Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
Are liabilities always a bad thing? Definition of Liabilities Liabilities are a company’s obligations and are usually defined as a claim on the company’s assets. However, liabilities (and stockholders’ equity) can...
What is accounts receivable? Definition of Accounts Receivable Accounts receivable is the amount owed to a company resulting from the company providing goods and/or services on credit. The term trade receivable is...
How do you calculate the payroll accrual? Definition of Payroll Accrual The payroll accrual is the amounts a company owes for work done by employees, but the amounts have not yet been recorded in the company’s general...
What is the entry when a contract is signed? Accounting Entry When Signing a Contract Merely signing a contract does not by itself require a journal entry. In other words, signing a contract for a future transaction does...
, if a company receives $1,000 today and is able to invest the amount immediately at a rate of 10% per year, the company will have $1,100 after 365 days. If the time value of money is 10%, it also means that receiving...
of the revenues will be available (after the variable expenses are covered) for the fixed expenses and net income. The contribution margin amount or ratio (ratio) can be presented for: The company as a whole A product...
in a revenue account. A contra revenue account allows a company to see the original amount sold and to also see the items that reduced the sales to the amount of net sales. Examples of Contra Revenue Accounts Two...
Returns. This allows the company’s management to see the magnitude of the returns that occurred. The account Purchases Returns is a general ledger account that will have a credit balance (or no balance). Its credit...
What is the break-even formula? Break-even Point in Units of Product The formula for determining the break-even point in units of product sold is: total fixed expenses divided by the contribution margin per unit. For...
What is a rolling budget? Definition of Rolling Budget A rolling budget often refers to a company’s operating budget which presents the future monthly budgets for the next 12 months. A rolling budget is also known as a...
Why are some expenses deferred? Definition of Deferred Expenses Under the accrual basis of accounting, an expense is a cost that is used up, has expired, or is directly related to revenues reported on a company’s...
When do you adjust the amount of prepaid expenses? Definition of Adjusting Prepaid Expenses The balance in the current asset account Prepaid Expenses should be adjusted prior to a company issuing its financial...
account that is used to record the interest incurred. Lastly, interest expense is usually a separate line on a company’s income statement that indicates the amount that occurred during the period appearing in the...
How do I start a petty cash fund? Definition of Petty Cash Fund A petty cash fund is a small amount of money available to pay small amounts without requiring the processing of a business check. Example of Starting a...
What are some reasons that cause the balance on the bank statement to differ from the cash balance on the books? Reasons a Bank Balance Will Differ from a Company’s Balance Some of the reasons for a difference between...
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...
of accounting, turnover is used to express the rate at which a company has to replace the employees who leave the company. Examples of Turnover in Financial Ratios The following are a few of the most common financial...
Why is inventory turnover important? Definition of Inventory Turnover A company’s inventory turnover is often expressed as the company’s cost of goods sold for a year divided by the average cost of inventory during...
Why Does Inventory Get Reported on Some Income Statements? Reporting of Inventory on Financial Statements Inventory is an asset and its ending balance is reported in the current asset section of a company’s balance...
What are generally accepted accounting principles (GAAP)? Definition of Generally Accepted Accounting Principles Generally accepted accounting principles (commonly referred to as GAAP or US GAAP) are the common...
What is a plant-wide overhead rate? Definition of Plant-wide Overhead Rate A plant-wide overhead rate is often a single rate per hour or a percentage of some cost that is used to allocate or assign a company’s...
will have to bring a claim against that person. In other words, the retailer will be on its own and will not be able to turn to an insurance company to take care of the problem. Self-insurance may be feasible if a...
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
income was less than the budgeted net income The negative variances, which are unfavorable in terms of a company’s profits, are usually presented in parentheses. On the other hand, positive variances in terms of a...
: With periodic LIFO, the latest costs are assumed to be removed from inventory at the end of the accounting year With perpetual LIFO the latest costs are removed from inventory at the time of each sale. Example of...
Is the sale of a plant asset recorded in the sales account? Definition of Sale of a Plant Asset The sale of a plant asset is often the disposal of a company’s equipment (or other asset) that had been used in the...
in the heading of the income statement. The estimated amount of Bad Debts Expense could be based on: A percentage of the company’s credit sales during the period, or The change in the total amount needed in the...
) effects on the accounting equation of the business or company. 2. The owner invests personal cash in the business. Assets Increase Right! The company's asset account Cash increases. Decrease Wrong. No Effect...
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...
on Notes Receivable Assume that on December 1, a company has lent one of its suppliers $30,000 with interest at 12% per year. Interest is to be paid quarterly (with the first interest payment to be made on March 1). On...
Is the cost of land, buildings, and machinery a fixed cost? Land, Buildings and Machinery are Fixed Assets It is common for people to refer to land, buildings, and machinery as fixed assets. They are also referred to as...
, the expense will be recorded as part of the entry. When the company pays the invoice, the balance in Accounts Payable is reduced and the balance in the company’s Cash account is reduced. The payment does not affect...
.] Example of Interest Payable Let’s assume that on December 1 a company borrowed $100,000 at an annual interest rate of 12%. The company agrees to repay the principal amount of $100,000 plus 9 months of interest when...
What are sales? Definition of Sales In accounting, the term sales refers to the revenues earned when a company sells its goods, products, merchandise, etc. When a company sells a noncurrent asset that had been used in...
What does a bookkeeper do? Definition of Bookkeeper A bookkeeper’s role at a company varies by the size and nature of the business. At a very small company without an accountant, the bookkeeper’s duties are likely to...
A potential liability dependent upon some future event occurring or not occurring. For example, a company is named as a defendant in a $1 million lawsuit. Does that mean the company automatically has a liability of $1...
What are quick assets? Definition of Quick Assets Quick assets are a company’s current assets which can quickly be converted into cash. Quick assets provide the liquidity necessary to pay the company’s obligations...
What is the consistency principle? Definition of Consistency In accounting, consistency requires that a company’s financial statements follow the same accounting principles, methods, practices and procedures from one...
What is window dressing? Definition of Window Dressing Window dressing refers to actions taken or not taken prior to issuing financial statements in order to improve the appearance of the financial statements. Example...
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