Why does commitment and contingencies appear on the balance sheet without an amount? Definition of Commitments and Contingencies Commitments and contingencies is a balance sheet line with no amount reported. The line...
Why does commitment and contingencies appear on the balance sheet without an amount? Definition of Commitments and Contingencies Commitments and contingencies is a balance sheet line with no amount reported. The line...
What does it mean to amortize a loan? Definition of Amortize a Loan To amortize a loan usually means establishing a series of equal monthly payments that will provide the lender with: An interest payment based on the...
What is income smoothing? Definition of Income Smoothing Income smoothing involves reducing the fluctuations in a corporation’s earnings. The reductions in fluctuations can result from some legitimate business methods...
What is the difference between an implicit cost and an explicit cost? Definition of Implicit Cost An implicit cost is present but it is not initially shown or reported as a separate cost. Definition of Explicit Cost An...
Is standard costing GAAP? Definition of Standard Costing Standard costing is a cost accounting system used by some manufacturers to assist in planning and controlling its manufacturing operations. When standard costing...
What are mixed costs? Definition of Mixed Costs In accounting, the term mixed costs refers to costs and expenses that consist of two components: A fixed component, the total of which does not change as the volume of...
What do negative variances indicate? Definition of Negative Variances on Accounting Reports Negative variances are the unfavorable differences between two amounts, such as: The amount by which actual revenues were less...
Why is depreciation on the income statement different from the depreciation on the balance sheet? Definition of Depreciation Depreciation is the systematic allocation of an asset’s cost to expense over the useful life...
Is depreciation a direct or indirect cost? Definition of Depreciation Depreciation is defined as the systematic expensing of the cost of an asset such as equipment, building, vehicle, etc. over the useful life of the...
What does it mean to amortize the premium, discount, and issue costs on bonds payable? Definition of Amortize Premium, Discount, and Issue Costs With regards to bonds payable, the term amortize means to systematically...
What is the difference between Social Security and Medicare payroll taxes? Social Security Payroll Tax The Social Security payroll tax is 6.2% and is based on each employee’s earnings (wages, salaries, bonuses,...
What is the difference between wages and salary? You should be aware that some people use the terms wages and salary interchangeably. I and many others make the following distinction… Definition of Wages Wages are...
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.
Balance Sheet Balance Sheet The balance sheet is also known as the statement of financial position and it is one of the five external financial statements issued by U.S. corporations. The balance sheet reflects the...
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...
Adjusting Entries(Quick Test #1) Download PDF After you have answered all 40 questions, click "Grade This Quick Test" at the bottom of the page to view your grade and receive feedback on your answers. Note: Some of the...
Accounts Payable(Quick Test #2 with Coaching) Download PDF This Quick Test with Coaching includes a “View Coaching” button to the right of each answer box. If you choose to click the button, an explanation for the...
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
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.
Is a prepaid expense recorded initially as an expense? Definition of Prepaid Expense A prepaid expense refers to an amount that a company has paid and a portion or all of it will be an expense in a later accounting...
What is a static budget? Definition of Static Budget A static budget is a budget in which the amounts will not change even with significant changes in volume. In contrast to a static budget, a company’s sales...
Where do I record the refund of a registration fee? If the registration fee refers to a fee expense that you had originally paid but the amount is now being refunded to you, I would credit the same expense account that...
Why do bonds rarely sell for their maturity value? The reasons why bonds rarely sell for their maturity value are: The interest paid is usually fixed at the interest rate that is stated on the face of the bond. As a...
What is the difference between the cash basis and the accrual basis of accounting? Definition of the Cash Basis of Accounting Revenues are reported on the income statement in the period in which the cash is received from...
What conditions cause a discount on bonds payable? Discount on bonds payable occurs when a bond’s stated interest rate is less than the bond market’s interest rate. If a $1,000,000 bond issue promises to pay interest...
Where are short-term bank loans reported on the statement of cash flows? Definition of Short-Term Bank Loans Short-term bank loans are generally loans that must be repaid within one year of the date of the balance sheet....
What is window dressing? Definition of Window Dressing Window dressing refers to actions taken or not taken prior to issuing financial statements in order to improve the appearance of the financial statements. Example...
What are prepaid expenses? Definition of Prepaid Expenses Prepaid expenses are future expenses that have been paid in advance. In other words, prepaid expenses are costs that have been paid but are not yet used up or...
How do you record a dividend payment to stockholders? Definition of Dividend Payment to Stockholders A dividend payment to stockholders is usually a cash payment which reduces the corporation’s asset cash and the...
What are turnover ratios? Definition of Turnover Ratios In accounting, turnover ratios are the financial ratios in which an annual income statement amount is divided by an average asset amount for the same year....
A multi-column listing of the amounts needed to eliminate a balance in a systematic manner over the life of the item. For example, an amortization schedule for a 15-year mortgage loan would show the 180 payments. The...
What are out-of-pocket costs? Out-of-pocket costs are those costs or expenses that require a cash payment in the current period or during a project. For example, the wages of the person setting up a machine for a new...
What is periodicity in accounting? Definition of Periodicity Periodicity is an accounting assumption made by accountants so that a company’s complex and ongoing activities can be divided up into annual, quarterly, and...
When are expenses credited? Definition of Expenses Credited Normally, the general ledger accounts for expenses are debited and are expected to have debit balances. The reason they are debited is they cause the normal...
What is callable stock? Callable stock is an ownership interest (shares) in a corporation that can be “called in” by the corporation at a specified price. For example, a corporation might issue 9% $100 Preferred...
Are sales discounts reported as an expense? Definition of Sales Discounts Sales discounts are also known as cash discounts or early payment discounts. Sales discounts (along with sales returns and allowances) are...
What is a budget? A budget is a financial plan for future activities. The budgets used in business often include a sales or revenues budget detailed by products or services, production budgets, budgets for each...
Why is it necessary to allocate a lump sum payment to individual items? It is necessary to allocate a lump sum payment to individual items in order to record a fair portion of the lump sum in each of the proper general...
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