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...
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 is the difference between expenses and payments? Definition of Expenses and Payments Under the accrual method of accounting, expenses are costs that have been used up or have been incurred in the process of earning...
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...
could clear (be paid from) the bank account prior to that date. Post-dating a check makes sense only if you are certain that the payee will not cash or deposit the check before the date appearing on the check. Example...
Is advertising an asset or an expense? Definition of Advertising Expense Advertising is the amount a company incurs to promote its products, brands, and image via television, radio, magazines, Internet, etc. Since the...
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....
What is capital stock? Definition of Capital Stock Capital stock refers to the shares of ownership that have been issued by a corporation. The amount received by the corporation when its shares of capital stock were...
When will a transaction affect only one side of the accounting equation? Only one side of the accounting equation will be affected when one asset is used to acquire another asset or to replace another asset, when one...
What is goodwill? Definition of Goodwill In accounting, goodwill is an intangible asset associated with a business combination. Goodwill is recorded when a company acquires (purchases) another company and the purchase...
What does a bookkeeper do? Definition of Bookkeeper A bookkeeper’s role at a company varies by the size and nature of the business. At a very small company without an accountant, the bookkeeper’s duties are likely to...
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 does Accumulated Depreciation tell us? Definition of Accumulated Depreciation Accumulated depreciation reports the amount of depreciation that has been recorded from the time an asset was acquired until the date of...
What is an equivalent unit of production? Definition of Equivalent Unit of Production An equivalent unit of production is an expression of the amount of work done by a manufacturer on units of output that are partially...
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 working capital ratio? Definition of Working Capital Ratio The working capital ratio is defined as the amount of a company’s current assets divided by the amount of its current liabilities. Hence, the...
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...
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 the difference between liability and debt? Definition of Liability In accounting and bookkeeping, the term liability refers to a company’s obligation arising from a past transaction. Examples of Liabilities A...
Is standard costing GAAP? Definition of Standard Costing Standard costing is a cost accounting system used by some manufacturers to assist in planning and controlling its manufacturing operations. When standard costing...
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 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...
What is purchase discounts lost? Definition of Purchase Discounts Lost The account Purchase Discounts Lost is a general ledger account used by a company that records vendors’ invoices using the net method. A debit...
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...
by someone other than an authorized check signer and/or record keeper. Example of a Bank Reconciliation Let’s assume that a new company opens its first checking account on June 4 with a deposit of $10,000. During...
Where is treasury stock reported on the balance sheet? Under the cost method of recording treasury stock, the cost of treasury stock is reported at the end of the Stockholders’ Equity section of the balance sheet....
What is the face value of a bond payable? Definition of Face Value of a Bond Payable The face value of a bond payable is the amount printed on the bond. The face value is also referred to as the following: Face amount...
Is a money market account a current asset or a fixed asset? A money market account is a current asset unless it is restricted for a long-term purpose. The amount of an unrestricted money market account will likely be...
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 is YOY? In financial analysis and data analytics, YOY is the acronym for year over year. YOY indicates the change from the comparable amount reported in the same period one year earlier. Below are three examples of...
What is a capital account? Definition of Capital Account In accounting and bookkeeping, a capital account is a general ledger account that is part of the balance sheet classification: Owner’s equity (in a sole...
Which financial ratios are considered to be efficiency ratios? I consider the efficiency ratios to be the ratios also known as asset turnover ratios, activity ratios, or asset management ratios. These efficiency ratios...
Why are wages reported as an expense when the work occurs, but the employees' tax records report them when they are paid? Accrual Method for the Corporation, Cash Method for the Employees The short answer is that the...
What is the reorder point? Definition of Reorder Point The reorder point is the quantity of units in inventory at which time an order should be placed to purchase additional units. The reorder point is calculated by...
What is the meaning of pro rata? Pro rata is a Latin term that means in proportion. Pro rata is related to prorate, a term used in cost accounting. To illustrate the term pro rata, let’s assume that a company’s...
What are accounting principles? Definition of Accounting Principles Accounting principles are the common rules that must be followed when preparing financial statements that are distributed to people outside of the...
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