and was $22,000 at the end of the year. During the year the owner invested $5,000 in the business and had withdrawn $24,000 for personal use. The sole proprietorship’s net income for the year was $__________. Any...
and was $22,000 at the end of the year. During the year the owner invested $5,000 in the business and had withdrawn $24,000 for personal use. The sole proprietorship’s net income for the year was $__________. Any...
amount in each full year of a plant asset’s useful life. straight-line depreciation This allocation method results in the same amount in each full year of a plant asset’s useful life. Mark as wrong Mark as right...
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...
statements also referred to as pro-forma financial statements Once prepared and approved, the budgeted amounts are used as a guide or road map in controlling the next year’s business activities. Example of Capital...
be an increase to the net profit. If the business is a regular corporation, net profit may mean after income tax expense. Example of Net Profit Assume that a sole proprietorship business had the following information...
to cash or other asset. At the end of the accounting year, the drawing account is closed by transferring the debit balance to the owner’s capital account. The Drawing Account is a Capital Account To answer your...
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...
What is a nominal account in accounting? Definition of Nominal Account In accounting, nominal accounts are the general ledger accounts that are closed at the end of each accounting year. The closing process transfers...
How do the responsibilities of a bookkeeper differ from those of an accountant? I see a bookkeeper’s responsibilities as getting the business transactions into the company’s general ledger. This involves a tremendous...
of the physical space occupied by the inventory including rent, depreciation, utility costs, insurance, taxes, etc. Cost of handling the items. Cost of deterioration and obsolescence. Often the costs are computed for a...
of the accounting year. 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...
, if a company receives $1,000 today and is able to invest the amount immediately at a rate of 10% per year, the company will have $1,100 after 365 days. If the time value of money is 10%, it also means that receiving...
, a corporation could instead debit a related account entitled Dividends (or Cash Dividends Declared). However, at the end of the accounting year, the balance in the Dividends account will be closed by transferring its...
purchased and the company’s standard cost per pound for the raw materials that were purchased. (The standard cost per pound is the cost that the company expected to pay for the year and was included in the company’s...
. Example of Systematic and Rational Allocation Assume that a retailer purchases new fixtures which are expected to have a useful life of 10 years with no salvage value. Therefore, if the retailer pays $120,000 for new...
by the employer, the amount is based on each employee’s wages, salary, commissions, etc. Often the FUTA tax ends up being 0.6% (6% minus a credit of 5.4%) of the first $7,000 per year of each employee’s wages,...
Why does a company debit Purchases instead of Inventory? Definition of Purchases and Inventory When a company uses the periodic inventory system the amount of the company’s inventory is determined by a physical count...
.) The profit and loss statement’s period of time could be a year, a year-to-date period such as nine months, a quarter of a year, one month, four weeks, 52 weeks, etc. Under the accrual basis (or method) of accounting...
What is annualizing? Definition of Annualizing Annualizing means taking a partial year amount and converting it to a full year amount. We will use several examples to illustrate how this works. Examples of Annualizing A...
Depreciation Expense is a temporary account. Therefore, at the end of each year, its balance is closed and the account Depreciation Expense will begin the next year with a zero balance. The account Accumulated...
of bonds payable. Instead of charging the $500,000 to expense in the year that the fees are paid, the corporation will defer the $500,000 to the contra liability account Bond Issue Costs. Then over the bonds’ life of...
on specified future dates Reported as liabilities Interest is accrued as a current liability Principal that is due within one year of the balance sheet date is reported as a current liability (unless there is a bond...
10 or more years after the date they are issued. Example of Bonds Payable Maturing within One Year of the Balance Sheet Date Bonds that will be maturing within one year of the balance sheet date will be reported as a...
cash inflows of $150,000 per year for 10 years. 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...
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...
A classic example of the materiality concept is a company expensing a $20 wastebasket in the year it is acquired instead of depreciating it over its useful life of 10 years. The matching principle directs you to record...
assume that a regular U.S. corporation has: A loan with an annual interest rate of 10% An incremental tax rate of 30% (combination of federal and state) If the corporation has a loan of $100,000 with an annual interest...
accounts. The amounts and balances in the general ledger accounts are used to prepare the company’s financial statements. Example of General Journal and General Ledger Assume that a company depreciates its equipment...
Why is prepaid insurance a short term asset? Definition of Prepaid Insurance as a Short-term Asset Prepaid insurance is usually a short term or current asset because insurance premiums are rarely billed for periods...
What is long-term debt? Definition of Long-term Debt In accounting, long-term debt generally refers to a company’s loans and other liabilities that will not become due within one year of the balance sheet date. (The...
of a bank building was $10 million and was fully depreciated during its first 30 years of use. The cost principle requires the depreciation expense on the bank’s income statement for year 31 (and each year thereafter)...
of $20,000 a year for 10 years. The current year’s income statement is reporting depreciation expense of $20,000 but there is no cash payment in the current year for this expense. This is why depreciation expense is...
. In other words, it recognizes that receiving $10,000 of cash today is more valuable than receiving $10,000 of cash in the future. Similarly, $10,000 cash receipt in Year 10 is less valuable than a $10,000 cash receipt...
clerk at a company that ends its accounting year on December 31. During the work week of Sunday December 22 through Saturday December 28 Jane earned $400 of wages that the company will pay to her on January 2. For the...
), and the targeted or required interest rate. Example of the Effective Interest Rate Assume that a corporation issues a $1,000 bond with a stated, contractual, face, or nominal interest rate of 5%. This means that the...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
Our Explanation of Present Value of a Single Amount discusses the time value of money and the need to discount future amounts to the time of an investment or other transaction. The present value of 1 table is used to...
Our Explanation of Future Value of a Single Amount will show you the power of compounded interest on a single deposit. You will see how the future value tables can be useful as well as the rule of 72.
of a single amount occurring in five years. If the company has a time value of money of 12% per year compounded quarterly, the number of periods (n) to be used in the calculation is __________ 20. 5 years times 4...
is the acronym for __________ Income Credit. 7. EFTPS is the acronym for __________ Federal Tax Payment System. 8. An employee may claim an __________ from income tax withholding if the employee had no income tax...
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