, 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...
, 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...
the mere passage of time. Under the units of production method, depreciation during a given year will be greater when there is a higher volume of activity. In times of low usage the asset’s depreciation will be less....
What type of account is the Dividends account? Definition of Dividends Account When a corporation declares a cash dividend, the amount declared will reduce the amount of the corporation’s retained earnings. Instead of...
-in-process, and the finished goods that are owned and on hand. Inventory is generally valued at its cost and it is likely to be the largest component of the company’s current assets. Since the unit cost of inventory...
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...
first year the company had $65,000 of profit, but may end the year with $0 cash. Other examples where cash is paid out, but the profits are not reduced at the time of the payment, include prepayments of insurance...
What is the rule of 72? The rule of 72 is a simple formula that tells you the approximate amount of time or interest rate needed for an amount to double. The formula is Years X Rate per year = 72. Here’s how it works....
for the $5,000 down payment received Credit the current liability Customer Deposits for $5,000 At the time TOPCO completes the special machine and receives the balance of $20,000, TOPCO will record the following entry:...
Why would Prepaid Insurance have a credit balance? Definition of Prepaid Insurance Generally, Prepaid Insurance is a current asset account that has a debit balance. The debit balance indicates the amount that remains...
allows a client to pay for a service one year after the service is completed, the amount received is assumed to consist of two parts: Interest for waiting one year to be paid The present value of the services provided...
entire cost being depreciated during the years that the asset is used in the business. Any amount received that is in excess of the asset’s book value will be reported as a gain at the time it is sold. Join PRO to...
cycle is longer than one year, the length of the operating cycle is used in place of the one-year time period. Examples of Current Assets Assets that are reported as current assets on a company’s balance sheet...
outflows for each option. Since these cash flows will occur at different times, you must “discount” the future cash flows to a present value. (This is necessary in order to recognize the time value of money.) The...
financial statements while at the same time be using one of the Internal Revenue Service’s faster depreciation methods on its federal income tax return. Example of Straight-Line Depreciation To illustrate...
What type of expense is the purchase of propane? Technically, the purchase of propane is not an expense. Depending on the business, the propane is an asset until it is used, resold, or included in a product that is sold....
at AccountingCoach.com. Also at no cost, you will find practice quizzes and 1,100 Q&A for 30+ bookkeeping and accounting topics. (Visual tutorials, video training, quick tests, quick tests with coaching, ten...
or from obtaining a bank loan are not revenues Revenues are amounts that companies earned by selling products or providing services. When the cash is received (at the time of the sale or service or at a later date) is...
-in-process, finished goods, and supplies to identify the inventory items which have not turned over in a long time. Those items may need to be scrapped so that a loss can be reported and cash will not flow for income...
are: Economic Entity Assumption Going Concern Assumption Time Period Assumption Monetary Unit Assumption Cost Principle (or Measurement Principle) Matching Principle (or Expense Recognition Principle) Revenue...
certified public accountants or CPAs by earning at least 150 college credits, passing the rigorous CPA Exam, and having several years of experience.) Annual Salary of Accountant The annual salary range for a full-time...
ledger account Accounts Payable. Example of Recording a Liability without the Vendor’s Invoice At any time, the retailer’s accounts payable clerk/department will have many transactions waiting to be recorded in...
is the result of discounting all of the cash inflows and outflows and then combining all of their present values. This means that the original outflow (often the investment made at the present time) is a deduction from...
What is the purpose of the cash flow statement? Definition of Cash Flow Statement The cash flow statement or statement of cash flows or SCF identifies a company’s major cash inflows and outflows that occurred the same...
are the future costs and the opportunity costs (neither of which are not in the general ledger and are probably unknown at the time a decision must be made). Join PRO to Track Progress Mark the Question as Read...
amount) discounted by the market interest rate at the time of the bond sale. Example of a Bond Premium A person would buy a bond at a premium (pay more than its maturity value) because the bond’s stated interest rate...
at the end of each accounting period. As a result, Accumulated Depreciation is viewed as a permanent account. Example of Depreciation Accounts Assume a company has equipment which is used in its business. The...
time period. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your current job Refresh your skills to re-enter the...
on the automakers’ balance sheets at the time that the cars are sold. The other part of the journal entry is to debit Warranty Expense and report it on the income statement. Definition of an Estimated Liability An...
as an expense for the period (year, month, etc.) shown in the income statement’s heading. Definition of Accumulated Depreciation Accumulated depreciation reports the total amount of depreciation that has been reported...
What is a cash discount? Definition of Cash Discount A cash discount is a deduction allowed by some sellers of goods or by some providers of services to motivate customers to pay within an earlier specified time. The...
for the workweek of June 22-28 might be calculated by the time the adjusting entry is prepared in early July and only the amounts for June 29 and 30 will need to be estimated.) The important point with the accrual...
What is the difference between interest expense and interest payable? Definition of Interest Expense Assuming the accrual method of accounting, interest expense is the amount of interest that was incurred on debt during...
at the time that the bond was purchased by the investor The yield to maturity is expressed as an annual percentage rate. Example of Yield to Maturity Assume that a 5% $100,000 bond will mature in 5 years and will pay...
that Company Jay will deliver $20,000 of services beginning in January, the contract is not reported on Company Jay’s December 31 balance sheet. (If the customer makes a deposit of $3,000 at the time of signing the...
that contains videos, visual tutorials, forms, and more than 500 bookkeeping exam questions with answers. There is a reasonable one-time fee for a lifetime membership in AccountingCoach Pro and it comes with a 60-day,...
What is a purchase return? Definition of Purchase Return A purchase return occurs when a buyer returns merchandise that it had purchased from a supplier. Since the return of purchased merchandise is time consuming and...
of Amortization of Premium on Bonds Payable Assume that a corporation issues bonds payable having a maturity value of $1,000,000 and receives a premium of $60,000. The bonds mature in 20 years and there was no accrued...
the time that the company began. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your current job Refresh your skills...
on a project after taking into consideration the time value of money and the periods when the various cash amounts flow in and out. If you use present value tables to calculate the internal rate of return, it will...
-30 days past due, 31-60 days past due, etc. A receivable that is current (not past due) is usually not a problem. However, when customers are past due it is a sign that they are experiencing some financial difficulties....
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