The preferred method for systematically moving bond discount or premium from the balance sheet over to interest expense on the income statement over the life of the bond. This method is superior to the straight-line...
The preferred method for systematically moving bond discount or premium from the balance sheet over to interest expense on the income statement over the life of the bond. This method is superior to the straight-line...
The result of a corporation buying back its own bonds for an amount that is less than the carrying value of the bonds. The amount of the gain is computed by subtracting the amount spent to repurchase the bonds from the...
. Definition of Expenditure An expenditure is a payment or disbursement. The expenditure may be for the purchase of an asset, a reduction of a liability, a distribution to the owners, or it could be payment in the same...
How should a mortgage loan payable be reported on a classified balance sheet? Definition of a Mortgage Loan Payable The account Mortgage Loan Payable contains the principal amount owed on a mortgage loan. (Any interest...
What is a noncash expense? Definition of a Noncash Expense A noncash expense is an expense that is reported on the income statement of the current accounting period, but the related cash payment took place in another...
How should an interest only loan be recorded? Defintion of an Interest Only Loan An interest only loan specifies that only interest payments are required during the life of the loan. No principal payment is required...
but is unpaid should be recorded with a debit to Interest Expense and a credit to the current liability Interest Payable. Example of Recording Unpaid Interest Let’s assume that on December 10, a company made its...
was received as payment on accounts receivable, the accounts receivable balance is not reduced until the date of the check. To illustrate this, let’s assume that on August 20 a company receives a $1,000 postdated...
, the expense will be recorded as part of the entry. When the company pays the invoice, the balance in Accounts Payable is reduced and the balance in the company’s Cash account is reduced. The payment does not affect...
terms, where to remit payment, etc. Definition of a Voucher A voucher is an internal document used by a company’s accounts payable department in order to collect and organize the necessary documentation and approvals...
internally by a company over time. Since the brand name was not purchased from another entity, there is no past transaction and purchase cost to be recorded. I assume that an entity’s payment made to another...
is the electricity that is used in December where neither the bill nor the payment will be processed until January. The December electricity should be recorded as of December 31 with an accrual adjusting entry that...
A term meaning behind, such as dividends in arrears, or something occurring at the end of a period, such as the recurring payment in an annuity in arrears.
A method of payment used in place of a paper check.
A payment. The expenditure might be for a significant long term asset (capital expenditure), a short term asset (prepaid insurance), a reduction in a liability, or for an immediate expense such as rent.
Money set aside for a specific purpose. An individual’s monthly mortgage payment might include $300 per month for the real estate taxes due at the end of the year. The $300 is said to be put into escrow each...
A word used by accountants to communicate that an expense has occurred and needs to be recognized on the income statement even though no payment was made. The second part of the necessary entry will be a credit to a...
pertains to one or more future accounting periods. To illustrate, assume that on December 1, a company recorded its $2,400 payment for six months of property insurance for December through May. At December 31, one month...
to +1 (“0” indicates no correlation and “1” indicates perfect correlation). Measuring the correlation between variables can be helpful, but a high degree of correlation does not guarantee that a change in one...
of Accrued Payroll Let’s assume that a retailer’s hourly-paid employees are paid each Friday for the hours they worked during the previous week. Let’s also assume that as of December 31, the hours worked from...
for the workweek of June 22-28 might be calculated by the time the adjusting entry is prepared in early July and only the amounts for June 29 and 30 will need to be estimated.) The important point with the accrual...
avoid the use of the payback reciprocal. Instead, you should compute the internal rate of return or the net present value because they will discount each of the actual cash amounts to reflect the time value of money....
An account with a balance that is the opposite of the normal balance. For example, Accumulated Depreciation is a contra asset account, because its credit balance is contra to the debit balance for an asset account....
consider a project, its internal rate of return must equal or exceed the hurdle rate. The hurdle rate is also used to discount a project’s future cash flows to its net present value. Example of Hurdle Rate The...
that has its cost of $50,000 in its account entitled Truck. The associated account Accumulated Depreciation has a credit balance of $43,000. The truck’s carry amount or book value is $7,000. A corporation has Bonds...
Our Explanation of Bank Reconciliation will show you the needed adjustments to the balance on the bank statement and also the adjustments needed to the balance in the related general ledger account. A comprehensive...
An income statement account that reports the amount of service revenues earned during the time interval indicated in the heading of the income statement. (Under the accrual basis of accounting, fees earned are reported...
In the EOQ model, order costs are the incremental costs of processing an order of goods from a supplier. Examples of order costs include the costs of preparing a requisition, a purchase order, and a receiving ticket,...
A check that is not paid by the bank on which it is written (drawn). Often the reason a check is not paid is that the account on which the check was drawn did not have a sufficient balance. In that case the check is...
A contract to provide coverage or protection in exchange for a payment or “premium.” Examples of insurance protection include liability, property, business interruption, life, disability, etc. The company...
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...
(with payment due 30 days later). Company A will record the amount of the sale with a credit to Sales and a debit to Accounts Receivable. Company B will record the purchase (perhaps as inventory) with a credit to...
of its customers. Ace requires that the customer pay $50,000 before Ace begins to design and construct the machine. The $50,000 payment is made in December 2023 and the machine must be finished by March 31, 2024. The...
statement when they occur even if payment will take place 30 days later. The accrual method of accounting, which is also known as the accrual basis of accounting, is required for large corporations. (The cash method of...
to the lessee for a small additional payment. Examples of Leases A person or business might lease a suite in a large building for a one-year period. The lease agreement states that the lessee will pay the lessor $1,200...
coverage from December 1 through May 31. Examples of Two Methods for Recording Prepaid Expenses One method for recording a prepaid expense is to record the entire payment in an asset account. For example, assume that on...
. (This means that 5/6 of the payment is a prepaid asset and only 1/6 of the payment should be reported as an expense on each of the monthly income statements.) A company’s customer paid in advance for...
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...
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