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 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 Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
statement, statement of comprehensive income, statement of stockholders’ equity, and statement of cash flows) which report the amounts that occurred during a period of time such as the year ended December 31, 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...
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...
are obligations due within one year of the balance sheet date, or within the operating cycle when the operating cycle is longer than one year.) Working capital is defined as current assets minus current liabilities....
What is a depreciable asset? Definition of Depreciable Asset A depreciable asset has the following characteristics: A tangible asset (other than land) Has a useful life of more than a year Is used in the business The...
What are fixed assets? Definition of Fixed Assets Fixed assets are a company’s tangible, noncurrent assets that are used in its business operations. The word fixed indicates that these assets will not be used up,...
ledger account Sales Discounts is a contra revenue account. Sales discounts are not reported as an expense. Example of Sales Discounts A company offers its business customer sales discounts of 1/10, net 30. For the...
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...
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...
the accrual method of accounting. For instance, the monthly bookkeeping entries for depreciation, property taxes, utilities, fringe benefits and more will need to be estimates. Even the end-of-year financial statements...
be reviewed annually to see if there is an impairment, and potentially record an impairment loss. Private companies may opt to amortize goodwill generally over a 10-year period and thereby minimize the cost and...
Assume that a company is considering an investment that will provide net cash inflows of $1,000 at the end of each year for five years. The amount of cash that the company must pay at the beginning of the investment is...
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...
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...
the year. A charitable organization may have a salaried employee who works in three areas of the organization. This employee’s salary is a common cost that will be allocated to the three areas. Join PRO to Track...
for one of its customers. Periodicity allows the manufacturer to divide the manufacturing costs of the machine into the 24 monthly periods covered by the contract. Periodicity also allows the manufacturer to report the...
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...
, there are occasions when the general ledger expense accounts will be credited. Examples of Expenses being Credited Below are some examples of when general ledger expense accounts are credited: When recording closing...
preferred shares, the preferred dividend is in arrears. The result of having these dividends in arrears is that the owners of the common stock cannot receive a dividend until the preferred stock’s dividends in arrears...
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....
materials, it concludes that LIFO will better indicate the company’s true profit. In the year of the change from FIFO to LIFO (and in years when comparisons are presented), the company must disclose the break in...
in recording the payment as an asset—a prepaid expense or deferred charge—that will then be amortized to expense over the three year contract. Join PRO to Track Progress Mark the Question as Read Must-Watch Video...
will have no entries until it is adjusted at the end of the accounting year so that it reports the cost of the ending inventory. Under the periodic system, the cost in the account Purchases will be added to the cost of...
the security deposit is refundable (and the tenant intends to comply with the specified conditions) the tenant that paid the security deposit will report the amount as an asset. If the tenant intends to occupy the...
opportunity to be producing profitable output during the setup time is not an out-of-pocket cost. (The cost of not earning profits during the setup time, known as an opportunity cost, is often far greater than the...
track the total amounts of refunds that you make during a year. On the other hand, if it is rare for your organization to refund registration fees, you could simply 1) debit the amount you are refunding to the normal...
Retained Earnings is debited for the total amount of the dividend that will be paid and the current liability account Dividends Payable is credited for the same amount. (Some corporations will debit the temporary...
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...
the actual sales for the year are $2 million, $4 million or $8 million. [In contrast, a flexible budget for sales commissions expense might be expressed as 5% of sales. This means that the budget for sales commissions...
. In other words, you made a $150,000 investment and recorded it as the asset Mortgage Loan Receivable. The house is the collateral for the loan receivable. Within one year, the local housing market drops by 30% and the...
of a company’s financial position at the end of the accounting year. The reason is that all assets that were earned are reported and all liabilities that were incurred will be reported on the balance sheet. The...
up within one year are reported on a company’s balance sheet as a current asset. As the amount expires, the current asset is reduced and the amount of the reduction is reported as an expense on the income statement....
Can a cost be both a direct cost and an indirect cost? A cost can be both a direct cost and an indirect cost. One of many examples is the cost of a supervisor in a department within a factory. Let’s assume that Sam...
30 for liability insurance for the six months that begins on January 1. For the next two days, none of the $600 will be reported as an expense. Instead, all $600 of cost is being deferred until the new year. Therefore,...
What is comprehensive income? Definition of Comprehensive Income Comprehensive income for a corporation is the combination of the following amounts which occurred during a specified period of time such as a year,...
from Equipment to Repairs Expense.” Reclassification can also be used to describe moving a note payable from a long-term liability account to a short-term or current liability account when the note’s maturity date...
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