The accounting method under which revenues are recognized on the income statement when they are earned (rather than when the cash is received). The balance sheet is also affected at the time of the revenues by either an...
The accounting method under which revenues are recognized on the income statement when they are earned (rather than when the cash is received). The balance sheet is also affected at the time of the revenues by either an...
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 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.
In accounting this means to defer or to delay recognizing certain revenues or expenses on the income statement until a later, more appropriate time. Revenues are deferred to a balance sheet liability account until they...
How much of the contribution margin is profit on units sold in excess of the break-even point? After the break-even point is reached, the entire contribution margin on the next units sold will be profit…provided the...
A general ledger account containing the correct total amount without containing the details. For example, Accounts Receivable could be a control account in the general ledger. Each day the total of the day’s credit...
) through the banking system. Because the check was bounced back by the bank, the check is described as a rubber check. A rubber check also causes bank fees for the maker of the check and for the depositor of the check....
What is a suspense account? Definition of Suspense Account A suspense account is a general ledger account in which amounts are temporarily recorded. The suspense account is used because the appropriate general ledger...
to manually posting them to the accounts in the general ledger or subsidiary ledger. Examples of Journals in a Manual Accounting System Manual systems usually had a variety of journals such as a sales journal, purchases...
revenues, etc.) and operating expenses (cost of sales, SG&A expenses) appear first The subtotal Gross profit is the result of subtracting the Cost of sales from the Net sales The subtotal Operating income is the...
What is the break-even point? Definition of Break-even Point In accounting, the break-even point refers to the revenues necessary to cover a company’s total amount of fixed and variable expenses during a specified...
Is contribution margin the same as operating income? Definition of Contribution Margin Contribution margin is defined as revenues minus the variable costs and variable expenses. Example of Contribution Margin Assume that...
Subscription Expense and will credit Cash (or Accounts Payable). If the amount of the subscription is significant, the company should debit the cost of the subscription to the current asset account Prepaid Expenses and...
of a company’s revenues, expenses, gains, losses, and the resulting net income that occurred during a year, quarter, or other period of time. Examples of Items Appearing in the Income Statement The main items reported...
How can a company have a profit but not have cash? Definition of Profit Under the accrual basis of accounting, profit is the amount of revenues earned minus the amount of expenses incurred. Note that revenues are not...
Journal Entries (Word Scramble) Download PDF To see each answer, press or click on the blue "Unscramble" button. 1. The accrual of interest expense is recorded in the _________ journal. GENERAL NERLEAG...
Why does a company debit Purchases instead of Inventory? Definition of Purchases and Inventory When a company uses the periodic inventory system the amount of the company’s inventory is determined by a physical count...
Our Explanation of Bank Reconciliation will show you the needed adjustments to the balance on the bank statement and also the adjustments needed to the balance in the related general ledger account. A comprehensive...
This ratio indicates the percentage of each sales dollar that is available to cover a company’s fixed expenses and profit. The ratio is calculated by dividing the contribution margin (sales minus all variable...
The result of subtracting all variable expenses from revenues. It indicates the amount available from sales to cover the fixed expenses and profit.
The income statement format where the operating and nonoperating revenues are grouped and totaled and the operating and nonoperating expenses are grouped and totaled. Then there is one subtraction of the combined...
recorded in Purchase Discounts Lost informs management that its policy of paying within the discount period has been violated. Although the net method is theoretically better, it seems to be less efficient than...
-insurance is too risky for an individual and for a small business with one store. The reason is that a huge loss to its one building may be too much to recover from. Every company should review its specific situation...
are the depreciation of the building, salaries of the company’s management, etc. For a company’s financial statements to have relevance they must be issued within several weeks after each accounting period ends. To...
variances and will be recorded in separate variance accounts. Any balance in a variance account indicates that the company is deviating from the amounts in its profit plan. While standard costs can be a useful...
invoice are placed in one of six columns that appear to the right. The headings for those columns are: Current, 1-30 days past due, 31-60 days past due, 61-90 days past due, 91-120 days past due, and 120+ days past due....
. These costs are partially fixed and partially variable. Understanding how costs behave is important for management’s planning and controlling of its organization’s costs, and for cost-volume-profit analyses...
to the retailers. Obviously its turnover ratios will be less impressive than the ratios of the first company. A company’s management is another variable that explains differences in the profit margin and turnover...
and Exchange Commission (Form 10-K), especially the section entitled Management’s Discussion and Analysis Quarterly earnings reports, press releases and other communications The notes to a company’s financial...
built up within a company as a result of delivering amazing customer service, unique management, teamwork, etc. However, this goodwill is unrelated to a business combination and cannot be recorded or reported on the...
computing the staff turnover, be sure to discuss the staff turnover rate with the company’s management. Training new employees only to have an above average person leave after the training period is very expensive....
What are external financial statements? Definition of External Financial Statements External financial statements are those distributed outside of the company’s management. Some of the recipients of the external...
to be employed at a larger company and will be able to delegate the processing of the high-volume routine transactions to accounting clerks. In turn, the accountant will deal with more complicated transactions, will...
amount if it is paid within 10 days instead of the required 30 days) the amount of the discount is recorded in the contra revenue account Sales Discounts. Again, the company’s management will see the original amount...
depreciation cannot exceed the asset’s cost. The cost principle prohibits a company from recording an asset that was not acquired in a transaction. Hence, a company cannot report its highly successful management team...
, the outside accountant converts the client’s data into financial statements without providing any assurances or auditing services. A compilation report should accompany the compiled financial statements to indicate...
) are not reported on the balance sheet. The same holds for a great management team and an amazing reputation. The cost principle also means that many long-term assets are reported at cost (and not at their current...
Our Explanation of Inventory and Cost of Goods Sold will take your understanding to a new level. You will see how the income statement and balance sheet amounts are affected by the various inventory systems and cost flow...
. FOB shipping point This term indicates that the ownership of goods will transfer to the buyer when the goods leave the seller’s warehouse. Mark as wrong Mark as right accrued expenses These expenses have occurred but...
Featured Review
"I love your PRO Plus program, I must say you've done a fantastic job creating this course. I learned more here in a few weeks, than I did in the previous 2 years with my college 'Bookkeeping' program. In fact, I was doing my final project when I realized they just did not teach me (or I did not retain) all I needed to know. Thanks to your course, I am getting ready to complete their diploma course. I plan to get my certification and start a bookkeeping business here. I was thrilled to pay for your course, well worth it. Thank You!" - Thomas G.
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: