the depreciable asset is sold, scrapped, or retired, its accumulated depreciation and its cost are removed from the respective accounts. (Any difference between the book value and the amount received is recorded as a...
the depreciable asset is sold, scrapped, or retired, its accumulated depreciation and its cost are removed from the respective accounts. (Any difference between the book value and the amount received is recorded as a...
How do you account for payroll withholdings for health insurance? Definition of Payroll Withholdings for Health Insurance Payroll withholdings for health insurance are the amounts deducted from employees’ pay for their...
of a decentralized corporation such as related subsidiary corporations, separate divisions of a corporation, or some other subunits. Depending on the production capacity and the demand for each subunit’s goods or...
by a company’s liabilities will generally have a lower cost than money raised from stockholders’ equity for the following reasons: Some liabilities such as accounts payable have no interest expense associated with...
. The equipment’s cost was $100,000 and its accumulated depreciation as of its recent balance sheet date was $40,000. This means that up to the balance sheet date $40,000 of the asset’s cost had been reported as...
during the asset’s construction The interest on the debt related to the asset’s construction Adding the capitalized interest to the asset’s cost instead of reporting it as interest expense of the current...
Accumulated Depreciation (instead of crediting the asset account which has the asset’s original cost), it allows for the balance sheet to report or disclose the following: The original cost of the asset being...
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...
main operating activities involve the buying and selling of merchandise or goods. Therefore, the retailer’s income statement will report the following operating expenses: Cost of goods sold. These costs are reported...
loss computed using a past cost) Current and future costs that will differ between two alternatives in a decision. (Costs that will not differ are irrelevant and can be ignored.) Information provided in a timely manner...
balance in a contra asset account will violate the cost principle.) Examples of Contra Asset Accounts The most common contra asset account is Accumulated Depreciation. Accumulated Depreciation is associated with...
What is straight line depreciation? Definition of Straight-Line Depreciation Straight-line depreciation is the most common method of allocating the cost of a plant asset to expense in the accounting periods during which...
will cause the related expense known as the cost of goods sold to be reported/recognized on the July income statement. If the company’s sales reps have earned commissions on the July sales, these commissions...
the cost of real estate into the cost of the land and the cost of the buildings. Example of Appraised Value Appraised values are useful because a company’s balance sheet will report its land and buildings at the cost...
Our Explanation of Depreciation emphasizes what the depreciation amounts on the income statement and balance sheet represent. Learn why depreciation is an estimated expense that does not assist in determining the current...
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...
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...
will result in a larger loss on the owner’s cash Examples of Financial Leverage Mary uses $500,000 of her cash to purchase 40 acres of land with a total cost of $500,000. Mary is not using financial leverage. Sue uses...
of depreciation, while the “declining balance” refers to the asset’s book value or carrying value at the beginning of the accounting period. Since book value is an asset’s cost minus its accumulated...
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...
Goodwill is a long-term (or noncurrent) asset categorized as an intangible asset. Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the...
Where is treasury stock reported on the balance sheet? Under the cost method of recording treasury stock, the cost of treasury stock is reported at the end of the Stockholders’ Equity section of the balance sheet....
Under the accrual basis of accounting, the account Rent Expense will report the cost of occupying space during the time interval indicated in the heading of the income statement, whether or not the rent was paid within...
The systematic allocation of the cost of an asset from the balance sheet to Depreciation Expense on the income statement over the useful life of the asset. (The depreciation journal entry includes a debit to Depreciation...
This account is a contra long-term asset account which is credited for the depreciation associated with land improvements. As an asset account, the accumulated depreciation account balance does not close at the end of...
This is a contra long-term asset account which is credited for the depreciation associated with Buildings. Since it is a balance sheet account, the accumulated depreciation account balance does not close at the end of...
Under the accrual basis of accounting, this account reports the cost of the electricity, heat, sewer, and water used during the period indicated in the heading of the income statement. Because utility companies deliver...
What is depreciation? Definition of Depreciation In accounting, depreciation is the assigning or allocating of the cost of a plant asset (other than land) to expense in the accounting periods that are within the...
Are repairs to office equipment an expense? Repairing and maintaining office equipment is an immediate expense. This is true even if the repair cost is a very large amount. If a large expenditure is made to improve...
A gain that occurs by holding an asset. For example, if a company bought land for $20,000 many years ago and today the company continues to hold the land and its value is now $175,000, the company has a holding gain of...
Our Explanation of Depreciation emphasizes what the depreciation amounts on the income statement and balance sheet represent. Learn why depreciation is an estimated expense that does not assist in determining the current...
is helpful in determining the two components of a mixed cost (also known as semivariable cost): The amount that is fixed or constant The variable rate (the rate by which the total cost changes when there is one...
are recorded as part of the cost of the van. The total cost of the van will then be charged to depreciation expense over the van’s useful life. Examples of Sales Tax If a company sells $100,000 of merchandise that is...
vs Operating Income Let’s assume that a company is a retailer whose main business activities are the purchasing and reselling of merchandise. When the retailer sells $5,000 of merchandise that it had purchased at a...
Vs. the actual hours it took and multiplies the difference in hours by the standard cost per direct labor hour. Here’s an example with amounts. Let’s assume the standard for direct labor is 3 hours per unit of...
What is a fringe benefit rate? Definition of Fringe Benefit Rate A fringe benefit rate is a percentage that results from dividing the cost of an employee’s fringe benefits by the wages paid to the employee for the...
Our Explanation of Future Value of a Single Amount will show you the power of compounded interest on a single deposit. You will see how the future value tables can be useful as well as the rule of 72.
of accounting. Example of Book Depreciation Let’s assume that equipment used in a business has a cost of $500,000 and is expected to be used for 10 years. If the company assumes no salvage value at the end of the 10...
. If a store sells its old delivery truck for cash, and the cash amount is more than its book value, a __________ is reported on the income statement. 4. An asset’s book value or carrying value is the the asset’s...
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...
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