Is the installation labor for a new asset expensed or included in the cost of the asset? Accounting for Labor to Install Asset The definition of an asset’s cost is all costs that are necessary to get an asset in place...
Is the installation labor for a new asset expensed or included in the cost of the asset? Accounting for Labor to Install Asset The definition of an asset’s cost is all costs that are necessary to get an asset in place...
What is a liability? Definition of Liability A liability is an obligation arising from a past business event. It is reported on a company’s balance sheet. Liabilities are also part of the basic accounting equation:...
What is an overdraft? Definition of Overdraft An overdraft (also known as a bank overdraft) generally means that the amount of a company’s checks being presented at the bank for payment exceeded the amount on deposit....
What are term bonds and serial bonds? Term bonds are bonds which mature or come due on a single date. Serial bonds are bonds which do not mature or come due on a single date. Instead, serial bonds have maturity dates...
Why isn't land depreciated? Definition of Land The land that is used in a business (as opposed to land that is an investment, or land that will be sold by a real estate developer) is a tangible asset that is assumed to...
What is the purpose of the cash flow statement? Definition of Cash Flow Statement The cash flow statement or statement of cash flows or SCF identifies a company’s major cash inflows and outflows that occurred the same...
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...
The balance sheet and income statement are connected. Definition of Balance Sheet and Income Statement The balance sheet reflects the accounting equation: Assets = Liabilities + Owner’s (Stockholders’) Equity When a...
What is a long-term liability? Definition of Long-term Liability A long-term liability is an obligation resulting from a previous event that is not due within one year of the date of the balance sheet (or not due within...
What is the distinction between debtor and creditor? Definition of Debtor A debtor is a person or enterprise that owes money to another party. The party to whom the money is owed might be a supplier, bank, or other...
What is FIFO? Definition of FIFO In accounting, FIFO is the acronym for First-In, First-Out. It is a cost flow assumption usually associated with the valuation of inventory and the cost of goods sold. Under FIFO, the...
What is the difference between biweekly and semimonthly payroll? Definition of Biweekly Payroll Biweekly payroll refers to paydays that occur 26 times per year (52 weeks in a year divided by 2 weeks = 26 times per year)....
Are liabilities always a bad thing? Definition of Liabilities Liabilities are a company’s obligations and are usually defined as a claim on the company’s assets. However, liabilities (and stockholders’ equity) can...
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...
What is the difference between dividends and interest expense? Definition of Dividends Dividends are a distribution of a corporation’s earnings to its stockholders. Dividends are not an expense of the corporation and...
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 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...
What is the cost of goods manufactured? Definition of Cost of Goods Manufactured The cost of goods manufactured is a calculation of the production costs of the goods that were completed during an accounting period. In...
What is the difference between equity financing and debt financing? Definition of Equity Financing Equity financing involves increasing the owner’s equity of a sole proprietorship or increasing the stockholders’...
What is the gross profit method? Gross Profit Method Definition The gross profit method is a technique used to estimate the amount of ending inventory. The technique could be used for monthly financial statements when a...
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...
What are accrued liabilities? Definition of Accrued Liabilities Accrued liabilities are usually expenses that have been incurred by a company as of the end of an accounting period, but the amounts have not yet been paid...
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 a current asset? Definition of Current Asset A current asset is a company’s cash and its other assets that are expected to be converted to cash within one year of the date appearing in the heading of the...
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 the annual wage limit? Definition of Annual Wage Limit Annual wage limit is a payroll accounting term that is associated with the Social Security payroll tax. (The annual wage limit is also known as the annual...
What is the difference between stock dividend and cash dividend? Definition of a Stock Dividend A stock dividend is a dividend consisting of additional shares of stock. Assume that before a corporation declares a stock...
Why is a negative cash balance reported as a liability? The following will illustrate why a negative cash balance is reported as a liability instead of being reported as a negative asset amount. Company X writes checks...
What is a stockholder? Definition of Stockholder A stockholder (also known as a shareholder) is the owner of one or more shares of a corporation’s capital stock. A stockholder is considered to be separate from the...
Does a dividend reduce profit? Definition of Dividend A dividend declared by a corporation is a distribution to its stockholders of the profits the corporation had earned. Since the dividends are not an expense, the...
When calculating inventory turnover, do you use sales or the cost of goods sold? I calculate the inventory turnover by using the cost of goods sold. I use the cost of goods sold because inventory is in the general ledger...
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 the book value per share of stock? Definition of Book Value per Share of Stock The book value of a corporation is the amount of its stockholders’ equity. Assuming the corporation does not have preferred stock...
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...
If inventory is understated at the end of the year, what is the effect on net income? Definition of Inventory is Understated If inventory is understated at the end of the year, it means that the amount of inventory being...
What does it mean to amortize the premium, discount, and issue costs on bonds payable? Definition of Amortize Premium, Discount, and Issue Costs With regards to bonds payable, the term amortize means to systematically...
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...
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 a petty cash voucher? Definition of Petty Cash Voucher A petty cash voucher is usually a small form that is used to document a disbursement (payment) from a petty cash fund. Petty cash vouchers are also referred...
What is carriage inwards? Definition of Carriage Inwards Carriage inwards refers to the transportation costs required to be paid by the purchaser when it receives merchandise it ordered with terms FOB shipping point....
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