Our Explanation of Working Capital and Liquidity provides you with an in-depth look at the components of working capital and the challenges of converting current assets to cash before obligations come due. You will see...
Our Explanation of Working Capital and Liquidity provides you with an in-depth look at the components of working capital and the challenges of converting current assets to cash before obligations come due. You will see...
by reading our Adjusting Entries (Explanation). 1. What type of entry will increase the normal balance of the general ledger account Service Revenues? Debit Wrong. Credit Right! Since revenues cause stockholders'...
: Dept #1 uses a large, sophisticated $900,000 machine Dept #2 uses a small $40,000 machine to refine the products coming out of Dept #1 Dept #3 is an additional, optional process that uses a $10,000 machine If the...
In regression analysis this is a statistic designated as r and ranging from -1 to +1. It indicates the percentage of correlation between the dependent variable and the independent variable(s). When this statistic is...
Interest on interest. For example, if $1,000 is deposited in an account earning interest of 6% per year the account will earn $60 in the first year. In year two the account balance will earn $63.60 (not $60.00) because...
A bank account balance that a corporation agrees to maintain with a current or potential lender. For example, a corporation may agree to keep $1 million in its checking account at a bank in exchange for the bank agreeing...
Where can I find an illustration of a common size balance sheet? You will find an illustration of a common size balance sheet under AccountingCoach.com’s Explanation of Financial Ratios. The common size balance sheet...
The temporary contra purchases account used in a periodic inventory system which represents the discounts allowed by paying within prescribed credit terms such as 1/10 (1% can be deducted from the amount owed if paid...
on Notes Receivable Assume that on December 1, a company has lent one of its suppliers $30,000 with interest at 12% per year. Interest is to be paid quarterly (with the first interest payment to be made on March 1). On...
of an Expense As a prepaid cost such as the $6,000 in the asset account Prepaid Insurance expires, the part that expires will be reported on the income statement as Insurance Expense. If the insurance cost is expiring...
%. The coefficient of determination is symbolized by r-squared, where r is the coefficient of correlation. Hence, a coefficient of determination of 0.64 or 64% means that the coefficient of correlation was 0.8 or 80%....
on December 31 has a prepaid expense if on December 1, it paid $6,000 for insurance coverage from December 1 through May 31. Recording a Prepaid Expense A prepaid expense can be recorded initially as an expense or as a...
by multiplying both the “2%” and the “20 days” by 18 (in order to get close to the 365 days in a year). The result is a per annum rate of approximately 36%. Another example involves a business charging its...
(or current ratio) is one indicator of a company’s ability to pay its current obligations. Example of Working Capital Ratio If a company has $600,000 of current assets and has $400,000 of current liabilities, its...
that during a recent year a company’s income statement reported net sales of $2,100,000. During the same period, the company’s total assets reported on its 12 monthly balance sheets averaged $1,400,000. The...
at their cash value. It also prevents increasing the record amount for property that has increased in value. cost principle This accounting principle or guideline requires that transactions be recorded at their cash...
or Practice Quiz for this topic. For more insight regarding a specific question, use the search box at the top of the page. 1. The amount of supplies used during the current accounting period should be reported as...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
precise and simpler is also acceptable. Examples of Amortizing Discount on Bonds and Bond Issue Costs Assume that on January 1, a corporation issues $2,000,000 of 6% Bonds Payable which mature at the end of 10 years....
, the products have underabsorbed the overhead costs. Example of Overabsorbed and Underabsorbed Overhead Costs Assume a manufacturer has an annual budget of $1,000,000 for its fixed manufacturing overhead and expects its...
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...
Return Let’s assume that a company using the periodic inventory system, purchased merchandise having a cost of $1,000 with terms of net 30 days. This was recorded with: A debit to Purchases for $1,000 A credit to...
amount.) Example of Purchase Discounts Lost Assume that a retailer’s policy is to always pay a vendor’s legitimate invoice within the early payment discount period if such a discount is offered. Also assume that the...
Calculation Assume that a company’s beginning inventory was $100 and its ending inventory was $110, which is an increase of 10. Let’s assume that a company purchased $1,000 of goods during the accounting period. A...
a fixed budget, let’s assume that a company pays a 5% sales commission on all of its sales. If the company prepares a fixed budget and it is projecting sales of $1 million, the budget for sales commissions will be...
of vacation for each month worked. However, the vacation hours for the year accumulate. The total vacation hours earned as of December 31 will be paid to the employee on June 1 of the following year by using the...
An accelerated method of depreciation, where two times the straight-line rate is applied to the book value of an asset. The result is more depreciation expense in the early years and less in the later years of the...
Used in the periodic inventory method to compute the value of inventory and the cost of goods sold. This average cost is based on the total cost of goods available for sale for the entire year (after all purchases for...
The long term asset category of a classified balance sheet which appears immediately after the current assets. Listed in this category would be a bond sinking fund, funds held for construction, the cash surrender value...
Paper evidence of ownership in a corporation. The certificate would indicate the type of stock (common, preferred), any restrictions pertaining to the sale of the stock, the number of shares, the par value, etc. Today,...
The acronym for earnings before interest, taxes, depreciation, and amortization. This measure is used by some companies as a supplementary disclosure, since EBITDA does not comply with U.S. GAAP (generally accepted...
years. The next step is to sum (or add up) the digits in the five years of this asset’s useful life: 1 + 2 + 3 + 4 + 5 = 15. The “15” will be the denominator for the fractions 5/15, 4/15, 3/15, etc....
What is the difference between a contingent liability and an estimated liability? Definition of a Contingent Liability A contingent liability is a potential liability (and a potential loss or potential expense). For a...
on specified future dates Reported as liabilities Interest is accrued as a current liability Principal that is due within one year of the balance sheet date is reported as a current liability (unless there is a bond...
. Example of a Special Journal One example of a special journal is the sales journal which is used exclusively for a company’s sales of merchandise to customers that are allowed to pay at a future date. The sales...
What is the entry when a contract is signed? Accounting Entry When Signing a Contract Merely signing a contract does not by itself require a journal entry. In other words, signing a contract for a future transaction does...
, and/or Planned amounts that will be spent for future additions to property, plant and equipment When the depreciable assets that are included in capex are put into service, their costs will be depreciated over the...
What is a contingent liability? Definition of Contingent Liability A contingent liability is a potential liability that may or may not become an actual liability. Whether the contingent liability becomes an actual...
and development for the future leaders of the company. A disadvantage of decentralization occurs if a subunit makes a decision that is good for the subunit’s financial results, but it results in less than optimal...
will have full access to the job cost sheets without having access to other information in the general ledger. Since companies are integrating accounting records with their other information into one database, I...
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