What is the difference between an invoice and a statement? Definition of an Invoice An invoice received from a supplier shows the items purchased, the cost per unit, the total cost or extension of each item, the total of...
What is the difference between an invoice and a statement? Definition of an Invoice An invoice received from a supplier shows the items purchased, the cost per unit, the total cost or extension of each item, the total of...
+ Revenues – Expenses – Dividends – Treasury Stock. The expanded accounting equation allows you to see separately (1) the impact on equity from net income (increased by revenues, decreased by expenses), and (2)...
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 accounting method under which revenues are recognized on the income statement when they are earned (rather than when the cash is received). The balance sheet is also affected at the time of the revenues by either an...
of the accounting period the inventory account is adjusted to the amount on hand. Perpetual Wrong. Under the perpetual method the Inventory account IS continuously or perpetually updated with each purchase or sale of...
Our Explanation of Financial Statements provides you with the highlights of each of the five external financial statements issued by U.S. corporations. Our insights will give you a good understanding of what the...
Some examples of intangible assets include copyrights, patents, goodwill, trade names, trademarks, mail lists, etc. These assets will be reported at cost (or lower) on the balance sheet after property, plant and...
Temporary differences between the reporting of a revenue or expense for financial statements (books) and the reporting of the item for income tax purposes. For example, it is common for companies to depreciate equipment...
Things that are resources owned by a company and which have future economic value that can be measured and can be expressed in dollars. Examples include cash, investments, accounts receivable, inventory, supplies, land,...
Also referred to as illusory profits. Occurs because accountants use past costs rather than replacement costs. For example, in computing the cost of goods sold accountants often use the FIFO cost flow assumption. This...
What is a lump sum payment? A lump sum payment is often associated with a single amount paid to acquire a group of items. For instance, a corporation might pay $50,000 for the inventory and equipment of a small...
Administrative expenses are part of the operating expenses (along with selling expenses). Administrative expenses include expenses associated with the general administration of the business. Examples include the salaries...
-in-Progress. Construction Work-in-Progress is often reported as the last line within the balance sheet classification Property, Plant and Equipment. There is no depreciation of the accumulated costs until the project is...
What is the difference between residual value, salvage value, and scrap value? The terms residual value, salvage value, and scrap value are often used when referring to the estimated value that is expected at the end of...
An account used in combination with another account. For example, the account Allowance for Doubtful Accounts is used with Accounts Receivable in order to present the net amount of the accounts receivable. The account...
. 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,...
accounts, which consists of asset, liability, and owner’s (stockholders’) equity accounts Income statement accounts, which consist of revenue, expense, gain, and loss accounts Examples of Accounts Affected by...
in amount. Contingencies refer to potential or contingent liabilities and losses. These are reported in the notes to the financial statements (instead of a general ledger account) because the amount might not be...
Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
depreciation can be used on the tax returns at the same time that straight-line depreciation is used on the company’s financial statements. Example of How and When to Depreciate an Asset Assume that a U.S. corporation...
personal savings into the business checking account. The business asset Cash is increased with a debit of $20,000 and the Owner’s Equity account is increased with a credit of $20,000. Next, the business buys office...
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...
cycle, if the operating cycle is longer than one year). Fixtures Right! Fixtures is NOT a current asset account. Fixtures is reported under property, plant and equipment (which is part of a company's long-term...
Our Explanation of Nonprofit Accounting includes a chart that contrasts the financial statements of a nonprofit (or not-for-profit) organization with those of a for-profit business corporation. There are many examples to...
. Operating Cycle If a company sells goods (products, component parts, etc.) its operating cycle is the time it takes for a company’s money to purchase the inventory items and for the money from their sale to return to...
This term indicates the right side of a general ledger account and it is the normal balance for liability, stockholders’ equity, revenue, and gain accounts. credit This term indicates the right side of a general...
' equity appear on the right side of the accounting equation. To increase the balance on the right side, a credit is needed.) TIP #1: Typically revenue accounts are credited. TIP #2: If a cash sale occurs, the asset...
an annuity include: The equal amounts of interest paid every six months by the issuer of debt securities known as bonds. The monthly payments required by a lease agreement for equipment or a vehicle. The annual payments...
, Equipment, Vehicles, Goodwill, and many more. Two asset accounts, Allowance for Doubtful Accounts and Accumulated Depreciation, are known as contra asset accounts since these accounts are expected to have credit...
days per week for 52 weeks. The manufacturer cannot achieve the theoretical capacity due to equipment repairs and maintenance, machine setups, plant shutdowns for holidays, and other downtime. If those activities and...
that a manufacturer’s production equipment uses a significant amount of electricity. Hence, the monthly electricity cost (the dependent variable) will increase when there is an increase in the number of production...
Methods of Depreciation It is very common for a company to depreciate its plant assets by using straight-line depreciation on its financial statements, while using an accelerated method of depreciation on its income tax...
, plant and equipment for a cash amount that is less than the carrying amount (or book value) of the asset sold. Nonoperating expenses and losses are often reported on the income statement after the subtotal Income from...
. Periodicity allows companies to report meaningful financial statements covering relatively short periods of time. Periodicity is also known as the time period assumption. Examples of the Periodicity Assumption An...
. Fixed overhead costs are the indirect manufacturing costs that are not expected to change when the volume of activity changes. Some examples of fixed manufacturing overhead include the depreciation, property tax and...
. The land used in a business will be reported on the company’s balance sheet under the asset heading of property, plant and equipment. Example of Land Assume that a company purchases a warehouse for its business...
for cash and when accounts receivable are collected Cash will decrease when cash is paid for expenses, inventory, equipment, liabilities, etc. Accounts payable will increase for expenses that were not paid with cash...
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