What is financial reporting? Definition of Financial Reporting Financial reporting includes all of a company’s communication of financial information to people outside of the company. Examples of Financial Reporting...
What is financial reporting? Definition of Financial Reporting Financial reporting includes all of a company’s communication of financial information to people outside of the company. Examples of Financial Reporting...
Why is an amount in the cash flows from investing activities shown in parenthesis? An amount shown in parenthesis within the investing activities section of the cash flow statement indicates that cash was used to...
What is a noncurrent asset? Definition of Noncurrent Asset A noncurrent asset is an asset that is not expected to turn to cash within one year of date shown on a company’s balance sheet. (This assumes that the company...
What is a static budget? Definition of Static Budget A static budget is a budget in which the amounts will not change even with significant changes in volume. In contrast to a static budget, a company’s sales...
and reduces a company’s net income. However, the interest paid also causes a change in the company’s balance sheet and statement of cash flows. Reporting Interest Paid on the Statement of Cash Flows In the statement...
will be a negative $8,000. The negative amount of owner’s equity is a problem that will be obvious to anyone reading the company’s balance sheet. However, the company may be able to operate if its cash inflows are...
Cost Let’s assume that a company purchased land in 1997 for $100,000. It continues to own the land and has not made any improvements. Today the land should be reported on the company’s balance sheet at its...
is the cost of goods on hand, it makes sense to relate it to the cost of goods sold. Assume that during the past year a company’s inventory had an average cost of $10,000. (This was the average of the amounts in the...
What is the purpose of depreciation? Purpose of Depreciation The purpose of depreciation is to achieve the matching principle of accounting. That is, a company is attempting to match the historical cost of a productive...
members. In addition to comparing your company’s financial ratios to its industry, you will want to compare your company’s financial ratios to its own past and future financial ratios. Spotting a trend early can be...
occurred during December and since the company has an obligation as of December 31 to the lender for that interest, the company must accrue the interest. This is accomplished with an adjusting entry dated December 31 in...
smaller (fewer products, fewer customers, fewer managers). Now the company’s more sophisticated operations require more detailed reporting that is segmented by processes and/or by each manager’s area of...
Is a prepaid expense recorded initially as an expense? Definition of Prepaid Expense A prepaid expense refers to an amount that a company has paid and a portion or all of it will be an expense in a later accounting...
(as reported on the balance sheet) that is owed to creditors. The larger the debt ratio the greater is the company’s financial leverage. The appropriate debt ratio depends on the industry and factors that are unique...
The estimated number of days between ordering and receiving the units being ordered The number of units of safety stock The reorder point indicates when to place an order. The economic order quantity indicates the...
receivable to the amount that is more likely be collected. The income statement account Bad Debts Expense is part of the adjusting entry that increases the balance in the Allowance for Uncollectible Accounts. Effect of...
What is reported as property, plant and equipment? Definition of Property, Plant and Equipment Property, plant and equipment is the long-term asset or noncurrent asset section of the balance sheet that reports the...
Assume that a company is considering an investment that will provide net cash inflows of $1,000 at the end of each year for five years. The amount of cash that the company must pay at the beginning of the investment is...
Our Explanation of Break-even Point illustrates how to determine the number of units or sales dollars that will result in zero net income. The techniques rely on a product's contribution margin or contribution margin...
as wrong Mark as right acid test ratio (or) quick ratio This ratio results when the sum of a company’s cash + marketable securities + accounts receivable is divided by the company’s current liabilities. acid test...
Our Explanation of Depreciation emphasizes what the depreciation amounts on the income statement and balance sheet represent. Learn why depreciation is an estimated expense that does not assist in determining the current...
of capital than if it had $100 million of common stock outstanding. Select... True False 4. A company’s inventory turnover ratio for the prior year was 9 times. This means that its inventory during the past year had...
and recording the price variance as soon as possible is viewed as advantageous. Work-in-Process Wrong. This means that the direct materials price variance will not be isolated until the direct materials is used....
Our Explanation of Evaluating Business Investments compares four of the techniques for reviewing potential capital expenditures. You will be introduced to accounting rate of return, payback, net present value, and...
Our Explanation of Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
as the employee’s net pay. Select... True False 3. Salaried managers and executives who are not entitled to receive overtime compensation are referred to as __________ employees. 4. A company’s outside accountant is...
Our Explanation of Payroll Accounting discusses the taxes and benefits which are withheld from employees' pay as well as the taxes and benefits that are expenses for the employers. Also provided are examples of the...
of a new warehouse should be depreciated. Select... True False 3. The entry to record depreciation includes a credit to the account __________ Depreciation. 4. The depreciation method likely to be used on a company’s...
of the depreciation methods, assume that a company purchased a new plant asset at a cost of $100,000 that will have an estimated salvage value of $10,000 at the end of its useful life. This means that the total amount...
Our Explanation of Activity Based Costing illustrates how manufacturing overhead costs for a product will differ when costs are allocated using only the number of machine hours, as opposed to being allocated using the...
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...
How does inflation affect the cost of goods sold? Inflation and the Cost of Goods Sold Generally speaking, a company selling goods during periods of inflation will see an increase in its cost of goods sold. When and by...
. A company spent $120,000 for a parcel of land on which to build its new office building. In addition, the company had to spend $40,000 to clear the land of some structures and trees. How should the $160,000 be recorded...
. For example, an account number beginning with a "1" might signify that the account is an asset account, a "6" might signify an operating expense, etc. True Right! Generally, the larger and more...
What is a fringe benefit rate? Definition of Fringe Benefit Rate A fringe benefit rate is a percentage that results from dividing the cost of an employee’s fringe benefits by the wages paid to the employee for the...
for a new production run Unique inspections required by a customer Special handling, changes to original production orders, etc. The more diverse a company’s products and/or their customer requirements, the...
, a product line, or for the entire company. Examples of Gross Margin Calculations If a retailer had net sales of $40,000 and its cost of goods sold was $24,000, the retailer had a gross margin of $16,000 or 40% of net...
What is a bookkeeper? Definition of Bookkeeper A bookkeeper is usually employed by a small to mid-size company (or other organization) to process and record the large volume of transactions involving sales, purchases,...
What is the allowance method? Definition of Allowance Method The allowance method usually refers to one of the two ways for reporting bad debts expense that results from a company selling goods or services on credit....
The net result of combining the discounted cash inflows and the discounted cash outflows of an investment, project, company, etc.
Featured Review
"I recently purchased one of your accounting products. It is a godsend. I'm an engineer starting a business. I have little to no accounting experience. You can imagine what joy when I stumbled across your product. I don't know how you can afford to offer such a tremendous product so inexpensively, but thanks anyway. I can't say thank you enough. I'm telling all of my associates about your site and product." - F.C.L.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: