What is the difference between the Cash Flow and Funds Flow statements? Definition of Cash Flow and Funds Flow Statements The cash flow statement, known formally as the Statement of Cash Flows, reports a company’s...
What is the difference between the Cash Flow and Funds Flow statements? Definition of Cash Flow and Funds Flow Statements The cash flow statement, known formally as the Statement of Cash Flows, reports a company’s...
8 years X 9% = 72). If you invest an amount for 9 years at 8% it will also double (since 9 years X 8% = 72). If your investment earns 6%, it will take 12 years for it to double (since 12 years X 6% = 72; or 72 divided...
the Cash account for $800. Since every entry must have debits equal to credits, the company will need to debit another account for $800. In this case, the account is Rent Expense. (Eventually the debit balance in the...
See return on investment (ROI).
’s incremental income statement effect divided by the incremental balance sheet effect. return on investment (or) ROI This is an investment’s incremental income statement effect divided by the incremental balance...
the money, there has to be some interest cost. In other words, there is some interest cost, but it is implicit. (To record the interest cost, accountants will discount the $10,000 by the approximate interest rate that...
statements should be based on a formula that is: Logical Consistently applied Objective and acceptable to another unbiased accountant The depreciation expense reported on a company’s financial statements is usually...
at the time the computer is shipped, the company will have very little in accounts receivable and will enjoy great cash flow. Another computer company might sell only through retailers. This company will have to...
What is a vendor? Definition of Vendor In the context of accounts payable, a vendor is a person or business that supplies goods or services to the company. Another term for vendor is supplier. The term vendor can also be...
What is ROI? Definition of ROI ROI is the acronym for return on investment. Traditionally, ROI related 1) the income statement profit to the 2) the balance sheet investment. A drawback of ROI is that the accounting...
What is a defined contribution pension plan? A defined contribution pension plan is one in which the employer contributes an amount into each eligible employee’s account within an established plan. The employee decides...
What is a toxic asset? I would define a toxic asset as an investment whose value has dropped significantly and there is no market in which to sell the asset. To illustrate, let’s assume that at the peak of the real...
focus on the incremental costs of carrying or holding inventory. The cost of carrying inventory will vary from company to company. For instance, if a company has a large cash balance with no attractive investment...
that can easily be audited. In contrast, the market value is subjective: one person thinks the land is worth $1 million while another thinks it’s worth $1.5 million. Further support for the cost principle is the...
, let’s assume that a new company has only one asset, Cash of $10,000, and its owner’s equity is $10,000. The company then pays $500 for advertising that occurs at the time of payment. The company must reduce its...
for the gross amount received, but the IRS may use the term income to mean the gross amount received. While accountants use the term revenues when referring to a company’s sales of its merchandise, the same...
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...
Sending work to another organization instead of processing the work in-house. Often payroll is outsourced to a company that specializes in payroll processing.
Another company that supplies goods or performs services. Also known as a vendor.
Usually a bank, finance company, or person that makes a loan to another party, who is referred to as the borrower.
. $500 Wrong. Try another answer. $550 Right! [40 hours X $10] plus [10 hours X $15] = $550 OR [50 hours X $10] plus [10 hours X $5] = $550 Use the following information for Questions 15 – 17: An employee worked the...
bookkeeping or accounting system, another general ledger account will also be misstated by the same amount. Example of Understated Assume that a company reports its accounts payable as $210,000. Also assume that the...
a debit entered on the left side of a general ledger account. (There will also need to be a credit amount entered on the right side of another account.) The abbreviation for debit is dr. (which is also related to the...
What is a long-term liability? Definition of Long-term Liability A long-term liability is an obligation resulting from a previous event that is not due within one year of the date of the balance sheet (or not due within...
Where is accrued income reported in the balance sheet? Definition of Accrued Income Accrued income refers to amounts that have been earned, but the amounts have not yet been received. For example, a corporation may have...
How do you calculate Return on Capital Employed (ROCE)? Return on capital employed is used as a measurement of the performance of a division of a company. It assumes that the division is not responsible for its financing...
with an accrual adjusting entry prior to issuing the financial statements. Example of Accrued Income One example of accrued income is the interest a company earns on a bond investment. To illustrate, let’s assume that...
that an asset is acquired. Further, the amount recorded will not be increased for inflation or improvements in market value. (An exception is the change in market value of a short-term investment in the capital stock of...
Our Explanation of Bank Reconciliation will show you the needed adjustments to the balance on the bank statement and also the adjustments needed to the balance in the related general ledger account. A comprehensive...
Methods of Depreciation It is very common for a company to depreciate its plant assets by using straight-line depreciation on its financial statements, while using an accelerated method of depreciation on its income tax...
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...
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...
in net income. Since the internet business was not purchased from another company and its cost to develop was not significant, the company’s balance sheet will report only the business’s cash, receivables and some...
Also known as income from operations, which excludes discontinued operations, extraordinary items, and nonoperating items such as interest expense, investment income, gains, and losses.
This term is often associated with an investment in the common stock (and/or preferred stock) of a corporation when the stock is publicly traded.
A bank or investment account with a fluctuating interest rate. Usually the funds can be withdrawn on demand, even though the account is not a checking account.
Using capital stock (common stock or preferred stock) instead of debt in order to finance an investment such as a plant asset.
internally by a company over time. Since the brand name was not purchased from another entity, there is no past transaction and purchase cost to be recorded. I assume that an entity’s payment made to another...
from Equipment to Repairs Expense.” Reclassification can also be used to describe moving a note payable from a long-term liability account to a short-term or current liability account when the note’s maturity date...
not reflect the value of a business is a startup company with a promising future. We may have read that a venture capitalist (VC) invested $10 million in a startup. Based on that investment the startup is assumed to...
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