What is the expanded accounting equation? Definition of Expanded Accounting Equation The expanded accounting equation provides more details for the owner’s equity amount shown in the basic accounting equation. The...
What is the expanded accounting equation? Definition of Expanded Accounting Equation The expanded accounting equation provides more details for the owner’s equity amount shown in the basic accounting equation. The...
What are turnover ratios? Definition of Turnover Ratios In accounting, turnover ratios are the financial ratios in which an annual income statement amount is divided by an average asset amount for the same year....
on equity, let’s assume that a corporation uses long term debt to purchase assets that are expected to earn more than the interest on the debt. The earnings in excess of the interest expense on the new debt will...
What is a liquidity ratio? Definition of Liquidity Ratio A liquidity ratio is a financial ratio that indicates whether a company’s current assets will be sufficient to meet the company’s obligations when they become...
of a peripheral activity, such as a retailer selling one of its old delivery trucks. A gain occurs when the cash amount (or its equivalent) received is greater than the asset’s carrying amount, which is also referred...
amount of working capital is solvent. This is a short run view since the focus is on the company’s current assets and its current liabilities. Others look at a company’s total assets and total liabilities or the...
What are the stockholders' equity accounts? The stockholders’ equity accounts are balance sheet accounts and a part of the accounting equation Assets = Liabilities + Stockholders’ Equity. In this light you can...
What is a current liability? Definition of Current Liability A current liability is: An obligation that will be due within one year of the date of the company’s balance sheet, and Will require the use of a current...
What is the difference between a debit and a debit balance? Definition of Debit A debit is an entry on the left side of a T-account. A debit entry is used to record assets, expenses, losses, and owner’s draws in their...
What is leverage? Definition of Leverage In accounting and finance, leverage is the use of a significant amount of debt to purchase an asset, operate a company, acquire another company, etc. Since the cost of debt is...
will report each asset, liability, and owner equity amount as a percentage of total assets. Common-size financial statements allow you to compare the financial statements of large companies with the financial statements...
How does the accounting equation stay in balance when the monthly rent is paid? How a Rent Payment Affects the Accounting Equation A company’s payment of each month’s rent reduces the company’s asset Cash. This is...
What is ROI? Definition of ROI ROI is the acronym for return on investment. Traditionally, ROI related 1) the income statement profit to the 2) the balance sheet investment. A drawback of ROI is that the accounting...
What is the difference between liquidity and liquidation? Definition of Liquidity Liquidity usually refers to a company’s ability to pay its bills when they become due. Liquidity is often evaluated by comparing a...
, fundraising, and management and general The change in net assets resulting from the previous two bullet points The statement of activities will have multiple columns in order to report the amounts for each of the...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
as a percent of total assets. The vertical analysis of an income statement results in every income statement amount being restated as a percent of net sales. Example of Vertical Analysis of a Balance Sheet If a...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
... authorized issued outstanding 11. Which of the following current assets is also a quick asset? Select... Accounts receivable Inventory Supplies 12. The logical denominator in the turnover ratios should be the...
of a new warehouse should be depreciated. Select... True False 3. The entry to record depreciation includes a credit to the account __________ Depreciation. 4. The depreciation method likely to be used on a company’s...
This term might be used to express the combined balances of two accounts. For example, if Equipment has a debit balance of $300,000 and the account Accumulated Depreciation on Equipment has a credit balance of $130,000,...
, objectivity is met when the estimated amounts are similar to the amounts that another professionally-trained person would also compute with the same available information. The accounting principles, guidelines and...
. The objective of depletion is to match the cost of the natural resources that were sold with the revenues from the natural resources that were sold. Conceptually, depletion is similar to the depreciation of property,...
. Current assets are reported on a company’s balance sheet in their order of liquidity. Since cash is the most liquid asset, it will appear first followed by the current assets that can be quickly turned into cash:...
An asset’s cost that has been assigned to Depreciation Expense.
The inability to pay liabilities as they become due. Some consider a company to be insolvent when its current liabilities exceed its current assets.
A dividend paid in assets other than cash.
A lender such as a bank who has placed a lien on a borrower’s assets. As a result, the lender has collateral until the loan amount is repaid.
The reduction of an asset’s carrying amount. For example, we often reduce or write down inventory from its cost to its net realizable value when the net realizable value is lower.
The result of the sale of an asset for less than its carrying amount; the write-down of assets; the net result of expenses exceeding revenues.
An action by a nonprofit organization’s board of directors to earmark an asset for a specified purpose. Since this is not a donor-imposed restriction, the designated asset is classified and reported as part of...
A general ledger inventory account that has a credit balance instead of an asset’s usual debit balance. An example is the account Reduction of Inventory to Net Realizable Value.
The result of subtracting operating expenses from gross profit. Income from operations is the amount before non-operating items (such as gains and losses on the sale of assets, interest revenue, and interest expense).
The amount of an asset’s cost that will be depreciated. It is the cost minus the expected salvage value. For example, if equipment has a cost of $30,000 but is expected to have a salvage value of $3,000 then the...
The contra owner’s equity account used to record the current year’s withdrawals of business assets by the sole proprietor for personal use. This is a temporary account with a debit balance. It will be closed...
Costs that have been used up or consumed. Expired costs are reported as expenses. (Costs that have not yet expired are reported as assets.)
A long-term asset account that reports the cost of real property exclusive of the cost of any constructed assets on the property. Land usually appears as the first item under the balance sheet heading of Property, Plant...
Also referred to as shareholders’ equity. At a corporation it is the residual or difference of assets minus liabilities. To learn more about stockholders’ equity, see our Stockholders’ Equity Outline.
This term is usually associated with assets that are depreciated. In the month that an asset is acquired or disposed, it is assumed to have occurred in the middle of the month.
Featured Review
"We ordered your product for our new accounting staff who had just got new accounts jobs and were not able to understand the basics of accounts. Once they used your product, there was immense change in their way of understanding the accounts and entry-level effects in the books. Thanks a lot for such a wonderful product." - Kumaravel N.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: