+ $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...
+ $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...
for the bank’s loan. This lien will require that the lender be paid the amount owed before the real estate can be transferred to another party. The U.S. government may file a lien on a company’s assets until a tax...
of another account. Accountants often use T-accounts to visualize the debit and credit effects on the accounts’ balances. It may take some time to learn which general ledger accounts will be debited and credited, but...
printing company. These blank checks have not been signed. These checks are sometimes referred to as check stock and should be stored in a secure place until they are inserted into the company’s printer for paying...
to pay employees, suppliers and other creditors may lead to serious problems. In contrast, another company that sells fast-moving products online with customers paying with credit cards will have liquidity even with a...
Our Explanation of Present Value of a Single Amount discusses the time value of money and the need to discount future amounts to the time of an investment or other transaction. The present value of 1 table is used to...
Our Explanation of Accounts Payable provides insights on the bill paying process in a large company. Included are discussions of the three-way match, early payment discounts, end of period accruals, and more.
and it is positioned immediately after current assets. The cash restricted for a long-term asset is not reported as part of the company’s current assets because the cash is not available to pay current liabilities....
What is an account? Definition of Account In accounting, an account is a record in the general ledger that is used to sort and store transactions. For example, companies will have a Cash account in which to record every...
each month. Therefore, each month one-twelfth of the inventory records would be adjusted so that they agree to the physical counts. Another possibility would be to physically count the most important 15% of the...
What is a restrictive endorsement? Definition of Restrictive Endorsement A restrictive endorsement or restricted endorsement places a limitation on the use of a check or other negotiable financial instrument. Using a...
of a product’s direct materials. Expressed another way, conversion costs are the manufacturing or production costs necessary to convert raw materials into products. The term conversion costs often appears in the...
the following costs: direct materials direct labor variable manufacturing overhead fixed manufacturing overhead Absorption costing is required for external financial reporting and for income tax reporting. Another...
What does it mean to reclassify an amount? Definition of Reclassify an Amount To reclassify an amount likely means to move an amount from one general ledger account to another general ledger account. Example of...
What does overstated mean? Definition of Overstated When an accountant uses the term overstated, it means two things: The reported amount is incorrect, and The reported amount is more than the true or correct amount. In...
debit balances, while the liability and owner’s equity accounts are expected to have credit balances. Therefore, when a company earns revenues, it will debit an asset account (such as Accounts Receivable) and will...
What is separation of duties? What is Separation of Duties The separation of duties is one of various internal control techniques for safeguarding a company’s assets. By separating employee’s duties, the likelihood...
What is meant by nonoperating expenses and losses? Definition of Nonoperating Expenses and Losses Nonoperating expenses are business expenses that are outside of a company’s main or central operations. (Some describe...
) in a present value calculation, if you know the future amount, the present value, and the __________ interest rate. 11. Company X received a promissory note from Corp Y. The note does not specify any interest and it...
be a state sales tax of 6% plus a county tax of 1% and a tourist district sales tax of 3%. In another state there could be only a sales tax rate of 8%. The sales taxes collected by a merchant are not part of the...
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...
salaries for the company’s marketing team should be reported as an expense in June since the future economic value cannot be measured/determined. Another example is the amount spent to repair equipment that broke...
What is a long-term asset? Definition of Long-term Asset A long-term asset is an asset that is not expected to be converted to cash or be consumed within one year of the date shown in the heading of the balance sheet....
What is transfer pricing? Definition of Transfer Pricing Transfer pricing involves setting a price that will be used when one responsibility center of a company sells goods or services to another responsibility center of...
in accordance with generally accepted accounting principles often referred to as GAAP or US GAAP. Examples of Management Accounting Another part of accounting focuses on providing a company’s management with the...
What is workers' compensation insurance? Workers’ compensation insurance is likely to be an insurance policy obtained by a company to cover the medical costs and lost wages for its employees’ work-related...
was returned unpaid. Perhaps, the customer’s checking account balance was insufficient, perhaps a stop payment order prevented the check from being paid, or perhaps there was another reason. When the unpaid check...
What is the matching principle? Definition of Matching Principle The matching principle is one of the basic underlying guidelines in accounting. The matching principle directs a company to report an expense on its income...
is on the average of 72 days. It is also likely there is another group of inventory items that are turning even less than 3.3 times during the year. People within the company can overcome the shortcomings described...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
for income tax and before investment income, interest expense, or other non-operating income or expense items. Operating income is also reported as income from operations, operating earnings, or operating profit. Major...
with an investment of $5,000. The entry to business accounts will include a debit to Cash for $5,000. On the next day, the business spends $1,000 to purchase office equipment. Part of this entry will include a credit to...
on the total organization (as opposed to focusing on specific funds within the organization) and reports the following: Revenues such as contributions, program fees, membership dues, grants, investment income, and...
What is the payback reciprocal? The payback reciprocal is a crude estimate of the rate of return for a project or investment. The payback reciprocal is computed by dividing the digit “1” by a project’s payback...
Where does a bond sinking fund appear on the balance sheet? Definition of Bond Sinking Fund A bond sinking fund is an investment made by a corporation that is restricted for the purpose of retiring its bonds payable,...
the defined benefit pension plan, the employer commits to depositing enough money into a pension fund in order to cover the future benefits. Since there is uncertainty in the investment returns, the life expectancy of...
by discounting them with an appropriate interest rate The number of years it takes for a project’s cash flow to pay back the initial cash investment An assessment of risk along with the urgency of the project Join PRO...
What is owner's equity? Definition of Owner’s Equity Owner’s equity is one of the three main sections of a sole proprietorship’s balance sheet and one of the components of the accounting equation: Assets =...
Why does the internal rate of return equate to a net present value of zero? Internal rate of return and net present value are discounted cash flow techniques. To discount means to remove the interest contained within the...
Another word for purchasing.
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