Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
Typically the stated interest rate will not change and is therefore considered to be a fixed rate. This will result in the semiannual interest payments being the same amount. The formula for the semiannual interest...
of the remaining 85% would be counted every month. Cycle counting reduces the need for the costly process of shutting down the manufacturing process in order to count inventory. Cycle counting can also result in more...
What is ERP? Definition of ERP In accounting, ERP is the acronym for enterprise resource planning. ERP could be described as a database software package that supports all of a business’s processes and operations...
expense over its useful life Depreciable assets are reported on the balance sheet under the asset heading property, plant and equipment. Examples of Depreciable Assets Some examples of depreciable assets include the...
of the quantities of every material used in the various steps of manufacturing each product or component part. Example of BOM Assume that a small company manufactures gourmet pies. There will be a bill of materials...
for one of its customers. Periodicity allows the manufacturer to divide the manufacturing costs of the machine into the 24 monthly periods covered by the contract. Periodicity also allows the manufacturer to report the...
: Public accounting as a sole practitioner or as a member of small to international CPA firms working as an auditor, tax consultant, general consultant, etc. Manufacturing companies, service businesses, etc. working as...
Under the accrual method of accounting, this account reports the amount of worker compensation insurance expense that pertains to the period indicated in the heading of the income statement, whether or not the company...
in a general ledger intangible asset account. If a company designs and registers its trademark, the amount recorded is limited to its cost. Costs incurred to defend a trademark are also recorded in the trademark...
of the goods that were sold during the current period, and the following which also occurred during the current period: salaries earned by the company’s employees, interest expense incurred, commissions earned by...
on the statement of cash flows.) The interest on the loan will be reported as expense on the income statement in the periods when the interest is incurred. Example of a Loan Principal Payment Let’s assume that a...
payable will require the issuer/borrower to pay interest, the issuing company will have interest expense. Under the accrual method of accounting, the company will also have another liability account entitled...
Where is interest on a note payable reported on the cash flow statement? Definition of Interest on a Note Payable The interest on a note payable is reported on the income statement as Interest Expense. Usually this means...
, the cost is recorded as an expense in the year of the expenditure.) Examples of Capitalized Costs When a company constructs a new building, the interest incurred to finance its construction is capitalized. This means...
or goods have been received. However, the vendors’ invoices have not yet been received and the exact amount is not yet known. The company is required to estimate the amount since the estimated amount is far better...
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 sunk cost? Definition of Sunk Cost A sunk cost is a cost that was incurred in the past and cannot be undone. Since most transactions cannot be undone, most amounts spent in the past are sunk. A past or sunk...
that was in inventory at a cost of $30,000, the company’s current assets will increase by $20,000. If no other expenses are incurred, working capital will increase by $20,000. If a company borrows $50,000 and agrees...
in each accounting period and report interest payable for any unpaid but incurred interest up to the end of the accounting period. Future interest is not recorded as a liability. The bank must report interest income (or...
and paid to the employees on Friday, January 8. The amount of the wages for the five days of December 27 through December 31 are calculated to be $5,000. In addition, the retailer incurred payroll taxes and fringe...
How can a company have a profit but not have cash? Definition of Profit Under the accrual basis of accounting, profit is the amount of revenues earned minus the amount of expenses incurred. Note that revenues are not...
. This is needed because the accrual basis of accounting requires the income statement to show the revenues that were earned (not the money actually received) and the expenses incurred or matched to the accounting period...
as accounts payable or accrued compensation. Examples include the interest expense that the company has incurred (but has not yet paid) and repairs that took place but the vendor’s invoice has not been processed....
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...
the financial statements the gross wages that were earned by the employees (and incurred by the employer) during the accounting period. [Under the cash basis of accounting, the employer’s financial statements will...
. An unrelated customer asks the company to inform them of the price for constructing a specific residence. The company prepares a detailed calculation of the final price that the customer will pay. The price will...
for the manufacturer’s cash to be used to: pay for the raw materials needed in its products pay for the labor and overhead costs needed to convert the raw materials into products hold the finished products in...
, it is common for half of the annual amount to be paid at the end of each 6-month period (semiannually). Generally, a bond’s stated interest rate is fixed (does not change) for the life of the bond. As a result, the...
Why are bonds payable less costly than common stock? Bonds payable are less costly than common stock because the bonds issued by a corporation contain a formal contract to pay the investor a fixed amount of interest...
for investing in future fixed assets as well as arranging for the financing of the projects. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping...
minus $40,000 of accumulated depreciation). Net book value or simply book value indicates that $60,000 of the noncurrent asset’s cost has not yet been charged to depreciation expense. Net book value or book value can...
expensing assets having a cost of less than $2,500 instead of setting up fixed asset records and depreciating those assets over their useful lives. Join PRO to Track Progress Mark the Question as Read Must-Watch Video...
with the accrual basis of accounting Fixed asset accounting Cost accounting Budgeting and profit planning, and more Common titles for accountants include corporate accountant, chief accountant, controller, assistant...
usually accept a fixed cash dividend that will be paid by the corporation before the common stockholders are paid a dividend. In exchange for this preferential treatment of dividends, the preferred stockholders...
What is a fully depreciated asset? Definition of Fully Depreciated Asset A fully depreciated asset is a plant asset or fixed asset where the asset’s book value is equal to its estimated salvage value. In other words,...
Perhaps the most common example of the term amortization is the amortization schedule associated with a mortgage loan. For a 15-year mortgage loan with a fixed interest rate and monthly payments, the amortization...
of the areas of accounting in which accounting clerks are employed include: Accounts Receivable Accounts payable Payroll accounting Cost estimation Fixed asset accounting Assist in preparing various reports Salary Range...
What is depreciation expense? Definition of Depreciation Expense Depreciation expense is the appropriate portion of a company’s fixed asset’s cost that is being used up during the accounting period shown in the...
Featured Review
"I currently hold the position of Environmental, Health, and Safety Specialist. I became a PRO user because while pursuing my degree in paralegal studies, I was required to take classes in accounting. My online class was completely self-taught, and I found myself struggling to understand the concepts as they were presented in the textbook. When I looked for online help, I found AccountingCoach. Becoming a PRO user allowed me to access lessons that made understanding my classes so much easier. I like that the lessons walk you through the concepts of accounting and are very clear to understand. They don't throw too much at you at one time; they make it easy for you to grasp one lesson before moving on to the next. Thanks to AccountingCoach, I was able to complete my accounting classes and graduate with my degree. Since then, I have become responsible for the finances of my team, and everything I have learned allows me to work with our finance department each quarter to review our books." - Chad B.
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: