months. Between the interest payment dates, the company will have: Accrued interest income that is to be reported on the income statement Accrued interest receivable that is to be reported on the balance sheet Accrued...
months. Between the interest payment dates, the company will have: Accrued interest income that is to be reported on the income statement Accrued interest receivable that is to be reported on the balance sheet Accrued...
, the seller will debit Accounts Receivable and will credit Sales. When the seller receives payment from the customer, the seller will debit Cash and will credit Accounts Receivable. Example of a Credit Sale Assume that...
. The Depreciation Expense for each year is often determined early in the asset's life and is not changed routinely—although revisions are permitted. False Right! Depreciation Expense is based on an estimated...
Our Explanation of Bonds Payable covers the recording of bonds, the accrual of interest expense, and the amortization of the discount and premium on bonds payable. You gain an understanding on why the market value of...
Our Explanation of Present Value of an Ordinary Annuity uses the appropriate present value factors for discounting a stream of equal cash amounts occurring at equal time intervals. An important feature is the use of loan...
Our Explanation of Present Value of a Single Amount discusses the time value of money and the need to discount future amounts to the time of an investment or other transaction. The present value of 1 table is used to...
is considered to be risky, the rate used to discount its cash flows should be __________ the rate used to discount the cash flows of a project considered to be more safe. Select... higher than lower than the same as 14....
significantly more than the 10% rate to discount the cash flows. (A net present value of $0 would indicate that the corporation was earning exactly 10%.) Internal Rate of Return The internal rate of return (IRR) is a...
and reduced the company’s net income (or increased its net loss), but the depreciation amount did not involve a current period cash payment. For example, if a company purchased equipment in the previous year for...
as __________ expenditures. 12. When using the double-declining-balance method of depreciation, the estimated __________ __________ is not considered when calculating the depreciation for the early years of the...
that compared to the straight-line method, the depreciation expense will be faster in the early years of the asset’s life but slower in the later years. However, the total amount of depreciation expense during the...
-year needs to be addressed. The shortfall also raises the question of whether there will be a similar shortage in the second half of the year. Thanks to the monthly revenue budget, church officials will be alerted early...
through the discounting of the future cash amounts A project or investment that results in a net present value of $0 means that the project is expected to earn exactly the specified rate used to discount the future cash...
the money, there has to be some interest cost. In other words, there is some interest cost, but it is implicit. (To record the interest cost, accountants will discount the $10,000 by the approximate interest rate that...
of the increased investment. This technique also ignores the time value of money. Internal rate of return considers both the time value of money and cash flows occurring throughout the entire life of the project. The...
sold divided by the average inventory 11. Which of the following is a cost of holding inventory? Select... Preparing the purchase order Risk of obsolescence Receiving and stocking the goods ordered from a supplier 12....
What is the difference between a deferred expense and a prepaid expense? Definition of Deferred Expense and Prepaid Expense Deferred expense and prepaid expense both refer to a payment that was made, but due to the...
What is an account payable? Definition of an Account Payable An account payable is an amount owed to a supplier or vendor for goods or services that were provided in advance of payment. However, some people use the term...
, let’s assume that a new company has only one asset, Cash of $10,000, and its owner’s equity is $10,000. The company then pays $500 for advertising that occurs at the time of payment. The company must reduce its...
a product line from Divesting Company for a single cash payment of $800,000. Your Corporation expects that the product line will result in the following cash flows occurring in each year for 10 years: additional cash...
first year the company had $65,000 of profit, but may end the year with $0 cash. Other examples where cash is paid out, but the profits are not reduced at the time of the payment, include prepayments of insurance...
account and the only authorized check signer is the owner. The owner is going to take a short vacation and will have the office manager be in charge. In case a payment must be made when the owner is on vacation, the...
not involve a cash payment. As a result, a statement of cash flows prepared under the indirect method will add back the depreciation expense that had been deducted on the income statement. Methods for Computing...
to a liability such as Dividends Payable. When the corporation pays the dividend, Dividends Payable will be debited and Cash will be credited. Since Retained Earnings is a component of stockholders’ equity, the...
on February 1 (when the tenant will be receiving a large payment from a client). The landlord is assured that all rent due will be paid by February 1. Assuming that the tenant and the landlord use the accrual method of...
with your industry. You need to get those receivables turning to cash. Accounts payable should be reviewed to be sure that your company’s cash is not being paid to suppliers prior to the required payment dates. In...
prepaid insurance, let’s assume that on November 20 a company pays an insurance premium of $2,400 for insurance protection during the six-month period of December 1 through May 31. On November 20, the payment is...
. Examples of a Bank Debit Memo Some examples of a bank debit memo include the following withdrawals from a company’s checking account: The company’s monthly loan payment The fee for printing the company’s checks...
prepares monthly financial statements. When the $2,400 payment is made on January 1, the company debits Prepaid Insurance and credits Cash. It also sets up automatic monthly adjusting entries to debit Insurance Expense...
off. The accountant will prepare adjusting entries to record expenses that occurred but are not yet entered by the bookkeeper. (Examples include interest on bank loans since the last loan payment, wages earned by...
reduced to $0 Receiving and posting a customer’s payment that was greater than the customer’s balance in Accounts Receivable Continuing to reduce the balance in Prepaid Expenses and charging expense after the...
at the time of the payment should be debited to Notes Payable. The balance in the liability account Notes Payable should agree with the principal balance owed to the lender. The balance in the liability account Interest...
Expense and credit a liability account in the accounting period when the sales occur. When the commission payment is made, the liability account is debited and the Cash account is credited. If the sales are related to...
asset) and credit Interest Revenue (or Income). Example of Accrued Interest Let’s assume that on December 16, a company borrows $20,000 from its bank at an annual interest rate of 6%. The first interest payment is due...
dividends can be declared and paid. Typically, the monthly payments required for automobile and real estate loans are annuities in arrears. For example, if a company borrows $50,000 on September 30, the first of the...
to Cash and a $3,000 credit to the liability account Customer Deposits or Unearned Revenues. With no downpayment or advance payment in December, there is no entry recorded.) The $20,000 contract is not reported as an...
of Cost Principle The cost principle means that a long-term asset purchased for the cash amount of $50,000 will be recorded at $50,000. If the same asset was purchased for a down payment of $20,000 and a formal promise...
from December 1 through May 31. The company recorded the December 1 payment with a debit of $6,000 to Prepaid Insurance and a credit of $6,000 to Cash. On December 31, the account Prepaid Expenses must be adjusted to...
and Deferred Revenues? Select... Asset Expense Liability Revenue 8. On December 20, Jay Corporation received $5,000 from a new customer as a down payment for services that Jay Corporation will provide in January. On...
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