What is burn rate? In business, burn rate is usually the monthly amount of cash spent in the early years of a start-up business. Burn rate is an important metric since the new business must spend time and money...
What is burn rate? In business, burn rate is usually the monthly amount of cash spent in the early years of a start-up business. Burn rate is an important metric since the new business must spend time and money...
What are the benefits of a revenue budget? The main benefit of a revenue budget is that it requires looking into the future. The revenue budget should contain the assumptions made about the future and the details about...
Is depreciation a source of funds? Definition of Depreciation Depreciation is the systematic allocation of the cost of a business asset to expense over the useful life of the asset. The accounting for depreciation is a...
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...
Why will some asset accounts have a credit balance? Definition of Asset Account Balances In accounting, asset accounts normally have debit balances. That is, the general ledger accounts for assets typically have their...
What are wages payable? Definition of Wages Payable Wages payable refers to the wages that a company’s employees have earned, but have not yet been paid. Under the accrual method of accounting, this amount is likely...
What is a post-dated check? Definition of a Post-dated Check A post-dated check (or post-dated cheque) is a check written with a future date. In other words, the date that appears on the check is after the date when the...
How do I calculate IRR and NPV? Definition of IRR The internal rate of return (IRR) method or model determines the interest rate that discounts all cash inflows and cash outflows to a net present value of $0. In other...
Are commissions considered to be revenues or expenses? Definition of Commissions Revenues or Expenses The company or person earning and receiving commissions (such as a percentage of sales) will have commissions revenue....
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 the average collection period? Definition of Average Collection Period The average collection period is the average number of days between 1) the dates that credit sales were made, and 2) the dates that the money...
the paperwork for a company’s transactions and getting the information quickly and accurately recorded in the company’s general ledger accounts. Today, this is done best through the use of cost effective software...
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 are accruals? Definition of Accruals The accounting and bookkeeping term accruals refers to adjustments that must be made before a company’s financial statements are issued. Accruals involve the following types of...
What is a plant asset? What is a Plant Asset A plant asset is an asset with a useful life of more than one year that is used in producing revenues in a business’s operations. Plant assets are also known as fixed...
What is interest payable? Definition of Interest Payable Interest payable is the interest expense that has been incurred (has already occurred) but has not been paid as of the date of the balance sheet. [Interest payable...
accumulated depreciation is subtracted from the asset’s cost to indicate the asset’s book value. The book value indicates the maximum amount of future depreciation remaining. Since depreciation is defined as the...
What are the reasons for high inventory days? Definition of Inventory Days I assume that inventory days is referring to the days’ sales in inventory. If so, then inventory days is also related to the inventory turnover...
What is the difference between residual value, salvage value, and scrap value? The terms residual value, salvage value, and scrap value are often used when referring to the estimated value that is expected at the end of...
for. The weekly payroll would have to be divided between months.) The cost of cattle was the largest cost, but that cost was available for each day, since cattle had to be paid for within 24 hours of purchase. It would...
30, and will not include the goods in transit as its December 31 inventory. On December 31, the customer (buyer) is the owner of the goods in transit and will need to report a purchase, a payable, and must include the...
Is a favorable variance always an indicator of efficiency in operation? In a standard costing system, some favorable variances are not indicators of efficiency in operations. For example, the materials price variance,...
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...
What is the coefficient of correlation? Definition of Coefficient of Correlation In simple linear regression analysis, the coefficient of correlation (or correlation coefficient) is a statistic which indicates an...
What is the difference between gross profit margin and gross margin? Definition of Gross Profit Gross profit is an amount that is computed as follows: A company’s net Sales minus its cost of goods sold A product’s...
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...
If a company earns a profit, which balance sheet items change? Definition of Profit Profit is the result of revenues minus expenses. How Profits Change the Balance Sheet Since all business transactions affect at least...
What does double entry mean? Definition of Double Entry In accounting, double entry means that every transaction will involve at least two accounts. Double entry also requires that one account be debited and the other...
What is DCF? In accounting, DCF refers to discounted cash flows or to the discounted cash flow techniques such as net present value or internal rate of return. DCF is a preferred method for evaluating capital...
What is the journal entry to record a one-year subscription for a magazine? Ways to Record One-Year Subscriptions Let’s assume that the cost of the one-year subscription for a monthly trade publication is $120. Let’s...
What is the dividend yield? The dividend yield is the annual cash dividend per share of common stock divided by the market price of a share of the common stock. Usually, fast growing corporations have a low dividend...
too little ending inventory could be any or all of the following: Omitting some inventory items when counting the ending inventory Miscounting some inventory items Math errors occurring during the tabulation of the cost...
be reviewed annually to see if there is an impairment, and potentially record an impairment loss. Private companies may opt to amortize goodwill generally over a 10-year period and thereby minimize the cost and...
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...
a vendor’s invoice within the vendor’s early payment discount period. Purchase Discounts Lost is considered to be an interest expense or a financing charge resulting from the buyer not being able to pay the cash...
Should a cash discount be recorded as a reduction to an expense? Yes, a cash discount should be a reduction to an expense. After all, accountants define cost as the cash amount (or cash equivalent amount) at the time of...
What is the difference between stockholder and stakeholder? Definition of Stockholder A stockholder or shareholder is the owner of shares of a corporation’s common or preferred stock. Definition of Stakeholder A...
What is net working capital? Definition of Net Working Capital Net working capital is the amount (as opposed to being a ratio) remaining after subtracting a company’s total amount of current liabilities from its total...
What is a bank reconciliation? What is a Bank Reconciliation A bank reconciliation is a process performed by a company to ensure that its records (check register, general ledger account, balance sheet, etc.) are correct....
Why is Interest Expense Included in the Operating Activities Section of the Cash Flow Statement? Definition of Interest Expense Interest expense is the cost of borrowing money. Under the accrual method of accounting,...
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