sheet. Here are some of the changes: Owner’s equity or stockholders’ equity will increase by the positive amount of net income Accounts receivable will change by the amount of sales/services provided with...
sheet. Here are some of the changes: Owner’s equity or stockholders’ equity will increase by the positive amount of net income Accounts receivable will change by the amount of sales/services provided with...
for a customer’s check that was returned due to insufficient funds will debit Accounts Receivable and will credit Cash. Interest earned by the company will be recorded with a debit to Cash and a credit to Interest...
management of their magnitude. Therefore, gross sales can also be defined as the company’s sales revenues before deducting the sales returns, sales allowances, and sales discounts. (The amount remaining after these...
.), the amount received is not recorded as a sale. (Instead, the company will report this transaction on its income statement as a gain or loss on the disposal of an asset.) Example of Sales The amounts recorded at the...
within one year The principal portion of a long-term loan that must be paid within one year Wages payable Income taxes payable Interest payable Other accrued expenses payable Deferred revenues and customer deposits Join...
deferred income taxes customer deposits Some long-term debt that will be due within one year of the balance sheet date can continue to be reported as a long-term liability if there is: a long-term investment that is...
. For example, if the current income statement shows the cost of goods sold as 86% instead of the normal 81%, the current month’s amounts should be investigated before releasing the financial statements. Join PRO to...
as follows: Credit to its Land account for its cost of $200,000 Debit to its Cash account for the $500,000 it received Credit to the income statement account Gain on Sale of Real Estate for $300,000 Join PRO to Track...
will be matched with the $60,000 of increased electricity revenues it will be reporting on its five annual income statements. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance...
. The entry will debit Loan to Employee for $5,000 and will credit Cash for $5,000. Under the accrual method of accounting, at each balance sheet date the company should record any accrued interest by debiting Interest...
). The company will record a December 31 accrual adjusting entry which debits Interest Receivable for $300 and credits Interest Income for $300. The Interest Receivable account balance will be reported on the company’s...
of wages for which they will be paid on the first Friday in January. In order to comply with the matching principle, the account Wages and Salaries Expense must include the $3,000 of wages in order to match the December...
on a multiple-step income statement prior to deducting selling, general and administrative expenses and prior to nonoperating revenues, nonoperating expenses, gains and losses. Example of Gross Profit Let’s assume...
+ 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)...
. During December the retailer will have incurred the cost of the electricity it used during December. Under the accrual basis of accounting the retailer must report a current liability on December 31 for the amount owed...
to be certain that: The current month’s insurance expense of $1,000 ($6,000/6 months) is reported on each month’s income statement. The unexpired amount of the prepaid insurance is reported on the balance sheet...
on the income statement over the asset’s useful life. Accountants point out that depreciation is an allocation process which does not result in reporting the asset’s market value. Example of Recording Depreciation...
What are turnover ratios? Definition of Turnover Ratios In accounting, turnover ratios are the financial ratios in which an annual income statement amount is divided by an average asset amount for the same year....
classify and report their expenses on their internal income statements by the following functions: Manufacturing (further classified by production departments and factory service departments) Selling, general...
of the income statement accounts (revenues, expenses, gains, losses) by transferring their balances to the owner’s capital account or the corporation’s retained earnings account. This is done after the company’s...
of the statement of cash flows. (If an asset other than cash is withdrawn, it is reported as supplemental information on the statement of cash flows.) The income statement is not affected by the owner’s drawings since...
refer to the allowance account as Allowance for Uncollectible Expense, Allowance for Bad Debts or Provision for Bad Debts. The related income statement account could have the title of Uncollectible Accounts Expense,...
is as follows: Debit to Other Receivables-Advances to Employees for $800 Credit to Cash for $800 When the company earns interest on an employee loan or advance, the company should credit the amount earned to Interest...
is required by SellerCo. Under the accrual basis of accounting, SellerCo will report $5,000 in its income statement accounts Sales and will report $5,000 in its current asset account Accounts Receivable. Assume that on...
on the income statement as Bad Debts Expense or Uncollectible Accounts Expense. Examples of Recording Bad Debts There are two methods for recording the bad debts associated with accounts receivable: Direct write-off...
The deferral of a payment to the balance sheet until it becomes an expense in a future accounting period The deferral of a receipt to the balance sheet until it is earned in a future accounting period Adjustments to...
liabilities Other accrued expenses Income taxes payable Again, the order will vary. For example, some companies will list Accounts Payable as the first current liability account. Join PRO to Track Progress Mark the...
What are common-size financial statements? Common-size financial statements present the financial statement amounts as a percentage of a base number. For example, the common-size income statement will report the revenue...
. The combination of all the budgets is referred to as the company’s master budget or profit plan. Budgets help management decide which activities it will undertake and how the company’s resources will be used. If...
of an asset was an investor purchasing new shares of preferred stock, the corporation would credit the stockholders’ equity account Preferred Stock and perhaps Paid-in Capital in Excess of Par—Preferred Stock, or...
for one of its customers. Periodicity allows the manufacturer to divide the manufacturing costs of the machine into the 24 monthly periods covered by the contract. Periodicity also allows the manufacturer to report the...
A multi-column listing of the amounts needed to eliminate a balance in a systematic manner over the life of the item. For example, an amortization schedule for a 15-year mortgage loan would show the 180 payments. The...
income is its operating revenues minus the cost of goods sold and its sales, general and administrative expenses. The FASB’s Statement of Financial Accounting Concepts No. 6, Elements of Financial Statements,...
What is the difference between loan interest and bank loan repayment? Definition of Loan Interest Loan interest is the expense a borrower incurs for using a lender’s money. Loan interest is also the income earned by a...
How do you account for bond issue costs? Definition of Bond Issue Costs The costs associated with issuing bonds are debited to a contra liability account such as Bond Issue Costs. Over the life of the bonds, the issue...
, and net income are uncertain. This risk has resulted in the decline of defined benefit pension plans and has increased the popularity of defined contribution pension plans. Join PRO to Track Progress Mark the Question...
of an asset’s cost that has been moved to the income statement in the form of depreciation expense since the asset was acquired. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to...
Which financial statement shows a corporation's worth? Not one of the financial statements will show a corporation’s worth. The balance sheet, income statement, statement of cash flows, and stockholders’ equity...
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...
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