What to do with the balance in Allowance for Doubtful Accounts? Definition of Allowance for Doubtful Accounts The Allowance for Doubtful Accounts is a contra asset account that is used with the balance in Accounts...
What to do with the balance in Allowance for Doubtful Accounts? Definition of Allowance for Doubtful Accounts The Allowance for Doubtful Accounts is a contra asset account that is used with the balance in Accounts...
How are dividends paid when there are dividends in arrears? Definition of Dividends in Arrears Dividends in arrears exist when a corporation has: Cumulative preferred stock Omitted past dividends on the cumulative...
How are period costs reported in the financial statements? Under the accrual method of accounting, period costs such as selling, general and administrative expenses are reported on the income statement in the accounting...
In a bank reconciliation, what happens to the outstanding checks of the previous month? Definition of Outstanding Checks Outstanding checks are checks written by a company, but the checks have not cleared the bank...
How do you account for payroll withholdings for health insurance? Definition of Payroll Withholdings for Health Insurance Payroll withholdings for health insurance are the amounts deducted from employees’ pay for their...
Where is interest on a note payable reported on the cash flow statement? Definition of Interest on a Note Payable The interest on a note payable is reported on the income statement as Interest Expense. Usually this means...
Is the sale of a plant asset recorded in the sales account? Definition of Sale of a Plant Asset The sale of a plant asset is often the disposal of a company’s equipment (or other asset) that had been used in the...
What will cause a change in net working capital? Definition of Net Working Capital Net working capital, which is also known as working capital, is defined as a company’s current assets minus itscurrent liabilities....
What is a limitation of the inventory turnover ratio? Definition of Inventory Turnover Ratio The inventory turnover ratio is often calculated by dividing a company’s cost of goods sold for a recent year by the average...
What is the difference in salaries between a bookkeeper and an accountant? I estimate that a bookkeeper’s salary will be less than half of an accountant’s salary. For example, an accountant with a year or two of...
Are LIFO inventory amounts ever written-up to their market value? LIFO inventory amounts will not be written-up, even when the current market value of the inventory is far greater than the amount reported on the balance...
Why do purchases appear as expenses on an income statement? Definition of Purchases In the context of companies that sell merchandise, the term purchases refers to the purchases of goods that are intended to be sold to...
What is recorded in the Wages and Salaries Expense account? Definition of Wages and Salaries Expense The account Wages and Salaries Expense (or separate accounts such as Wages Expense or Salaries Expense) are used to...
Bookkeeping Video Training Part 6 Adjusting entries: recorded in the general journal, deferral of prepaid expenses Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your...
What is the tax advantage when bonds are issued instead of stock? Definition of Bonds and Stock In this context, bonds refers to bonds payable, a form of long-term debt that typically promises to pay interest every six...
Why isn't a corporation's dividend shown on its income statement? Definition of Dividend A dividend paid by a corporation on its common stock is a distribution of the corporation’s net income (earnings, profits). The...
How do I determine the cost of missing inventory? Definition of Determining the Cost of Missing Inventory The approximate cost of missing inventory is the difference between 1) the cost of the inventory items that are...
Should inventories be reported at their cost or at their selling prices? Definition of Inventory Cost Inventories are reported at cost, not at selling prices. A retailer’s inventory cost is the cost to purchase the...
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...
Financial Statements Video Training Part 9 Income statement: revenues, cost of goods sold, expenses, nonoperating items Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your...
What is the difference between periodic and perpetual inventory systems? Periodic Inventory System In a periodic system the account Inventory: Has only the ending balance from the previous accounting year Excludes the...
Financial Statements Video Training Part 5 Balance sheet: asset classifications (intangible assets, other assets) Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your...
How do you record the interest that is unpaid on a note payable? Definition of Interest Unpaid on Note Payable Interest that has occurred, but has not been paid as of a balance sheet date, is referred to as accrued...
Where can I find financial ratios for my industry? One source for financial ratios by industry is the RMA Annual Statement Studies Financial Ratio Benchmarks. RMA is the acronym for Risk Management Association and...
Are dividend payments shown as an expense on the income statement? Definition of Dividend Payments The cash dividends paid to stockholders are a distribution of the corporation’s earnings. Dividends are not an expense...
Can a cost be both a direct cost and an indirect cost? A cost can be both a direct cost and an indirect cost. One of many examples is the cost of a supervisor in a department within a factory. Let’s assume that Sam...
Why is it necessary to allocate a lump sum payment to individual items? It is necessary to allocate a lump sum payment to individual items in order to record a fair portion of the lump sum in each of the proper general...
How do you determine whether a person is an independent contractor or an employee? To assist you in determining whether someone is an independent contractor or an employee, you should refer to the Internal Revenue...
What is the effect on financial ratios when using LIFO instead of FIFO? Definition of Effect of LIFO Instead of FIFO During periods of significantly increasing costs, the LIFO cost flow assumption instead of the FIFO...
Isn't objectivity violated when estimates are used in bookkeeping and accounting? The use of estimates does not necessarily violate objectivity. If it is not possible to determine the exact amount of an expense and/or...
What is manufacturing overhead and what does it include? Definition of Manufacturing Overhead Manufacturing overhead (also known as factory overhead, factory burden, production overhead) involves a company’s...
Are transportation-in costs part of the cost of goods sold? Definition of Transportation-in Costs Transportation-in costs, which are also known as freight-in costs, are part of the cost of goods purchased. The reason is...
What is inventory change and how is it measured? Definition of Inventory Change Inventory change is the difference between the amount of last period’s ending inventory and the amount of the current period’s ending...
What is the traditional method used in cost accounting? Definition of Traditional Method in Cost Accounting The traditional method of cost accounting refers to the allocation of manufacturing overhead costs to the...
What is the stated interest rate of a bond payable? Definition of Stated Interest Rate of a Bond The stated interest rate of a bond payable is the annual interest rate that is printed on the face of the bond and stated...
Where do worker compensation insurance costs get reported on the financial statements? Worker compensation insurance costs (also referred to as worker comp) should appear on the income statement and also on the balance...
Financial Statements Video Training Part 12 Statement of cash flows: introduction, cash flows from operating activities Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your...
Is it okay to have negative amounts in the equity section of the balance sheet? Definition of Equity Section of the Balance Sheet The equity section of the balance sheet is known as: Owner’s equity if it is a sole...
What is the difference between the direct method and the indirect method for the statement of cash flows? Main Difference between Direct and Indirect Method of SCF The main difference between the direct method and the...
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