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.
Often referred to as fixed assets. This would include long term assets such as buildings and equipment used by a company. Plant assets (other than land) will be depreciated over their useful lives.
The income statement account which contains a portion of the cost of plant and equipment that is being matched to the time interval shown in the heading of the income statement. (There is no depreciation expense for...
The exchange or trade-in of a long-term asset for a completely different long-term asset. For example, exchanging an antique car for land.
A term used when referring to property, plant, and equipment. Fixed assets other than land are depreciated.
Part of stockholders’ equity representing the fair market value of an asset at the time it was received as a gift. For example, a corporation may be given a large tract of land from a community if the corporation...
Buildings is a noncurrent or long-term asset account which shows the cost of a building (excluding the cost of the land). Buildings will be depreciated over their useful lives by debiting the income statement account...
and $900,000 is credited to a contributed capital account such as Common Stock. Assume that two days later the corporation purchases real estate consisting of land and a warehouse/office building for $700,000....
. This is also true for the firm’s brand names that resulted from effective marketing, highly satisfied service, and expertise in specialty services that are in great demand. Another limitation of the balance sheet...
. 11. Both Land and Land Improvements will generally be depreciated. True Wrong. Land is generally not depreciated. It is assumed that the useful life of land will be indefinite. Land Improvements are depreciated,...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
at cost rather than at higher amounts. Accountants are not allowed to recognize gains from merely holding the land. To be able to recognize a gain on the land, the company would have to sell the land. Economic Entity...
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...
For a retailer, wholesaler, and distributor the primary activities would be the buying of merchandise and then the sale of that merchandise. A manufacturer’s primary activities would be the production and sale of...
A bond (long term note) that can be exchanged by the holder for a specified number of shares of stock in the company. The convertibility feature usually allows for the bond to have a lower interest rate when it is...
Our Explanation of Inventory and Cost of Goods Sold will take your understanding to a new level. You will see how the income statement and balance sheet amounts are affected by the various inventory systems and cost flow...
A major classification on the balance sheet. It is the second long term asset section after current assets. Included are land, buildings, leasehold improvements, equipment, furniture, fixtures, delivery trucks,...
Is sales tax an expense or a liability? Definition of Sales Tax In the U.S., a sales tax is a state tax (and possibly an additional city and/or county tax) that is paid by the buyer at the time of purchase. The sales tax...
This indicates (on average) how many days of credit sales have not yet been collected. If the credit terms are net 30 days, you would expect this to be at least 30 days. To learn more, see Explanation of Financial...
Are sales discounts reported as an expense? Definition of Sales Discounts Sales discounts are also known as cash discounts or early payment discounts. Sales discounts (along with sales returns and allowances) are...
What is the definition of net sales? Definition of Net Sales Net sales is a company’s gross sales of products minus any sales discounts and sales returns and allowances. When a company makes a sale, the general ledger...
The expense associated with a commitment to repair or replace a product for a specified period of time. The expense should be reported on the income statement at the time that the sale of the product is reported in order...
A current asset resulting from selling goods or services on credit (on account). Invoice terms such as (a) net 30 days or (b) 2/10, n/30 signify that a sale was made on account and was not a cash sale. To learn more...
additions Purchasing land and buildings Land improvements New delivery trucks Required OSHA and environmental improvements A company’s planned capex projects and their costs are likely detailed in a company’s...
spent to acquire or improve a company’s fixed assets. The capital expenditures increase the respective asset accounts which are reported in the noncurrent asset section of the balance sheet entitled property, plant...
sheet account that is reported under the heading of Property, Plant and Equipment. The asset’s cost (except for the cost of land) will then be allocated to depreciation expense over the useful life of the asset. The...
What is the significance of FOB Shipping Point and FOB Destination? Significance of FOB Shipping Point and FOB Destination The terms FOB shipping point and FOB destination have significance in accounting because they...
What does 2/10 mean in accounting? Definition of 2/10 2/10 is part of an early payment discount that allows a customer or client to pay after the sale or service has been provided. This sales discount...
(with payment due 30 days later). Company A will record the amount of the sale with a credit to Sales and a debit to Accounts Receivable. Company B will record the purchase (perhaps as inventory) with a credit to...
of warranty is referred to as an assurance-type warranty. In accounting jargon, the assurance-type warranty is an example of a contingent that is both probable and can be estimated. Therefore, a company must record in...
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...
The total annual return on a bond investment if held to maturity. For example, if a bond is purchased at less than its maturity value, the yield to maturity includes the annual interest plus the gain as the bond...
What is the accounting entry when an order is received? There is no accounting entry recorded in a company’s general ledger accounts when an order is received. The reason is that a sale or sales revenues has not yet...
and can be estimated, they are recorded at the time of the sale. The accounting entry will debit Warranty Expense and will credit Warranty Liability. If the estimated warranty costs are recorded at the time of the...
The allocation of common costs based on the sales value of the products that emerge. For example, a company develops a large parcel of land at a cost of $5 million dollars. Individual lots will be sold for $100,000 to...
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