How do you reduce a company's break-even point? Definition of Break-even Point The break-even point is the level of sales where a company’s income statement will report exactly zero net income. The level of sales can...
How do you reduce a company's break-even point? Definition of Break-even Point The break-even point is the level of sales where a company’s income statement will report exactly zero net income. The level of sales can...
What is an outside accountant? A company’s outside accountant is an accountant who is not an employee of the company. An outside accountant could be a sole practitioner or a member of a firm that provides accounting...
What is the provision for bad debts? Definition of Provision for Bad Debts The provision for bad debts could refer to the balance sheet account also known as the Allowance for Bad Debts, Allowance for Doubtful Accounts,...
What is petty cash? Definition of Petty Cash Petty cash or a petty cash fund is a small amount of money available for paying small expenses without writing a check. Petty Cash is also the title of the general ledger...
What is a restrictive endorsement? Definition of Restrictive Endorsement A restrictive endorsement or restricted endorsement places a limitation on the use of a check or other negotiable financial instrument. Using a...
What is ERP? Definition of ERP In accounting, ERP is the acronym for enterprise resource planning. ERP could be described as a database software package that supports all of a business’s processes and operations...
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...
What is going concern? Definition of Going Concern The going concern assumption is a basic underlying assumption of accounting. For a company to be a going concern, it must be able to continue operating long enough to...
What is an independent variable? In accounting, an independent variable is ideally a factor that causes a change in the total amount of the dependent variable. In other words, an independent variable should be something...
How do you record the interest that is unpaid on a note payable? Definition of Interest Unpaid on Note Payable Interest that has occurred, but has not been paid as of a balance sheet date, is referred to as accrued...
What is gross profit? Definition of Gross Profit Gross profit is defined as net sales minus the cost of goods sold. Gross profit is sometimes referred to as gross margin. (However, gross margin can also mean the gross...
How do you record a deposit on utilities? Definition of Deposit on Utilities A new customer of a public utility (electricity, natural gas, telephone, etc.) may be required to pay a refundable amount known as a utility...
What is meant by reconciling an account? Definition of Reconciling an Account Reconciling an account is likely to mean proving or documenting that an account balance is correct. Examples of Reconciling an Account When a...
Why do manufacturers use standard costs? One reason for a manufacturer to use standard costs is to plan carefully what its costs will be for the upcoming budgeting year and to then compare the actual costs with those...
What is the definition of net sales? Definition of Net Sales Net sales is a company’s gross sales of products minus any sales discounts and sales returns and allowances. When a company makes a sale, the general ledger...
What is recorded in the Wages and Salaries Expense account? Definition of Wages and Salaries Expense The account Wages and Salaries Expense (or separate accounts such as Wages Expense or Salaries Expense) are used to...
What is a contingent asset? Definition of Contingent Asset A contingent asset is a potential asset that is associated with a potential gain. The asset and gain are contingent because they are dependent upon some future...
What is the cost of sales? Definition of Cost of Sales Cost of sales is often a line shown on a manufacturer’s or retailer’s income statement instead of cost of goods sold. The cost of sales for a manufacturer is the...
Are salaries and wages part of expenses on the income statement? Definition of Salaries and Wages Salaries and wages are forms of compensation paid to employees of a company. Salaries and Wages as Expenses on Income...
What is a bond? There are several business definitions for bond. A bond could be a formal debt instrument issued by a corporation or government and purchased by investors. This is the meaning when we say that a public...
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...
What is direct labor? Definition of Direct Labor Direct labor refers to the employees and temporary staff who work directly on a manufacturer’s products. (People working in the production area, but not directly on the...
Are estimates allowed in bookkeeping? While bookkeeping involves mostly precise amounts from sales and purchase invoices, cash receipts and checks written, etc. there are situations when estimates need to be entered....
Can you help me understand the golden rules of accounting? The golden rules of accounting are not presented in any of the U.S. accounting books that I have reviewed. I assume the reason for omitting the golden rules of...
What is a defined contribution pension plan? A defined contribution pension plan is one in which the employer contributes an amount into each eligible employee’s account within an established plan. The employee decides...
What is the payback reciprocal? The payback reciprocal is a crude estimate of the rate of return for a project or investment. The payback reciprocal is computed by dividing the digit “1” by a project’s payback...
What are manufacturing costs? Definition of Manufacturing Costs Manufacturing costs are the costs of materials plus the costs to convert the materials into products. All manufacturing costs must be assigned to the units...
Costs that are matched with revenues on the income statement. For example, Cost of Goods Sold is an expense caused by Sales. Insurance Expense, Wages Expense, Advertising Expense, Interest Expense are expenses matched...
What is the difference between financial accounting and management accounting? Definition of Financial Accounting Financial accounting has its focus on the financial statements which are distributed to stockholders,...
In accounting, are debit balances good? It is best if you accept the meaning that the word debit has had for 500 years: a debit is an amount entered on the left-side of an account. Don’t add “good” or “bad” or...
What is meant by accounts written off? Definition of Accounts Written Off Accounts written off is likely referring to accounts receivable that a company deemed to be uncollectible and were removed from the general ledger...
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...
Which financial ratios are considered to be efficiency ratios? I consider the efficiency ratios to be the ratios also known as asset turnover ratios, activity ratios, or asset management ratios. These efficiency ratios...
What is a service department? Definition of Service Department A service department is usually associated with a manufacturer’s production departments. However, a service department does not produce any of the...
What is inventory shrinkage? Definition of Inventory Shrinkage Inventory shrinkage is a term to describe the loss of inventory. The shrinkage could be the result of theft, breakage, poor recordkeeping, etc. The term...
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 included in cash and cash equivalents? Examples of Cash In accounting, a company’s cash includes the following: currency and coins checks received from customers but not yet deposited checking accounts petty...
Why does the internal rate of return equate to a net present value of zero? Internal rate of return and net present value are discounted cash flow techniques. To discount means to remove the interest contained within the...
What is a defined benefit pension plan? A defined benefit pension plan is a retirement plan in which the employer commits to paying a specified monthly payment to each eligible employee when he or she retires at a stated...
What is reported as property, plant and equipment? Definition of Property, Plant and Equipment Property, plant and equipment is the long-term asset or noncurrent asset section of the balance sheet that reports the...
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