Payable. (Until it is, they refer to the amount as one of the company’s accrued liabilities.) For others, it is an account payable even if it is not yet recorded in Accounts Payable. Example of an Account Payable...
Payable. (Until it is, they refer to the amount as one of the company’s accrued liabilities.) For others, it is an account payable even if it is not yet recorded in Accounts Payable. Example of an Account Payable...
What is the difference between adjusting entries and correcting entries? Definition of Adjusting Entries Generally, adjusting entries are required at the end of every accounting period so that a company’s financial...
. The monthly entry for $2,000 is often described as a deferral adjusting entry. Definition of Unrecorded Revenue Unrecorded revenue implies that the revenue has been earned, but not yet recorded in a company’s...
SUFFICIENT SCIIFEUTNF Unscramble 6. A check that has been paid and therefore appears on the bank statement is said to have _________ the bank. CLEARED AECLERD Unscramble CLEARED EECLDAR Unscramble 7. Items on the bank...
What is the interest coverage ratio? Definition of Interest Coverage Ratio The interest coverage ratio is a financial ratio used as an indicator of a company’s ability to pay the interest on its debt. (The required...
in the acid test ratio. Example of Current Ratio and Acid Test Ratio To illustrate the difference between the current ratio and the acid test ratio, let’s assume that a company has the following: Current liabilities...
method, the interest expense will be included in the company’s net income or net earnings. The interest expense is adjusted to a cash amount through the changes to the working capital amounts, which are also reported...
dividends can be declared and paid. Typically, the monthly payments required for automobile and real estate loans are annuities in arrears. For example, if a company borrows $50,000 on September 30, the first of the...
What is the difference between a ledger and a trial balance? Definition of a Ledger A ledger is often defined as a book of accounts. Today the ledger and its accounts are likely to be an electronic record or file....
are contrary to the usual debit balances found in most asset accounts. Examples of Asset Accounts with Credit Balances Two examples of contra asset accounts are: Accumulated Depreciation which is associated with a...
) Example of Dividing the Cost of Real Estate Assume that a company purchases real estate (which includes land and a building) at a cost of $220,000. The appraisal at the time of the purchase indicates that the land has...
to the allocations (which are viewed as arbitrary), consider that changes in volume will affect a product’s cost. For example, if a company’s total fixed costs remain constant but its volume of products decreases by...
disclosure required by Statement 33 was the reporting of the effects of general inflation as indicated by the change in the consumer price index. In other words, a large company had to disclose in the notes to its...
How do you record an asset that was partially financed? Example of Recording an Asset that was Partially Financed Assume that your company purchased a car for $10,000 by paying cash of $4,000 and signing a promissory...
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...
How do I calculate the after-tax cost of debt? Definition of After-Tax Cost of Debt The after-tax cost of debt is the interest paid on the debt minus the income tax savings as the result of deducting the interest expense...
to earn less than the specified interest rate. Comparison of IRR and NPV Both IRR and NPV use a company’s cash inflows and cash outflows that are discounted to a present value. (Neither use the accrual...
should be identical. Accounting software will generate a post-closing trial balance (or any other trial balance) with a click of the mouse. Example of Post-closing Trial Balance The post-closing trial balance will have...
ending inventory and COGS will differ depending on a company’s cost flow assumption. Three examples of cost flow assumptions are: FIFO which assigns the recent unit costs of the purchases to inventory and the oldest...
of accounting, if an employee earns gross wages of $800 in the last week in December, the gross wages (and related amounts) are reported on the company’s December financial statements. However, if the wages earned...
and providers offering a cash discount will refer to it as a sales discount, while the buyer will refer to the same discount as a purchase discount. Examples of a Cash Discount Let’s assume that a company offers a...
physical inventory.) It is also used to estimate the amount of missing inventory caused by theft, fire or other disaster. Gross Profit Method Calculation Here’s how the gross profit method formula works. First you...
, such as Sales Discounts or Discounts for xxx. Let me give you an example from the meat industry. We had 40,000 pounds of beef without a local customer, so we sold it to a company 1,000 miles away for the local price of...
useful tool when measuring a manager’s efficiency. Example of a Flexible Budget Let’s assume a company determines that its cost of electricity and supplies will vary by approximately $10 for each machine hour (MH)...
What are the effects of overstating inventory? Definition of Overstating Inventory Overstating inventory means that the reported amount for the cost of a company’s inventory is greater than the actual true cost based...
account and credits the owner’s drawing account. Please note that the owner’s drawing account is not an expense and as a result it does not get closed to the Income Summary account nor will the amount appear on the...
Is it possible to have a balance sheet for a single day? A balance sheet presents the amounts of a company’s assets, liabilities, and owner’s equity as of an instant or moment in time within a day. Usually it is the...
discount as a sales discount. The buyer may refer to the early payment discount as a purchases discount.) Not all companies offer early payment discounts. If the discount is allowed it will appear on the sales invoice....
What are external financial statements? Definition of External Financial Statements External financial statements are those distributed outside of the company’s management. Some of the recipients of the external...
of activity changes. Example of Fixed Costs per Unit Assume that a company has two fixed costs: rent is $2,500 per month and salaries are $3,500 per month. The total fixed costs of $6,000 per month will not change when...
when the bill arrives in January The following are a few examples of payments that will never be an expense: A payment of $100,000 to purchase the land adjacent to a company Payments that are cash dividends to...
of details, but still has the correct balance for preparing the company’s financial statements. Example of Control Accounts A common example of a control account is the general ledger account entitled Accounts...
: Divide company’s net credit sales for the year by 360 or 365 days = average credit sales per day Divide the average balance in Accounts Receivable during the year by #1 An alternative calculation is to use the...
statements. I reported on the impact on the company’s expenses in great detail. I thought I was done until the controller drew two T-accounts on a piece of paper and noted my comments in the expense T-account, and...
of warranty is referred to as an assurance-type warranty. In accounting jargon, the assurance-type warranty is an example of a contingent that is both probable and can be estimated. Therefore, a company must record in...
as a current asset. Example of Insurance Expense Let’s assume that a retailer has insurance policies for its property, general liability, vehicles, and employees’ worker compensation, medical, dental, life, and...
Our Explanation of Inventory and Cost of Goods Sold will take your understanding to a new level. You will see how the income statement and balance sheet amounts are affected by the various inventory systems and cost flow...
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 Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
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