When calculating inventory turnover, do you use sales or the cost of goods sold? I calculate the inventory turnover by using the cost of goods sold. I use the cost of goods sold because inventory is in the general ledger...
When calculating inventory turnover, do you use sales or the cost of goods sold? I calculate the inventory turnover by using the cost of goods sold. I use the cost of goods sold because inventory is in the general ledger...
What is a contra inventory account? A contra inventory account is a general ledger account with a credit balance. The credit balance in the contra inventory account will be combined with the debit balance in the...
What is the carrying amount? Definition of Carrying Amount The term carrying amount is also known as book value or carrying value. The term carrying amount is often used when there is a valuation account associated with...
What is the definition of net sales? Definition of Net Sales Net sales is a company’s gross sales of products minus any sales discounts and sales returns and allowances. When a company makes a sale, the general ledger...
to acquire and install a new computerized system for controlling its operations. The new system’s general ledger might result in a chart of accounts which is different from the previous chart of accounts. Join PRO to...
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...
was a refund of an earlier expense Unfortunately, the best section may not be known at the time of the receipt, and it is hard to say where you will find the suspense account in your own chart of accounts and general...
in the fire is in the company’s general ledger accounts at a cost of $106,000. The insurance policy deductible was $1,000 per occurrence. The journal entry for this transaction is: Debit Cash for $105,000 Credit...
General ledger account numbers to be charged Authorizing signatures The voucher is then recorded in the voucher register. The unpaid vouchers provide the detail for the total amount reported as vouchers payable or...
What is work-in-process inventory (WIP)? Definition of Work-in-process Inventory Work-in-process (WIP) inventory pertains to the goods for which the manufacturing has begun, but not yet completed. In other words, WIP is...
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...
. General guidance for determining when revenues are earned can be found in paragraphs 83 and 84 of the FASB’s Statement of Financial Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of...
What is a reclassification? Definition of Reclassification In accounting, the term reclassification is often used to describe moving an amount from one general ledger account to another. Examples of Reclassification...
associated with the unsold products (including their share of worker compensation costs) will be reported as inventory in the current asset section of the balance sheet. The worker compensation costs associated with...
to Circular E.) Part 1 of the guide is entitled Who Are Employees? and it provides this general rule: “…an individual is an independent contractor if you, the person for whom the services are performed, have the...
Our Explanation of Accounts Payable provides insights on the bill paying process in a large company. Included are discussions of the three-way match, early payment discounts, end of period accruals, and more.
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 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 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...
of the statement of cash flows. (If an asset other than cash is withdrawn, it is reported as supplemental information on the statement of cash flows.) The income statement is not affected by the owner’s drawings since...
during the month, but the transactions had not been recorded in the accounts as of the end of the month To record the expenses, losses, and their related liabilities which were incurred during the month, but the...
Supplies Prepaid expenses Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your current job Refresh your skills to...
they are not expenses. However, dividends on preferred stock will appear on the income statement as a subtraction from net income in order to report the earnings available for common stock. Join PRO to Track Progress...
that depreciation expense will beat its budget by $4,000 ($44,000 of actual depreciation versus the annual budget of $48,000). This favorable $4,000 is the controller’s cushion. The idea is that this will cushion the...
in order to report this person as an asset owned by the entity. The salary and bonuses paid to a key employee are reported as expenses in the period in which the employee performed services. Not being able to record a...
remitted more than the amount needed. During the first few days of the accounting period in which reversing entries are recorded to reverse the accrual adjusting entries for expenses and liabilities of the previous...
liabilities Other accrued expenses Income taxes payable Again, the order will vary. For example, some companies will list Accounts Payable as the first current liability account. Join PRO to Track Progress Mark the...
Should a retailer's delivery surcharges be reported as revenues or as other income? I believe that a retailer’s delivery surcharges are a price adjustment and should be reported as operating revenues. The...
of the income statement accounts (revenues, expenses, gains, losses) by transferring their balances to the owner’s capital account or the corporation’s retained earnings account. This is done after the company’s...
What is ROI? Definition of ROI ROI is the acronym for return on investment. Traditionally, ROI related 1) the income statement profit to the 2) the balance sheet investment. A drawback of ROI is that the accounting...
a new sole proprietorship business. At this point, the owner’s equity is a positive $100,000. During the first year of operations, the business’s expenses exceeded revenues by $108,000 and there were no draws or...
of Adjusting Entries Adjusting entries that will result in a difference between the unadjusted trial balance and the adjusted trial balance include the following: The accrual of expenses that were incurred but were not...
is considered to be a better indicator of a company’s ability to meet its current obligations than the current ratio because inventories and prepaid expenses are not included. Example of Acid Test Ratio Let’s...
cost or fixed expense. Fixed expenses such as depreciation expense and property insurance expense are reported on a company’s income statement. Understanding which costs are fixed and which are variable is important...
How do we deal with a negative contribution margin ratio when calculating our break-even point? Definition of Negative Contribution Margin A negative contribution margin ratio indicates that a company’s variable costs...
What are some tips to make learning debits and credits easy? Here are five tips to make learning debits and credits easier: The accounts for expenses are nearly always debited. For example, when a company pays its...
within one year The principal portion of a long-term loan that must be paid within one year Wages payable Income taxes payable Interest payable Other accrued expenses payable Deferred revenues and customer deposits Join...
consists of all of the revenues, gains, expenses, and losses that caused stockholders’ equity to change during the accounting period. The amount of net income for the period is added to retained earnings, while the...
mean an amount that is prior to income tax expense. Some people might use the word earnings to mean an amount before all expenses are considered. Some people use the word profits to mean net income before income tax...
subsidiaries. In addition, each subsidiary often buys, uses, or sells products from the other subsidiaries and the parent company. These transactions are referred to as intercompany sales, purchases, expenses, etc....
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