of the accounting period the inventory account is adjusted to the amount on hand. Perpetual Wrong. Under the perpetual method the Inventory account IS continuously or perpetually updated with each purchase or sale of...
of the accounting period the inventory account is adjusted to the amount on hand. Perpetual Wrong. Under the perpetual method the Inventory account IS continuously or perpetually updated with each purchase or sale of...
Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
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...
An account used in combination with another account. For example, the account Allowance for Doubtful Accounts is used with Accounts Receivable in order to present the net amount of the accounts receivable. The account...
Administrative expenses are part of the operating expenses (along with selling expenses). Administrative expenses include expenses associated with the general administration of the business. Examples include the salaries...
Temporary differences between the reporting of a revenue or expense for financial statements (books) and the reporting of the item for income tax purposes. For example, it is common for companies to depreciate equipment...
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...
Also referred to as illusory profits. Occurs because accountants use past costs rather than replacement costs. For example, in computing the cost of goods sold accountants often use the FIFO cost flow assumption. This...
Things that are resources owned by a company and which have future economic value that can be measured and can be expressed in dollars. Examples include cash, investments, accounts receivable, inventory, supplies, land,...
-in-Progress. Construction Work-in-Progress is often reported as the last line within the balance sheet classification Property, Plant and Equipment. There is no depreciation of the accumulated costs until the project is...
Some examples of intangible assets include copyrights, patents, goodwill, trade names, trademarks, mail lists, etc. These assets will be reported at cost (or lower) on the balance sheet after property, plant and...
. The objective of depletion is to match the cost of the natural resources that were sold with the revenues from the natural resources that were sold. Conceptually, depletion is similar to the depreciation of property,...
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...
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...
depreciation can be used on the tax returns at the same time that straight-line depreciation is used on the company’s financial statements. Example of How and When to Depreciate an Asset Assume that a U.S. corporation...
personal savings into the business checking account. The business asset Cash is increased with a debit of $20,000 and the Owner’s Equity account is increased with a credit of $20,000. Next, the business buys office...
Our Explanation of Nonprofit Accounting includes a chart that contrasts the financial statements of a nonprofit (or not-for-profit) organization with those of a for-profit business corporation. There are many examples to...
cycle, if the operating cycle is longer than one year). Fixtures Right! Fixtures is NOT a current asset account. Fixtures is reported under property, plant and equipment (which is part of a company's long-term...
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...
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...
date. However, if the depositor insists on withdrawing the money before the maturity date, the financial institution will assess a penalty—usually the loss of interest. Since the depositor agreed to a maturity date,...
result in an income statement gain or loss. The shares of treasury stock can be sold, retired, or could continue to be held as treasury stock. Example of Treasury Stock A corporation has excess cash and does not see any...
in the checking account If there is an error in the company’s cash records, there will be a related error in another account because of the double-entry system of accounting. If a dishonest person is embezzling money...
mean a corporation’s net income after income tax expense. Many business owners refer to the company’s income statement as the profit and loss statement or the P&L. A company reporting a positive amount of net...
contains all of its asset, liability, owner equity, revenue, expense, gain, and loss accounts. Each account contains the transaction amounts that pertain to the account title. Definition of a Trial Balance A trial...
-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...
Summary has a debit balance, the amount is the company’s net loss. The Income Summary will be closed with a credit for that amount and a debit to Retained Earnings or the owner’s capital account. Join PRO to Track...
What is the difference between a contingent liability and an estimated liability? Definition of a Contingent Liability A contingent liability is a potential liability (and a potential loss or potential expense). For a...
to be reported on the balance sheet at the lower NRV of $12,000, and 2) the income statement to report the write-down loss of $3,000 (even though the goods have not yet been sold). Join PRO to Track Progress Mark the...
the following adjusting entry: A debit to Bad Debt Expense that will cause the income statement to report the estimated $10,000 loss closer to the time of the credit sales A credit to Allowance for Doubtful Accounts...
continuous financial statement.) The amount of net income will cause an increase in the stockholders’ equity account Retained Earnings, while a loss will cause a decrease. The amount of other comprehensive income will...
be the case under the allowance method. [The Internal Revenue Service requires the direct write off method in order to prevent taxpayers from claiming a bad debts expenses based on an anticipated potential loss.] Join...
in exchange for cash or other assets. Donated capital was received. Here is a list of items that could cause a decrease in the total amount of a corporation’s stockholders’ equity: Negative net earnings or a net...
on the company’s income statement. It may be included in the company’s selling, general and administrative expenses. [However, if the expense is associated with extending credit outside of a company’s main selling...
' equity appear on the right side of the accounting equation. To increase the balance on the right side, a credit is needed.) TIP #1: Typically revenue accounts are credited. TIP #2: If a cash sale occurs, the asset...
that a manufacturer’s production equipment uses a significant amount of electricity. Hence, the monthly electricity cost (the dependent variable) will increase when there is an increase in the number of production...
. Periodicity allows companies to report meaningful financial statements covering relatively short periods of time. Periodicity is also known as the time period assumption. Examples of the Periodicity Assumption An...
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