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 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...
In bookkeeping, why are revenues credits? In bookkeeping, revenues are credits because revenues cause owner’s equity or stockholders’ equity to increase. Recall that the accounting equation, Assets = Liabilities +...
How does the accounting equation stay in balance when the monthly rent is paid? How a Rent Payment Affects the Accounting Equation A company’s payment of each month’s rent reduces the company’s asset Cash. This is...
Which financial statement shows a corporation's worth? Not one of the financial statements will show a corporation’s worth. The balance sheet, income statement, statement of cash flows, and stockholders’ equity...
A credit is not a normal balance for what accounts? Definition of Credit Balance A credit balance refers to the balance on the right side of a general ledger account or T-account. Normally, the liability and owner’s...
What are the stockholders' equity accounts? The stockholders’ equity accounts are balance sheet accounts and a part of the accounting equation Assets = Liabilities + Stockholders’ Equity. In this light you can view...
Why are some plastic cards called debit cards? I assume the name debit card relates to the reduction in the cardholder’s checking account balance at the time that the card is used. The checking account balances of a...
Where do dividends appear on the financial statements? Definition of Dividends Cash dividends are a distribution of a company’s profits. Financial Statements of a Corporation The main financial statements of a...
What is a permanent account? Definition of Permanent Account In accounting, a permanent account refers to a general ledger account that is not closed at the end of an accounting year. The balance in a permanent account...
Why are accruals needed every month? Reasons for Monthly Accruals Accrual adjusting entries are needed monthly only if a company issues monthly financial statements. Two reasons for the monthly accrual adjusting entries...
Are retained earnings an asset? Definition of Retained Earnings Usually, retained earnings consists of a corporation’s earnings since the corporation was formed minus the amount that was distributed to the stockholders...
What is a contingent asset? Definition of Contingent Asset A contingent asset is a potential asset that is associated with a potential gain. The asset and gain are contingent because they are dependent upon some future...
Are commissions considered to be revenues or expenses? Definition of Commissions Revenues or Expenses The company or person earning and receiving commissions (such as a percentage of sales) will have commissions revenue....
What is the difference between the cash basis and the accrual basis of accounting? Definition of the Cash Basis of Accounting Revenues are reported on the income statement in the period in which the cash is received from...
What are quick assets? Definition of Quick Assets Quick assets are a company’s current assets which can quickly be converted into cash. Quick assets provide the liquidity necessary to pay the company’s obligations...
What is leverage? Definition of Leverage In accounting and finance, leverage is the use of a significant amount of debt to purchase an asset, operate a company, acquire another company, etc. Since the cost of debt is...
If a company earns a profit, which balance sheet items change? Definition of Profit Profit is the result of revenues minus expenses. How Profits Change the Balance Sheet Since all business transactions affect at least...
What is the margin of safety? Definition of Margin of Safety In break-even analysis, the term margin of safety indicates the amount of sales that are above the break-even point. In other words, the margin of safety...
What is the difference between stockholder and shareholder? Definition of Stockholder and Shareholder The term stockholder or shareholder typically describes an investor who own shares of a corporation’s common stock....
What is a lump sum payment? A lump sum payment is often associated with a single amount paid to acquire a group of items. For instance, a corporation might pay $50,000 for the inventory and equipment of a small...
What is boilerplate? In business, boilerplate is a term to describe the standard wording that is contained in warranties and other documents. Generally, the information that is boilerplate is not subject to change....
This phrase has two connotations. One is the cost of holding inventory. In this case the carrying cost is the cost of capital tied up in inventory, the cost of storage, insurance, and obsolescence. Often this is...
This term might be used to express the combined balances of two accounts. For example, if Equipment has a debit balance of $300,000 and the account Accumulated Depreciation on Equipment has a credit balance of $130,000,...
What is a cash cow? A cash cow is often a profitable product or service that dominates a market and generates far more cash than is needed to maintain its market position. Companies may use the money from the cash cow to...
Losses result from the sale of an asset (other than inventory) for less than the amount shown on the company’s books. Since the loss is outside of the main activity of a business, it is reported as a nonoperating...
What is the difference between residual value, salvage value, and scrap value? The terms residual value, salvage value, and scrap value are often used when referring to the estimated value that is expected at the end of...
A term associated with petty cash. Replenish means to return the amount of actual cash in the petty cash box back to the amount appearing in the general ledger account Petty Cash. This is done whenever the amount of...
Our Explanation of Improving Profits will assist you in focusing on the costs and revenues that are relevant (and ignoring those which are not relevant) for improving profits and eliminating losses. Examples of the...
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...
Financial Statements For multiple-choice and true/false questions, simply press or click on what you think is the correct answer. For fill-in-the-blank questions, press or click on the blank space provided. If you have...
Accounting Basics Accounting Basics Accounting basics is often described by the following actions: Recording the vast number of transactions that a business (or other organization) experiences. Sorting and storing the...
Bookkeeping (Test for Prospective Employees #3) Download PDF After you have answered all 40 questions, click "Grade This Quick Test" at the bottom of the page to view your grade and receive feedback on your answers....
Why is manufacturing overhead allocated to products? Definition of Manufacturing Overhead Allocated to Products Manufacturing overhead refers to the indirect production costs of producing goods, products, component...
What is the monetary unit assumption? Definition of Monetary Unit Assumption The monetary unit assumption as it applies to a U.S. corporation is that the U.S.dollar (USD) is stable in the long run. That is, the USD does...
What is an outstanding check? Definition of Outstanding Check An outstanding check is a check that a company has issued and recorded in its general ledger accounts, but the check has not yet cleared the bank account on...
What are the two methods for recording prepaid expenses? Definition of Prepaid Expenses Prepaid expenses refers to payments made in advance and part of the amount will become an expense in a future accounting period. A...
Why are the amounts on the financial statements rounded to thousands or millions? Definition of Rounding Amounts on Financial Statements Rounding the amounts on a company’s financial statements means dropping the less...
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