that the objective of the accounting process is to have accurate financial statements. In this case we want an income statement which reports an accurate amount of cost of goods sold, and the resulting gross profit...
that the objective of the accounting process is to have accurate financial statements. In this case we want an income statement which reports an accurate amount of cost of goods sold, and the resulting gross profit...
the contra sales account Sales Allowances for $10,000 (instead of debiting Sales) and credits Accounts Receivable. The company will likely combine the credit balance of $900,000 in the Sales account with the debit...
on December 31 was already in bankruptcy condition, the corporation must adjust its December 31 balance sheet by reducing its net receivables by $200,000 and reporting bad debts expense of $200,000 on its income...
income, and net income for both periods will also be incorrect. Example of an Inventory Error Assume that a company began operations on December 1. During December the company purchased $100,000 of goods that it planned...
. In essence, the cost of goods sold is being matched with the revenues from the goods sold, thereby achieving the matching principle of accounting. When the cost of goods sold is subtracted from net sales, the result is...
reporting at cost is the general rule, inventories must be reported at less than cost in certain situations. For example, some inventories will have to be reported at their net realizable value when it is less than...
is the net of the revenues that were missed minus the variable costs that were avoided. Calculating Opportunity Costs Since opportunity costs are the missed revenues associated with a missed opportunity you won’t find...
of a company’s fixed expenses assists in understanding how the retailer’s net income will change as volume changes. The total amount of fixed expenses can also be used to quickly estimate a company’s break-even...
statements. One of the basic underlying principles in GAAP is the cost principle. This means that the inventories, the cost of goods sold, and the resulting net income must reflect the manufacturer’s actual historical...
since it has a credit balance. Whenever depreciation expense is recorded (with a debit entry), Accumulated Depreciation is credited. The combination (or net) of the asset’s debit balance and the asset’s accumulated...
This is another term used for the 1% or 2% sales discount or purchase discount. Mark as wrong Mark as right 1/10, net 30 This invoice term indicates that the net amount (after any return or allowance) is due within...
annual property tax bill of approximately $12,000 in one payment each December 28. During the year, the corporation's monthly income statements report Property Tax Expense of $1,000. This is an example of which...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
Revenue should be credited because ABC has not earned the $1,000 and ABC has an obligation to perform the service in the future. 11. ABC Co. performed services for Client Kay in December and billed Kay $4,000 with terms...
Our Explanation of Adjusting Entries gives you a process and an understanding of how to make the adjusting entries in order to have an accurate balance sheet and income statement. Eight examples including T-accounts for...
Our Explanation of Manufacturing Overhead gives you examples of what is included in manufacturing overhead. You will learn that these are indirect product costs and therefore are allocated to the products in order to...
Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
Expense will be understated (too little expense being reported) by $1,000. 2) Net Income will be overstated (too much net income being reported) by $1,000. 3) Owner's equity will be overstated by $1,000. 4)...
, the balance in the account Allowance for Uncollectible Accounts must be a credit balance of $6,000. This will communicate that the net amount that will be turning to cash is $94,000. If the balance in the Allowance for...
. If the __________ __________ __________ of a company’s inventory is less than its cost, this lower amount will be reported on the company’s balance sheet. 3. If an error results in the amount of ending inventory...
of dividends will reduce the balance in __________ earnings. RETAINED NRAEEDTI Unscramble RETAINED EDTERAIN Unscramble 16. Inventories are often reported at the ________ of cost or net realizable value. LOWER WELOR...
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...
Our Explanation of Adjusting Entries gives you a process and an understanding of how to make the adjusting entries in order to have an accurate balance sheet and income statement. Eight examples including T-accounts for...
-in capital and deferred revenues Retained earnings and net income Paid-in capital and retained earnings 16. A new corporation’s first transaction involves earning service fees from a client. The client is allowed to...
and natural gas are likely to require this type of adjusting entry. Select... Accrual Deferral 19. Prepayments are associated with __________. Select... accruals deferrals 20. Failure to accrue interest expense at the...
Our Explanation of Improving Profits will assist you in focusing on the costs and revenues that are relevant (and ignoring those which are not relevant) for improving profits and eliminating losses. Examples of the...
is available at www.FASB.org. assets liabilities equity revenues expenses gains losses comprehensive income 21. Net assets. Select... assets liabilities equity revenues expenses gains losses comprehensive income 22....
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...
. However, the shares of common stock often have no par value or a very small par value. Retained Earnings Generally, retained earnings are the cumulative amounts of the corporation’s earnings or net income since the...
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...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
Our Explanation of Bank Reconciliation will show you the needed adjustments to the balance on the bank statement and also the adjustments needed to the balance in the related general ledger account. A comprehensive...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
Our Explanation of Break-even Point illustrates how to determine the number of units or sales dollars that will result in zero net income. The techniques rely on a product's contribution margin or contribution margin...
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...
a corporation’s revenues, expenses, gains, losses, and net income for a month, year, etc. The accrual method is also the preferred method for reporting a corporation’s assets, liabilities, and stockholders’ equity...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
show a negative net income. margin of safety This is the amount of sales above the break-even point. It is the amount by which sales could drop before the company would show a negative net income. Mark as wrong Mark as...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
Featured Review
"I am a small business accountant and tax preparer. A lot of my clients are do-it-yourself bookkeepers for their small business. Most of them, if not all, use bookkeeping software to keep track of their business. Although software programs are great at what they do and are easy for the user, the double entry accounting method is still occurring in the background. Accounting concepts and terms are not easily explained to a small business owner who doesn't understand why reports look the way they do. To help them, I always direct them to AccountingCoach to learn the concepts and terms. The tutorials, glossary, and web topics are presented in the best way that anyone can understand accounting. It's the best source on the web!" - Kathleen F.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: