statements for the period ending December 31 must report wages expense of $5,000 and a liability of $5,000 as of December 31. In accounting jargon, the retailer must accrue the expense and liability through an adjusting...
statements for the period ending December 31 must report wages expense of $5,000 and a liability of $5,000 as of December 31. In accounting jargon, the retailer must accrue the expense and liability through an adjusting...
can see, the entry does not involve the account Cash. Hence, depreciation expense is referred to as a noncash expense. Example of Depreciation Assume that a sidewalk florist operates a cash only business. During the...
statements and that the $1,200 cost is considered to be significant. On March 20, the company debits Prepaid Expenses for $1,200 and credits Cash for $1,200. At the end of each month (starting on April 30), the company...
for $500 Credit to Sales Taxes Payable for $30 Note that Sales Revenues did not include the $30 of sales taxes collected. When the retailer remits the sales taxes to the government, the retailer will reduces its...
, the entry to record the stock dividend will be a debit of $250,000 to Retained Earnings and a credit to a paid-in capital account such as Common Stock. It is important to note that dividends are not expenses and...
withholdings, the routine payroll entry will record the amount withheld as a credit to Advance to Employees. This in turn results in a smaller amount being credited to Net Payroll Payable. Example of Advance to an...
that $8,000 of the accounts receivable will never be collected. Therefore, the company must increase the credit balance in the Allowance account by $7,000 with an accounting entry that debits Bad Debt Expense for $7,000...
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...
of the balance sheet. The accounting equation will always remain in balance if the double entry system of accounting is followed accurately. Example of the Accounting Equation Let’s assume that a person starts a new...
rate is 5.1% and there was no accrued interest. As a result, the investors paid $99.5 million for the bonds. The corporation also incurred $1 million of bond issue costs which were paid from bonds’ proceeds. The entry...
to the company’s Cash account. However, the debit portion of the payment entry depends on whether the individual credit card purchases had been previously recorded in the company’s general ledger accounts. Example...
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...
Loans Payable increases by $10,000. Let’s also assume that the company makes a payment of $1,000 consisting of $60 for interest and $940 for principal, the entry will be: Debit of $60 to Interest Expense (an income...
expense is first reported on a company’s income statement when a customer’s account is actually written off. Often this occurs many months after the credit sale was made and is done with an entry that debits Bad...
money to the business, the entry will be to debit Cash and credit a liability account such as Notes Payable. (If Amy invests an asset other than cash, the business will record the cash equivalent or fair market value of...
much of the data entry tasks. This includes entering the bills from vendors, paying bills, processing payroll data, preparing sales invoices, mailing statements to customers, etc. The accountant is likely to have a...
balance is an internal accounting report that merely documents the equality of debits and credits. It is not a financial statement. The trial balance was crucial internal report when the accounting records were...
contingent liabilities and their related contingent losses are: Recorded with a journal entry Are limited to a disclosure in the notes to the financial statements Not recorded or disclosed We have another Q&A that...
How do you record an asset that was partially financed? Example of Recording an Asset that was Partially Financed Assume that your company purchased a car for $10,000 by paying cash of $4,000 and signing a promissory...
the periodic inventory system there is no entry to credit the Inventory account or to debit the account Cost of Goods Sold. Hence, the Inventory account contains only the ending balance from the previous year. As a...
on the automakers’ balance sheets at the time that the cars are sold. The other part of the journal entry is to debit Warranty Expense and report it on the income statement. Definition of an Estimated Liability An...
$10,000 should be deferred to a balance sheet liability account, such as Unearned Premium Revenues. In each subsequent month the insurance company will record an adjusting entry to reduce the liability account Unearned...
sheet as of the last day of the year must report the related liability To record this accrual, an adjusting entry is made that debits Repairs Expense and credits Accrued Expenses Payable. Example of an Accrual of...
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...
to Cash and a $3,000 credit to the liability account Customer Deposits or Unearned Revenues. With no downpayment or advance payment in December, there is no entry recorded.) The $20,000 contract is not reported as an...
from Accounts Receivable and at that time the following entry is made: debit Bad Debts Expense and credit Accounts Receivable. The allowance method anticipates and estimates that some of the accounts receivable will not...
current liability amount on its balance sheet. It also means that the accounts and amounts recorded as debits will better reflect the historical cost principle. If a company uses the net method, but fails to remit the...
Why is income received in advance a liability? Definition of Income Received in Advance Under the accrual method of accounting, when a company receives money from a customer prior to earning it, the company will have to...
, withdraws $2,000 each month for the owner’s household expenses. The company’s entry to record each month’s draws will be: A debit to R. Smith, Drawing (an owner’s equity account with a debit balance) A credit...
and Over for $1 (the amount that is not accounted for). It is important to realize that the $80 check will be credited to Cash (the company’s checking account). There is no entry to the Petty Cash account when merely...
statements for the year are prepared the current year net income and draws will be transferred to this account. 1. Should the $500 entry to the Cash account be a debit? Yes Right! Cash is always debited when cash 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...
Bookkeeping Video Training Part 12 Bank reconciliation: process to determine the true or adjusted amount of cash, journal entries needed for adjustments to book balance Must-Watch Video Learn How to Advance Your...
Bookkeeping Video Training Part 9 Adjusting entries: depreciation expense and accumulated depreciation reported on financial statements, useful life of the asset Must-Watch Video Learn How to Advance Your Accounting and...
Bookkeeping Video Training Part 10 Adjusting entries: recap of accruals, deferrals, one balance sheet account and one income statement account will be affected Must-Watch Video Learn How to Advance Your Accounting 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...
Our Explanation of Bonds Payable covers the recording of bonds, the accrual of interest expense, and the amortization of the discount and premium on bonds payable. You gain an understanding on why the market value of...
Featured Review
"I am a degreed accounting and finance professional with a diverse business background (bookkeeper, staff accountant, auction coordinator, etc.). Over the years I have held many different roles that sometimes require transaction-heavy duties. Other times, the billing, invoicing, and journal transactions are automated. In order to keep my accounting skills sharp and to retain my theoretical understanding, I had chosen AccountingCoach PRO many years ago. The content has always been concisely written and well structured, with possible areas of confusion preemptively addressed. It's a great platform to have access to for graduates, students, and accounting professionals alike. AccountingCoach has benefited me greatly, as its materials have always kept me prepared for my next challenge. " - Jason K.
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: