is calculated by dividing a company’s cost of goods sold during a year by the average inventory during the same year. Accounts receivable turnover ratio. This ratio is computed by dividing the credit sales during a...
is calculated by dividing a company’s cost of goods sold during a year by the average inventory during the same year. Accounts receivable turnover ratio. This ratio is computed by dividing the credit sales during a...
and transferred to the owner’s capital account, thereby increasing owner’s equity. (At a corporation, the credit balances in the revenue accounts will be closed and transferred to Retained Earnings, which is a...
in the general ledger accounts To report revenues and gains along with the related assets for transactions that have occurred but are not yet recorded in the general ledger accounts To defer future expenses and the...
10 or more years after the date they are issued. Example of Bonds Payable Maturing within One Year of the Balance Sheet Date Bonds that will be maturing within one year of the balance sheet date will be reported as a...
will be too high A regular corporation’s income tax expense will be too high The overstating of inventory will also affect the following reported amounts on the corporation’s balance sheet: The amount of inventory...
. To increase an asset, a debit entry is required. To increase a liability, a credit entry is required. Hence, the account Cash will be debited for $10,000 and the liability Loans Payable will be credited for $10,000....
and matching principle. Book value of an asset is: the asset’s cost minus the asset’s accumulated depreciation. Book value of the liability Bonds Payable is the combination of the following: Maturity or par value of...
. Therefore, to reduce the credit balance, the expense accounts will require debit entries. Example of Rent Expense as a Debit If a company pays $800 for the current month’s rent, the company’s assets and its...
include the company’s employees (who are owed wages and bonuses), governments (who are owed taxes), and customers (who made deposits or other prepayments). Some creditors are referred to as secured creditors because...
accounting year will report the same amount of depreciation. The total amount of depreciation over the years of the asset’s useful life will be the asset’s cost minus any expected or assumed salvage value. In the...
, and/or Planned amounts that will be spent for future additions to property, plant and equipment When the depreciable assets that are included in capex are put into service, their costs will be depreciated over the...
How are the balance sheet and income statement connected? Connection between Balance Sheet and Income Statement The connection between the balance sheet and the income statement results from: The use of double-entry...
balances. Since expenses reduce owner’s equity, Advertising Expense must be debited for $500. Therefore, double entry requires that another account must be credited for $500. Since cash was used, the account Cash will...
is the sum of the following: the days’ sales in inventory (365 days/inventory turnover ratio), plus the average collection period (365 days/accounts receivable turnover ratio) The operating cycle has...
as an asset and expensed later. To defer the cost to the balance sheet is to capitalize the costs. Examples of Costs Being Expensed Costs are reported as expenses in the accounting period when they are used up, have...
expensing assets having a cost of less than $2,500 instead of setting up fixed asset records and depreciating those assets over their useful lives. Join PRO to Track Progress Mark the Question as Read Must-Watch Video...
asset. The deferred expenses that will not become expenses within one year of the date of the balance sheet will be reported in the long-term asset section of the balance sheet under the classification of other assets....
Is the drawing account a capital account? Definition of Drawing Account A sole proprietorship will have a drawing account in which the owner’s withdrawals or draws of cash or other assets are recorded. The amounts of...
report a corporation’s assets as dollar amounts (rather than reporting details of all of the assets). If an asset cannot be expressed as a dollar amount, it cannot be entered in a general ledger account. For example,...
expense over the years of the asset’s useful life.) Example of Revenue Expenditure Let’s assume that a company made a capital expenditure of $100,000 to install a high efficiency machine. The new machine requires...
future transactions. The accountants’ cost principle prohibits a business from reporting some highly-valued assets such as trademarks, brand names, and an effective management team (assuming these were developed...
sheet account that is reported under the heading of Property, Plant and Equipment. The asset’s cost (except for the cost of land) will then be allocated to depreciation expense over the useful life of the asset. The...
between the asset amounts reported on the balance sheet minus the liability amounts. Next, the accountant’s cost principle requires that only the cost of items purchased can be reported as an asset. This means that...
What is the days' sales in accounts receivable ratio? Definition of Days’ Sales in Accounts Receivable The days’ sales in accounts receivable ratio (also known as the average collection period) tells you the number...
The allocation of common costs based on the sales value of the products that emerge. For example, a company develops a large parcel of land at a cost of $5 million dollars. Individual lots will be sold for $100,000 to...
Why not use Sales in the Inventory Turnover Ratio? The short answer is: Because Inventory is at cost. Inventory is not on the company’s books at selling prices. The Inventory Turnover Ratio is Cost of Goods Sold...
What is the days' sales in inventory ratio? Definition of Days’ Sales in Inventory The financial ratio days’ sales in inventory tells you the number of days it took a company to sell its inventory during a recent...
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...
Our Explanation of Financial Accounting introduces some of the basic accounting concepts and how they affect the income statement, balance sheet, and other financial statements.
is reported on the income statement and the related accounts receivable is reported on the balance sheet (until the receivables are collected). Unfortunately, some customers may not pay the amount owed to the company....
A liability account that reports the amount payable as of the balance sheet date. For the account to show a balance, a loss/obligation must be probable and the amount can be estimated. If the lawsuit is remote or only...
What is a common carrier? A common carrier is a business that transports goods for other companies, organizations, or individuals. The common carrier is responsible for any loss associated with the transport of the...
Comprehensive income consists of the following two components (which are reported on the statement of comprehensive income): Net income (or loss) from the income statement, and Other comprehensive income (some...
This is a valuation account for the asset Inventory. A credit balance should be reported in this account for the amount that the net realizable value of inventory is less than the cost reported in the Inventory account....
A separate line within stockholders’ equity that reports the corporation’s cumulative income that has not been reported as part of net income on the corporation’s income statement. The items that would...
This is the bottom line of the income statement. It is the mathematical result of revenues and gains minus the cost of goods sold and all expenses and losses (including income tax expense if the company is a regular...
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