. Operating Cycle If a company sells goods (products, component parts, etc.) its operating cycle is the time it takes for a company’s money to purchase the inventory items and for the money from their sale to return to...
. Operating Cycle If a company sells goods (products, component parts, etc.) its operating cycle is the time it takes for a company’s money to purchase the inventory items and for the money from their sale to return to...
, Sales, will collect all of the amounts from the sale of merchandise. Most accounting systems require that every transaction will affect two or more accounts. For example, a cash sale will increase the Cash account and...
Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
to rent some special equipment for $2,000. The contractor will bill the client $19,000 on January 10 and will pay the equipment rental company on January 10. Under the accrual method of accounting the contractor had...
. A corporation cannot report a loss (or a gain) on its income statement from the sale of its treasury stock. False Right! 25. If preferred stockholders have the opportunity to receive more than the stated dividend...
A decision whether to make some products or equipment in-house versus purchasing the products or equipment from another company. As in any decision, one must compare the relevant costs and other opportunities. It is...
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...
payment of $450,000 in order to acquire a building, the land on which the building sits, and also some equipment. The lump sum payment means that the total cost of $450,000 has to be allocated among three general ledger...
in a business. They are reported in the Property, Plant and Equipment section of the balance sheet. The fixed/plant assets are depreciated over their estimated useful lives (except for land which is not...
referring to the cost of producing the very next unit or operating for just one more hour, etc.) Example of Differential Cost and Incremental Cost Assume a company determined that the annual cost of operating its...
as property, plant and equipment (PPE) after deducting accumulated depreciation. Since net sales occurred throughout the year, you should divide the net sales by the average amount of net PPE during the year of the net...
are reported in the noncurrent (or long-term) asset section of the balance sheet in the section described as property, plant and equipment. The fixed assets except for land will be depreciated and their accumulated...
in the noncurrent asset section entitled property, plant and equipment. Accounting rules also require that the plant assets be reviewed for possible impairment losses. Examples of Plant Assets Plant assets include: Land...
noncurrent (or long-term) assets. For example, capital expenditures (amounts spent for property, plant and equipment used in the business) and the purchase of long-term investments are uses of cash and therefore will be...
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...
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...
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...
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...
Depreciation) The amount that has not yet been depreciated (the book value of the asset) Example of Accumulated Depreciation Let’s assume that at the beginning of the current year a company’s asset account Equipment...
that the company cannot weather a business downturn. Example of Liabilities Assume a corporation needs to replace its existing equipment with equipment that has the latest new technologies. The new equipment will result...
is the cash amount plus the note’s present value at time that the asset is purchased. To illustrate this, let’s assume that equipment is purchased by giving $50,000 of cash plus a promissory note of $100,000. If...
that certain equipment is to be depreciated on the income tax return over 7 years. However, the company knows that the equipment will be useful in producing revenues for 10 years. Accounting’s matching principle...
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...
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....
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...
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...
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...
of accounting. Example of Book Depreciation Let’s assume that equipment used in a business has a cost of $500,000 and is expected to be used for 10 years. If the company assumes no salvage value at the end of the 10...
Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
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...
The amount received from the sale of an asset, from the issuance of bonds or stock, or from a bank loan.
The sale of the accounts receivable (usually for a fee) to a third party known as a factor.
The result of subtracting operating expenses from gross profit. Income from operations is the amount before non-operating items (such as gains and losses on the sale of assets, interest revenue, and interest expense).
: With periodic LIFO, the latest costs are assumed to be removed from inventory at the end of the accounting year With perpetual LIFO the latest costs are removed from inventory at the time of each sale. Example of...
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