asset will be in service for earning revenues. With technological advances, an asset’s useful life will likely be shorter than its physical life. Example of an Asset’s Useful Life Assume that a high tech company’s...
asset will be in service for earning revenues. With technological advances, an asset’s useful life will likely be shorter than its physical life. Example of an Asset’s Useful Life Assume that a high tech company’s...
, sheltered) because the loss was also deductible on the company’s income tax return. net income. Revenues and gains minus expenses and losses. Join PRO to Track Progress Mark the Question as Read Must-Watch Video...
+ $10,000 of owner’s equity. Next, let’s assume the new company completes a service for another business and earns revenues of $1,500 and allows the business to pay in 10 days. This means the new company will have...
What are the required financial statements? The required financial statements for U.S. business corporations are: Statement of income. This financial statement is also known as the statement of operations, statement of...
statement accounts, and The owner’s drawing account The income statement accounts record and report the company’s revenues, expenses, gains, and losses. When the company is a sole proprietorship, the balances in...
What is net income? Definition of Net Income Net income is the positive result of a company’s revenues and gains minus its expenses and losses. A negative result is referred to as net loss. (There are a few gains and...
: The cost of the merchandise that is sold is being matched with the revenues from selling the goods. Selling, general and administrative expenses (SG&A). These costs are reported as operating expenses on the income...
the detailed information on revenues and expenses that would be available under the transaction approach. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and...
the liability) Debit the current asset Cash for $20,000 Credit the income statement account Revenues from Machine Construction for $25,000 Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How...
be reported. The negative net income occurs when the current year’s revenues are less than the current year’s expenses. If the cumulative earnings minus the cumulative dividends declared result in a negative...
statements to the earlier financial statements of the same company Compare a company’s financial statements to those of other companies (especially within the same industry) Understand how a company...
to the next accounting year, a nominal account is also referred to as a temporary account. Examples of Nominal Accounts The nominal accounts are almost always the income statement accounts such as the accounts for...
of $0 on an income statement prepared using the accrual method of accounting. The break-even point expressed in dollars of revenues is calculated by dividing the company’s total fixed expenses for the accounting...
What is the difference between a budget and a standard? Definition of a Budget In business and other organizations, a budget often refers to a department’s or a company’s projected revenues, costs, or expenses....
operating businesses each of which is responsible for its revenues and expenses. However, investment decisions for the operating businesses remain centralized. That is, the corporation’s executive officers decide...
or notes payable Accrued expenses payable Deferred revenues Bonds payable Income taxes payable and deferred income taxes Definition of Debt When some people use the term debt, they are referring to all of the amounts...
What is the difference between cash flow and free cash flow? Definition of Cash Flow Cash flow refers to the amounts of cash that a company, investment or project generates. The cash that a company generates is different...
revenues with a limited amount of expenses. In short, the financial statements provide only some of the information needed when attempting to determine the value of a business. Join PRO to Track Progress Mark the...
of $250, but the bill will be paid 10 days later. Since owner’s equity is reduced by expenses (and is increased by revenues), the bookkeeping equation will show the following: Assets of $900 = Liabilities of $250 +...
Temporary accounts include all of the various groups of income statement accounts: Revenues Expenses Gains Losses Having temporary income statement accounts makes for easy reporting of each year’s details. After the...
and the depreciation expense begins. This expense will reduce the company’s profits (net income, earnings). There may also be some additional revenues and costs, and perhaps cost savings, that will also affect the...
. Therefore, the relevant amounts for the decision include the cost of the new equipment and the revenues and cost savings that will result from purchasing and using the new equipment. Further, the costs that will remain...
of cash flows. Let’s use the following amounts to illustrate this situation. A company’s income statement for a recent year reported revenues of $2,000,000 and expenses of $2,075,000 for a net loss of $75,000. The...
of the year. Accumulated Depreciation is a matching principle. In each accounting period, part of the cost of certain assets (equipment, building, vehicle, etc.) will be moved from the balance sheet to depreciation...
can see, the entry does not involve the account Cash. Hence, depreciation expense is referred to as a noncash expense. Example of Depreciation Assume that a sidewalk florist operates a cash only business. During the...
. Liquidation value is subjective and the amount can vary significantly depending on the assumptions made. The matching principle requires that the cost of plant assets be allocated to depreciation expense. This means...
, the difference between the amounts of assets and liabilities is reported as net assets (instead of owner’s or stockholders’ equity). The net assets are presented as: without donor restrictions or with donor...
), and Income statement accounts (revenues, expenses, gains, losses) Under the double entry system of accounting and bookkeeping, every business transaction will affect two (or more) general ledger accounts. In addition,...
will require the collection of sales taxes. Sales tax can be viewed as a tax on consumption. In accounting, the sales taxes collected by the seller of the goods or services are not revenues for the seller. For example,...
number will begin with the digit “1”. Liability accounts will begin with the digit “2”. Operating revenue accounts will begin with the digit “3”, etc. Operating expenses will use accounts beginning with...
to Cash and a $3,000 credit to the liability account Customer Deposits or Unearned Revenues. With no downpayment or advance payment in December, there is no entry recorded.) The $20,000 contract is not reported as an...
What is the difference between expenses and payments? Definition of Expenses and Payments Under the accrual method of accounting, expenses are costs that have been used up or have been incurred in the process of earning...
policies such as how and when revenues are recognized, how property is depreciated, how inventory and income taxes are accounted for, and more. Other disclosures in the notes to the financial statements include the...
the December 31 financial statements: The tenant will debit Rent Expense for $1,000 and will credit Rent Payable for $1,000 The landlord will debit Rent Receivable for $1,000 and will credit Rent Revenues for $1,000...
Why are sales a credit? Definition of Sales In accounting, sales are revenues earned when a company transfers ownership of its goods to its customers. Under the accrual basis or method of accounting, the sale occurs when...
should credit revenues when they are earned. 5. In September when the company receives the $2,000 from the customer, which account should the company debit? Cash Right! We always debit Cash when cash is received....
, the expected net receipts will be $1,000. Often we need to know the present value of amounts expected in the future. We calculate the present value by discounting the future amounts. In this situation discounting means...
, the amount of interest paid, and significant noncash investing and financing activities (such as issuing common stock in exchange for land) The statement of cash flows is important because investors, lenders, financial...
$100,000 and signed a note requiring monthly payments of principal and interest for 48 months. Let’s also assume that the loan repayment schedule shows that the monthly principal payments for the 12 months after the...
of goods sold. SG&A Not Included in Product Costs The selling, general, administrative (SG&A) and interest costs of a retailer and/or a manufacturer are not product costs. Rather, they are reported as...
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