Where does revenue received in advance go on a balance sheet? Definition of Revenue Received in Advance Under the accrual basis of accounting, revenues received in advance of being earned are reported as a liability. If...
Where does revenue received in advance go on a balance sheet? Definition of Revenue Received in Advance Under the accrual basis of accounting, revenues received in advance of being earned are reported as a liability. If...
Where is the discount on the purchase of office furniture recorded? Definition of Discount on Purchase of Office Furniture The discount on the purchase of office furniture that will be used by a company (as opposed to...
How do you account for the rebate on an automobile? The rebate on the purchase of an automobile should be recorded as a reduction of the automobile’s cost. The lower automobile cost will result in lower depreciation...
Is the sales tax on merchandise purchased for resale included in inventory? In our state, sales tax is paid only by the end customer. In other words, a retailer does not pay sales tax on merchandise that is purchased for...
What items are added to the balance per bank on the bank reconciliation? Bank Reconciliation Adjustments to Bank Balance The items that are added to the balance per bank when doing a bank reconciliation include: Deposits...
Where do preferred stocks go on the P&L? The amount received from issuing preferred stock is reported on the balance sheet within the stockholders’ equity section. Only the annual preferred dividend is reported on the...
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...
Why isn't a key employee reported as an asset on the balance sheet? While an employee could be an organization’s most valuable asset, accountants record past transactions that can be measured. Since an employee is not...
Do I buy a new machine or use an old one? One technique for deciding whether to buy a new machine or to use an old machine is to look at the future cash flows if you buy a new machine and the future cash flows if you use...
Are dividend payments shown as an expense on the income statement? Definition of Dividend Payments The cash dividends paid to stockholders are a distribution of the corporation’s earnings. Dividends are not an expense...
Why do purchases appear as expenses on an income statement? Definition of Purchases In the context of companies that sell merchandise, the term purchases refers to the purchases of goods that are intended to be sold to...
Should a manufacturer's selling prices be based on costs? A manufacturer’s selling prices should not be based on costs alone. One reason is that the actual cost of each product is not known with precision. At best,...
How do you treat voided checks on the bank reconciliation? Definition of Voided Check on Bank Reconciliation If a check was voided in the current month but was written in the previous month and appeared on the previous...
Why does a company's profit appear as a credit on its balance sheet? The accounting equation and the double entry system provide an explanation why a company’s profit appears as a credit on its balance sheet. Asset...
Where is a contract with a customer reported on the balance sheet? A contract to perform future services for a customer is not reported on the balance sheet of the company that will be providing the services. For...
Why are the amounts on the financial statements rounded to thousands or millions? Definition of Rounding Amounts on Financial Statements Rounding the amounts on a company’s financial statements means dropping the less...
Where does a bond sinking fund appear on the balance sheet? Definition of Bond Sinking Fund A bond sinking fund is an investment made by a corporation that is restricted for the purpose of retiring its bonds payable,...
What is the amortization of premium on bonds payable? Definition of Amortization of Premium on Bonds Payable The amortization of the premium on bonds payable is the systematic movement of the amount of premium received...
Why isn't a corporation's dividend shown on its income statement? Definition of Dividend A dividend paid by a corporation on its common stock is a distribution of the corporation’s net income (earnings, profits). The...
How does one prepare a company's first bank statement reconciliation? To prepare a bank reconciliation for a company that never prepared one previously, I would first make a list of outstanding checks. For example, if...
How do you calculate the actual or real interest rate on a bond investment? Definition of Actual or Real Interest Rate on a Bond Investment The actual or real interest rate on a bond payable is also known as effective...
Where does the purchase of equipment show up on a profit and loss statement? Reporting the Purchase of Equipment Assuming that the purchase of equipment is a long-term or noncurrent asset that will be used in a business,...
When does a negative cash balance appear on the balance sheet? Definition of Negative Cash Balance A negative cash balance results when the cash account in a company’s general ledger has a credit balance. The credit or...
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...
How do you calculate Return on Capital Employed (ROCE)? Return on capital employed is used as a measurement of the performance of a division of a company. It assumes that the division is not responsible for its financing...
How do I record money received for an insurance claim on inventory loss? Definition of Money from Insurance Claim for Inventory Loss Let’s assume that a company has insurance on its inventory and its inventory is...
What are some examples of financing activities on the cash flow statement? Definition of Financing Activities Financing activities reported on the statement of cash flows (SCF) involve changes to the long-term...
Why would a company use double-declining depreciation on its financial statements? Definition of Double-Declining-Balance Depreciation The double-declining-balance method of depreciation is a form of accelerated...
Are salaries and wages part of expenses on the income statement? Definition of Salaries and Wages Salaries and wages are forms of compensation paid to employees of a company. Salaries and Wages as Expenses on Income...
What is the return on stockholders' equity (after tax) ratio? Definition of Return on Stockholders’ Equity The financial ratio return on stockholders’ equity (or return on equity) is calculated by dividing a...
What does debit memo mean on a bank statement? Definition of Bank Debit Memo A debit memo on a company’s bank statement refers to a deduction by the bank from the company’s bank account. In other words, a bank debit...
A non-operating item that results from the sale of a long-term asset for more (gain) or less (loss) than its carrying amount or book value.
Where are short-term bank loans reported on the statement of cash flows? Definition of Short-Term Bank Loans Short-term bank loans are generally loans that must be repaid within one year of the date of the balance sheet....
Where do worker compensation insurance costs get reported on the financial statements? Worker compensation insurance costs (also referred to as worker comp) should appear on the income statement and also on the balance...
How do you record a return deposit item on a bank statement? Definition of Return Deposit Item A return deposit item is usually a customer’s check that was part of a company’s bank deposit. When the company’s bank...
How do you record the interest that is unpaid on a note payable? Definition of Interest Unpaid on Note Payable Interest that has occurred, but has not been paid as of a balance sheet date, is referred to as accrued...
How is petty cash reported on the financial statements? Definition of Petty Cash Petty Cash is a small amount of money that a company has available to pay small amounts without writing a company check. The money might be...
If a mortgage payment is due on January 1, should the payment be accrued at December 31? The following answer assumes that the accrual basis of accounting (also known as the accrual method of accounting) is being used…...
What is the advantage of using historical cost on the balance sheet for property, plant and equipment? Definition of Historical Cost Historical cost is the original cost of an asset including all the necessary costs to...
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...
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