assets‘ liquidation values are higher than the present carrying values when answering your question. Plant...
What is an impairment? Definition of Impairment The term impairment is associated with an asset currently having a market value that is less than the asset’s book value . A test is done to determine whether the...
What is a defined contribution pension plan? A defined contribution pension plan is one in which the employer contributes an amount into each eligible employee’s account within an established plan. The employee decides...
What is the free cash flow ratio? Definition of Free Cash Flow Free cash flow for a year is an amount (as opposed to a ratio or percentage) usually defined as: net cash provided by operating activities for the year minus...
What are consolidated statements of operations? Consolidated statements of operations is the heading appearing on the financial statement also referred to as the income statement. In a small survey of 14 U.S....
What is depreciation? Definition of Depreciation In accounting, depreciation is the assigning or allocating of the cost of a plant asset (other than land) to expense in the accounting periods that are within the...
What is the difference between expense and loss? Definition of Expense An expense is a cost that a company incurs or uses up when it earns revenues. Examples of Expenses A few examples of the many expenses that a company...
What are some examples of investing activities? Definition of Investing Activities Investing activities often refers to the cash flows from investing activities, which is one of the three main sections of the statement...
What is comprehensive income? Definition of Comprehensive Income Comprehensive income for a corporation is the combination of the following amounts which occurred during a specified period of time such as a year,...
What is a trial balance? Definition of a Trial Balance A trial balance is a bookkeeping or accounting report that lists the balances in each of an organization’s general ledger accounts. (Often the accounts with zero...
What are assets? Definition of Assets In accounting and bookkeeping, a company’s assets can be defined as: Resources or things of value that are owned by a company as the result of company transactions Prepaid expenses...
How many days after a month ends should the bank reconciliation be done? Definition Bank Reconciliation The bank reconciliation (if prepared or reviewed by someone other than the person with access to the checking...
Why is a product that sells for $50 reported in inventory at its cost of $40? Generally, items in inventory are valued at their cost—not their selling prices—because of the cost principle. Another reason for not...
What are capital expenditures? Definition of Capital Expenditures Capital expenditures are the amounts spent for tangible assets that will be used for more than one year in the operations of a business. Capital...
Which assets are classified as current assets? Definition of Current Assets Current assets include cash and assets that are expected to turn to cash within one year of the balance sheet date. Current assets also include...
. Which of the following is a contra asset account? Select... Accumulated Depreciation Bond Issue Costs Discount on Bonds Payable J. Smith, Drawing View Coaching The only contra asset in the list is Accumulated...
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