A potential liability dependent upon some future event occurring or not occurring. For example, a company is named as a defendant in a $1 million lawsuit. Does that mean the company automatically has a liability of $1...
A potential liability dependent upon some future event occurring or not occurring. For example, a company is named as a defendant in a $1 million lawsuit. Does that mean the company automatically has a liability of $1...
What is a budget? A budget is a financial plan for future activities. The budgets used in business often include a sales or revenues budget detailed by products or services, production budgets, budgets for each...
about its future pension expense and liabilities. It also means simpler accounting. As a result, more companies are choosing defined contribution pension plans over defined benefit pension plans. Join PRO to Track...
What is the reorder point? Definition of Reorder Point The reorder point is the quantity of units in inventory at which time an order should be placed to purchase additional units. The reorder point is calculated by...
What are prepaid expenses? Definition of Prepaid Expenses Prepaid expenses are future expenses that have been paid in advance. In other words, prepaid expenses are costs that have been paid but are not yet used up or...
increasing from 200,000 shares to 400,000 shares.” Since a stock split does not change the balance in the Common Stock account, a complete journal entry was not required. The memorandum entry merely notes for future...
What is a deferred cost? Definition of Deferred Cost A deferred cost is a cost that is already recorded in a company’s accounts, but at least some of the cost should not be expensed until a future accounting period....
months A magazine publisher receiving money from a subscriber for magazines for the following year A website design company receiving a client’s down payment for future work A law firm receiving a retainer fee from a...
What is a contingent asset? Definition of Contingent Asset A contingent asset is a potential asset that is associated with a potential gain. The asset and gain are contingent because they are dependent upon some future...
How do you record the sale of land? Definition of Sale of Land Assume that a retailer sells land that it had been holding for a future store. The retailer must remove the cost of the land from its general ledger asset...
members. In addition to comparing your company’s financial ratios to its industry, you will want to compare your company’s financial ratios to its own past and future financial ratios. Spotting a trend early can be...
is $1,000 ($100,000 X 12% X 1/12) and the company’s balance sheet should report the following current liabilities: Notes payable of $100,000 Interest payable of $1,000 Nothing is reported for the $8,000 of future...
of the chart of accounts: Asset section if the cash was from the sale of another asset or the collection of an asset Liability section if the cash was a deposit for future work to be done Revenue section if the cash was...
the defined benefit pension plan, the employer commits to depositing enough money into a pension fund in order to cover the future benefits. Since there is uncertainty in the investment returns, the life expectancy of...
is the carrying amount or book value of the main account. An adjunct account might be referred to as a valuation account. Example of Adjunct Account Assume that a corporation issued bonds with a maturity value of...
The amount of cash received is debited to the company’s Cash account If the cash received is greater than the asset’s book value, a Gain on Sale of a Plant Asset is recorded. If the cash received is less than the...
. The par value of __________ common stock usually has no economic significance. 9. The dividend on preferred stock is often expressed as a percentage. To calculate the annual dividend on preferred stock, you multiply...
of __________ stock. 6. If the shares of a corporation’s common stock have a very small amount (such as $0.10) assigned to each share, it is likely to be the share’s __________ value. 7. If a corporation has only...
. If a store sells its old delivery truck for cash, and the cash amount is more than its book value, a __________ is reported on the income statement. 4. An asset’s book value or carrying value is the the asset’s...
the returns on the owner’s cash investment to be amplified. That is, with financial leverage: an increase in the value of the assets will result in a larger gain on the owner’s cash, when the loan interest rate is...
What is COS? Definition of COS In accounting, the acronym COS could indicate either cost of sales or cost of services. The income statement of a manufacturer or a retailer might use the term cost of sales or it might use...
Why is an increase in inventory shown as a negative amount in the statement of cash flows? Meaning of a Negative Amount on Statement of Cash Flows A negative amount on the statement of cash flows (SCF) indicates that the...
What is the employee's Social Security tax rate for 2022 and 2023? Social Security Payroll Tax for 2022 The employee’s Social Security payroll tax rate for 2022 (January 1 through December 31, 2022) is 6.2% of the...
What is other comprehensive income? Definition of Other Comprehensive Income Other comprehensive income, or OCI, consists of items that have an effect on the balance sheet amounts, but the effect is not reported on the...
Do variance accounts have an impact on financial statements? Or are they for performance evaluation only? Since the financial statements must reflect the cost principle, both the standard costs and the variances must be...
What is illusory profit? Illusory profit, also called phantom profit, is the difference between 1) the profit reported using historical costs required by US GAAP, and 2) the profit computed using replacement costs....
What is window dressing? Definition of Window Dressing Window dressing refers to actions taken or not taken prior to issuing financial statements in order to improve the appearance of the financial statements. Example...
What is a noncash expense? Definition of a Noncash Expense A noncash expense is an expense that is reported on the income statement of the current accounting period, but the related cash payment took place in another...
Is the cost of land, buildings, and machinery a fixed cost? Land, Buildings and Machinery are Fixed Assets It is common for people to refer to land, buildings, and machinery as fixed assets. They are also referred to as...
What is the aging method? Definition of Aging Method The aging method usually refers to the technique for estimating the amount of a company’s accounts receivable that will not be collected. The estimated amount that...
How do I determine the cost of missing inventory? Definition of Determining the Cost of Missing Inventory The approximate cost of missing inventory is the difference between 1) the cost of the inventory items that are...
How should the sale of gift certificates be recorded in the general ledger? Definition of Gift Certificates Gift certificates (and gift cards) are often sold by a retailer to a buyer for cash. The buyer can then redeem...
What is the purpose of the Allowance for Doubtful Accounts? Definition of Allowance for Doubtful Accounts The Allowance for Doubtful Accounts or Allowance for Uncollectible Accounts is a general ledger contra account...
What is the difference between income and profit? Definition of Income The term income is used differently by many people. For some, income means the money coming in, such as What is your family income? What is your...
Is it possible for owner's equity to be a negative amount? Definition of Negative Owner’s Equity Negative owner’s equity means the amount of a sole proprietorship’s liabilities exceeds the amount of its assets....
Is a loan's principal payment included on the income statement? Definition of Loan Principal Payment When a company borrows money from its bank, the amount received is recorded with a debit to Cash and a credit to a...
these bonds will be paying the investors less than the market rate of interest ($300,000 semiannually instead of $305,000), the investors will pay less than $10,000,000 for the bonds. Assume the investors pay $9,800,000...
Are transportation-in costs part of the cost of goods sold? Definition of Transportation-in Costs Transportation-in costs, which are also known as freight-in costs, are part of the cost of goods purchased. The reason is...
stockholder or preferred shareholder. Stockholders may receive dividends based on the number of shares of stock they own. Stockholders also hope to see the market value of their shares of stock increase. In short, there...
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