Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
. Example of Accelerated Depreciation Assume a corporation acquires equipment with a cost of $600,000 that will be used in its business for 10 years (120 months) and have no salvage value at the end of 10 years. On its...
, and burden. If the cost object is the company’s production department, the depreciation of the production equipment and the salary of the manager of the production department are direct costs of the production...
to replace the asset. True Right! The original cost is a sunk, past cost. False Wrong. The original cost is a sunk, past cost. Such costs are not relevant to any decision, since decisions involve the present and the...
of the statement of cash flows. Mark as wrong Mark as right gain on sale of equipment This occurs when equipment is sold for more than its book value. The amount is deducted from net income in the operating activities...
Our Explanation of Financial Statements provides you with the highlights of each of the five external financial statements issued by U.S. corporations. Our insights will give you a good understanding of what the...
Our Explanation of Accounts Payable provides insights on the bill paying process in a large company. Included are discussions of the three-way match, early payment discounts, end of period accruals, and more.
Our Explanation of Adjusting Entries gives you a process and an understanding of how to make the adjusting entries in order to have an accurate balance sheet and income statement. Eight examples including T-accounts for...
A temporary account used in the periodic inventory system to record the purchases of merchandise for resale. (Purchases of equipment or supplies are not recorded in the purchases account.) This account reports the gross...
What is theoretical capacity? Theoretical capacity is the level of a manufacturer’s production that would be attained if all of its equipment and operations performed continuously at their optimum efficiency....
In activity-based costing this refers to the allocation of costs to activities. For example, allocating the costs of setting up the manufacturing equipment to run a batch of product to the activity “setup...
The amount of a long-term asset’s cost that has been allocated to Depreciation Expense since the time that the asset was acquired. Accumulated Depreciation is a long-term contra asset account (an asset account with...
A legal agreement to pay rent to the lessor for a stated period of time. Sometimes the lease is in substance a purchase of an asset and a financing arrangement. For example, if a company agrees to lease a forklift truck...
The amount needed to replace an asset such as inventory, equipment, buildings, etc. If an asset’s replacement cost is greater than the asset’s carrying amount, the cost principle prohibits the use of the...
Our Explanation of Income Statement helps you learn the most important features of a corporation's income statement (also known as the statement of operations or profit and loss statement). We provide more understanding...
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...
Depreciation Depreciation In accounting, depreciation is the spreading (allocation) of an asset’s cost over the many accounting periods in which it is used. The assets that are depreciated include buildings, equipment,...
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...
to the accounting equation: assets = liabilities + stockholders’ equity Assets Assets are the resources that a corporation owns as a result of a purchase transaction. Examples of a corporation’s assets include cash,...
Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
on. Example of a Credit Assume that a company uses $4,000 to purchase office equipment. Since the company’s Cash balance is decreased, the company will credit the account Cash for $4,000 and will debit the asset...
: Asset accounts such as Cash, Accounts Receivable, Inventory, Prepaid Expenses, Buildings, Equipment, etc. For example, a debit balance in the Cash account indicates a positive amount of cash. (Therefore, a credit...
balance in a contra asset account will violate the cost principle.) Examples of Contra Asset Accounts The most common contra asset account is Accumulated Depreciation. Accumulated Depreciation is associated with...
monthly rent is for use of assets involved in its selling function (rent for office space, equipment, autos, etc.) or its administrative function of the company, the rent is a period cost and will be expensed in the...
equipment. The cash savings from the new equipment is expected to be $100,000 per year for 10 years. The payback period is expected to be 4 years ($400,000 divided by $100,000 per year). A second project requires a cash...
efficient equipment or to retain its existing equipment. Net incremental cash flows are necessary for calculating an investment’s: net present value internal rate of return payback period To illustrate net incremental...
property, equipment, vehicles, or it expands its facilities, etc., it is assumed to be using or reducing the company’s cash and cash equivalents. As a result, these investments and capital expenditures are reported as...
value that can be measured Assets are recorded at their cost and (except for some securities) are not adjusted for changes in market value. Long-term assets such as buildings and equipment are depreciated and therefore...
30 days. If a company purchases office equipment for $20,000 and the invoice has credit terms of 1/10, net 30, the company can deduct $200 (1% of $20,000) and remit $19,800 if the invoice is paid within 10 days. If...
and will be reported on the balance sheet as part of a company’s noncurrent or long-term asset section entitled Property, plant and equipment. The costs of constructing the asset are accumulated in the account...
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...
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...
appearing first followed by the income statement accounts. Examples of General Ledger Accounts Some of the more common balance sheet accounts and how they are further arranged in the general ledger include: asset...
asset Accounts Receivable will decrease and its asset Notes Receivable will increase. 2) A company prepays its insurance. As a result its asset Cash decreases and its asset Prepaid Insurance increases. 3) A company buys...
of a contra asset account is Accumulated Depreciation. For instance, if a company has a plant asset such as Equipment with a debit balance of $92,000 and the account Accumulated Depreciation has a credit balance of...
and gain accounts such as Sales Revenues, Service Revenues, Interest Revenues, Gain on Disposal of Equipment, Gain from Lawsuit, and many others Contra-asset accounts including Allowance for Doubtful Accounts and...
financial statements while at the same time be using one of the Internal Revenue Service’s faster depreciation methods on its federal income tax return. Example of Straight-Line Depreciation To illustrate...
of a noncash expense is depreciation. To illustrate, let’s assume that a company purchased equipment two years ago for a cash payment of $200,000. The company determined that the equipment had a useful life of 10...
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