What is the book value per share of stock? Definition of Book Value per Share of Stock The book value of a corporation is the amount of its stockholders’ equity. Assuming the corporation does not have preferred stock...
What is the book value per share of stock? Definition of Book Value per Share of Stock The book value of a corporation is the amount of its stockholders’ equity. Assuming the corporation does not have preferred stock...
What are accrued liabilities? Definition of Accrued Liabilities Accrued liabilities are usually expenses that have been incurred by a company as of the end of an accounting period, but the amounts have not yet been paid...
What is a plant asset? What is a Plant Asset A plant asset is an asset with a useful life of more than one year that is used in producing revenues in a business’s operations. Plant assets are also known as fixed...
Is it possible to have a balance sheet for a single day? A balance sheet presents the amounts of a company’s assets, liabilities, and owner’s equity as of an instant or moment in time within a day. Usually it is the...
Are earnings different from profits? Earnings and profits are often used interchangeably. Others might make a distinction between the two words. In the case of earnings per share, earnings means a corporation’s net...
Is depreciation a source of funds? Definition of Depreciation Depreciation is the systematic allocation of the cost of a business asset to expense over the useful life of the asset. The accounting for depreciation is a...
What is the difference between gross profit margin and gross margin? Definition of Gross Profit Gross profit is an amount that is computed as follows: A company’s net Sales minus its cost of goods sold A product’s...
What is net working capital? Definition of Net Working Capital Net working capital is the amount (as opposed to being a ratio) remaining after subtracting a company’s total amount of current liabilities from its total...
Is Accounts Payable a debit or a credit or both? Definition of an Accounts Payable Credit Since Accounts Payable is a liability account, it should have a credit balance. The credit balance indicates the amount that a...
What is a sole proprietorship? Definition of Sole Proprietorship A sole proprietorship is a form of business organization that is owned by one person and is easy to start. The owner is referred to as a sole proprietor....
What is a liability? Definition of Liability A liability is an obligation arising from a past business event. It is reported on a company’s balance sheet. Liabilities are also part of the basic accounting equation:...
Where is treasury stock reported on the balance sheet? Under the cost method of recording treasury stock, the cost of treasury stock is reported at the end of the Stockholders’ Equity section of the balance sheet....
What is the difference between stock dividend and cash dividend? Definition of a Stock Dividend A stock dividend is a dividend consisting of additional shares of stock. Assume that before a corporation declares a stock...
What is the purpose of depreciation? Purpose of Depreciation The purpose of depreciation is to achieve the matching principle of accounting. That is, a company is attempting to match the historical cost of a productive...
What is a cash discount? Definition of Cash Discount A cash discount is a deduction allowed by some sellers of goods or by some providers of services to motivate customers to pay within an earlier specified time. The...
What is accumulated depreciation? Definition of Accumulated Depreciation Accumulated depreciation is the total amount of a plant asset’s cost that has been allocated to depreciation expense (or to manufacturing...
What is the entry for a loan to an employee? Definition of Loan to Employee A loan to an employee is money advanced by the company to assist the employee. If the employee is expected to repay the loan within one year of...
What is a deferred cost? Definition of Deferred Cost A deferred cost is a cost that is already recorded in a company’s accounts, but at least some of the cost should not be expensed until a future accounting period....
What are payroll withholding taxes? Definition of Payroll Withholding Taxes In the U.S. payroll withholding taxes are the taxes that an employer is required to deduct from its employees’ gross wages, salaries, bonuses,...
What is double-entry bookkeeping? Definition of Double-Entry Bookkeeping Double-entry bookkeeping refers to the 500-year-old system in which each financial transaction of a company is recorded with an entry into at least...
Is the drawing account a capital account? Definition of Drawing Account A sole proprietorship will have a drawing account in which the owner’s withdrawals or draws of cash or other assets are recorded. The amounts of...
What does NOI stand for? NOI is the acronym for net operating income. Net operating income is also referred to as income from operations. NOI excludes discontinued operations, extraordinary items, and nonoperating (or...
Does a dividend reduce profit? Definition of Dividend A dividend declared by a corporation is a distribution to its stockholders of the profits the corporation had earned. Since the dividends are not an expense, the...
What is the difference between cash flow and free cash flow? Definition of Cash Flow Cash flow refers to the amounts of cash that a company, investment or project generates. The cash that a company generates is different...
Why does LIFO usually produce a lower gross profit than FIFO? Definition of LIFO LIFO (which is the acronym for Last In, First Out) is a cost flow assumption in which the most recent costs of inventory items are the...
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...
What is treasury stock? Definition of Treasury Stock Treasury stock is usually a corporation’s previously issued shares of common stock that have been purchased from the stockholders, but the corporation has not...
What is capital stock? Definition of Capital Stock Capital stock refers to the shares of ownership that have been issued by a corporation. The amount received by the corporation when its shares of capital stock were...
What is a stockholder? Definition of Stockholder A stockholder (also known as a shareholder) is the owner of one or more shares of a corporation’s capital stock. A stockholder is considered to be separate from the...
What is the difference between a note payable and a bond payable? Definition of Note Payable and Bond Payable For accounting purposes, a note payable and a bond payable have the following similarities: Formal written...
What is a bank reconciliation? What is a Bank Reconciliation A bank reconciliation is a process performed by a company to ensure that its records (check register, general ledger account, balance sheet, etc.) are correct....
What is a favorable variance? Definition of a Variance In accounting the term variance usually refers to the difference between an actual amount and a planned or budgeted amount. For example, if a company’s budget for...
What is the double-entry system? Definition of Double-Entry System The double-entry system of accounting or bookkeeping means that for every business transaction, amounts must be recorded in a minimum of two accounts....
Are liabilities always a bad thing? Definition of Liabilities Liabilities are a company’s obligations and are usually defined as a claim on the company’s assets. However, liabilities (and stockholders’ equity) can...
What is the difference between biweekly and semimonthly payroll? Definition of Biweekly Payroll Biweekly payroll refers to paydays that occur 26 times per year (52 weeks in a year divided by 2 weeks = 26 times per year)....
What is liquidity? Definition of Liquidity Liquidity is a company’s ability to convert its assets to cash in order to pay its liabilities when they are due. Current Assets Generally, the assets that are expected to...
What is the meaning of pro rata? Pro rata is a Latin term that means in proportion. Pro rata is related to prorate, a term used in cost accounting. To illustrate the term pro rata, let’s assume that a company’s...
What is the matching principle? Definition of Matching Principle The matching principle is one of the basic underlying guidelines in accounting. The matching principle directs a company to report an expense on its income...
What is the difference between liability and debt? Definition of Liability In accounting and bookkeeping, the term liability refers to a company’s obligation arising from a past transaction. Examples of Liabilities A...
What is the difference between equity financing and debt financing? Definition of Equity Financing Equity financing involves increasing the owner’s equity of a sole proprietorship or increasing the stockholders’...
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