. If a company grants an early payment discount, the amount of the discount is debited to the contra revenue account Sales Discounts. Similarly, if a company gives a customer a sales allowance or accepts a return of...
. If a company grants an early payment discount, the amount of the discount is debited to the contra revenue account Sales Discounts. Similarly, if a company gives a customer a sales allowance or accepts a return of...
for sales returns, sales allowances, and early payment discounts is known as net sales.) Under the accrual basis or accrual method of accounting, goods sold on credit are reported as sales (revenue) when the goods have...
of carriage outwards should be reported on the income statement as an operating expense in the same period as the revenue from the sale of the goods. (Carriage outwards is not part of the cost of goods sold.) Example of...
What is Subchapter S? Subchapter S refers to a section of Chapter 1 of the U.S. Internal Revenue Code. A subchapter S corporation, which is also referred to as an S corporation, is a corporation that does not pay the...
What is a sale on credit? Definition of Sale on Credit A sale on credit is revenue earned by a company when it sells goods and allows the buyer to pay at a later date. This is also referred to as a sale on account....
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...
How do you determine whether a person is an independent contractor or an employee? To assist you in determining whether someone is an independent contractor or an employee, you should refer to the Internal Revenue...
statements) at the time that an order is received: The company has not yet earned the revenue The company does not yet have a right to a receivable or other asset The revenues and a receivable will not be earned until...
transaction will affect at least two general ledger accounts and the debit amounts must be equal to the credit amounts. Mark as wrong Mark as right accrual This type of adjusting entry is needed prior to issuing...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
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...
Our Explanation of Income Statement helps you learn the most important features of a corporation's income statement (also known as the statement of operations or profit and loss statement). We provide more understanding...
Our Explanation of Chart of Accounts shows how a typical chart of accounts is organized and examples of possible account numbering. It concludes with a quick review of debits and credits.
to an annual percentage rate closest to __________. 2% Wrong. 24% Wrong. 36% Right! [(20 days early and 2%) both x 18 = 360 days and 36%] 72% Wrong. 15. The Internal Revenue Service form to be issued for amounts paid to...
, revenue recognition). The accrual method results in a better picture of a corporation’s net income during a specified period of time and it results in a better picture of a corporation’s assets and liabilities at...
Our Explanation of Present Value of an Ordinary Annuity uses the appropriate present value factors for discounting a stream of equal cash amounts occurring at equal time intervals. An important feature is the use of loan...
Financial Statements Video Training Part 9 Income statement: revenues, cost of goods sold, expenses, nonoperating items Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your...
Our Explanation of Break-even Point illustrates how to determine the number of units or sales dollars that will result in zero net income. The techniques rely on a product's contribution margin or contribution margin...
to pay at a later date, the company records the sale with a debit to Accounts Receivable and a credit to the revenue account Sales. The Sales account is a temporary account used to keep a tally of the sales made during...
the systematic allocation of an asset or liability amount from the balance sheet to expense (or revenue) on the income statement. Here are a few examples: The debit balance in the contra liability account Discount of...
that the amount will be collected, the landlord should report: Rent Revenue (or Rental Income) during the period of time that the space was occupied but the rent was not received from the tenant, and A current asset...
and will not be liquidating. If your company bought the land for possible expansion, its cost is more relevant than the amount the company could get if it were liquidating. After all your company is not liquidating. The...
it indicates that the company has paid more than the amount owed, has made an incorrect entry, etc.) Equity accounts including the stockholders’ equity accounts Common Stock, Paid-in Capital in Excess of Par Value,...
of accounting (generally accepted accounting principles), while the employee payroll records for the Internal Revenue Service (IRS) requires the cash method of accounting. Example of the Corporation’s Wages Expense...
is interest income to be reported during the 365 days that the company waits for the $11,000. Importance of the Time Value of Money in Accounting The time value of money is important in accounting because of the...
or to the proprietor’s capital account at the end of each accounting year.) Contra-revenue accounts including Sales Discounts, Sales Returns, etc. (The debit balances in these accounts allow for the reporting of both...
the warranty period. That expected cost is recorded as a liability on its balance sheet and as an expense on its income statement. Note that the expected future cost to repair or replace is matched with the sales...
that are recorded in income statement accounts. This allows the balance sheet account Owner’s Capital (or Retained Earnings) to avoid having all of the thousands or millions of revenue and expense transactions from...
is not relevant. The revenue recognition principle prohibits a company from showing a gain from merely holding a plant asset. What would you credit if you increased the plant asset amount? Those four accounting...
profits. Unfavorable Revenue Budget If a company has budgeted its revenues to be $280,000 and the actual revenues end up being $271,000, the company will have an unfavorable variance of $9,000. The variance is...
be the case under the allowance method. [The Internal Revenue Service requires the direct write off method in order to prevent taxpayers from claiming a bad debts expenses based on an anticipated potential loss.] Join...
What causes an increase in break-even point? Definition of Break-even Point The break-even point is the sales volume or sales revenue that is needed to cover the company’s expenses. In other words, it is the point...
% ($120,000/$400,000). Definition of Operating Income A retailer’s operating income is its sales minus the cost of goods sold and all selling and administrative expenses (fixed and variable). Operating income is...
the accounting period.] The amount that the employer reports to the Internal Revenue Service on employee’s Form W-2 Wage and Tax Statement is the amount of the gross wages that were paid to the employee during the...
for the financial statements. However, the direct write-off method must be used for U.S. income tax reporting. Apparently the Internal Revenue Service does not want a company reducing its taxable income by anticipating...
contains all of its asset, liability, owner equity, revenue, expense, gain, and loss accounts. Each account contains the transaction amounts that pertain to the account title. Definition of a Trial Balance A trial...
profits. Favorable Revenue Variance If a company had budgeted its revenues to be $200,000 and the actual revenues end up being $208,000, the company will have a favorable variance of $8,000. The variance is favorable...
financial statements while at the same time be using one of the Internal Revenue Service’s faster depreciation methods on its federal income tax return. Example of Straight-Line Depreciation To illustrate...
Does a company have to use the IRS years of useful life for depreciation? For the company’s financial statements, the economic life of the asset should be used—not the years of useful life required for income tax...
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