(the discount period). This discount is also referred to as: An early payment discount A sales discount for the company selling the goods A purchase discount for the customer buying the goods Examples of Credit Terms...
(the discount period). This discount is also referred to as: An early payment discount A sales discount for the company selling the goods A purchase discount for the customer buying the goods Examples of Credit Terms...
in the business minus the owner’s draws or withdrawals from the business plus the net income (or minus the net loss) since the business began. Owner’s equity is viewed as a residual claim on the business assets...
What is accumulated other comprehensive income? Definition of Accumulated Other Comprehensive Income Accumulated other comprehensive income is a separate line within the stockholders’ equity section of the balance...
What is the return on assets ratio? Definition of Return on Assets Ratio The return on assets ratio, or return on total assets ratio, relates a company’s net income during a specific year, to the company’s average...
truck, and the truck’s carry amount (book value) at the time of the sale was $600, the company will have a gain of $2,400. Definition of Income Non-accountants might use the term income instead of the word revenue....
of comprehensive income along with the amount of net income from the income statement. Since the OCI items do not affect the net income, they do not cause a change in a corporation’s retained earnings. Instead, the...
What is NPV? Definition of NPV NPV is the acronym for net present value, which can be calculated as follows: The present value of the future cash inflows Minus the cash investment Example of NPV Assume that a company...
How do you reduce the break-even point? Definition of Break-even Point The break-even point is the number of units or amount of revenues needed for the company’s income statement to report zero net income or zero net...
What is EBIT? EBIT is the acronym for earnings before interest and taxes. In other words, EBIT is a corporation’s net income assuming it had no interest expense and no income tax expense. (Since the amount of earnings...
An account with a balance that is the opposite of the normal balance. For example, Accumulated Depreciation is a contra asset account, because its credit balance is contra to the debit balance for an asset account....
What is a contra inventory account? A contra inventory account is a general ledger account with a credit balance. The credit balance in the contra inventory account will be combined with the debit balance in the...
, fundraising, and management and general The change in net assets resulting from the previous two bullet points The statement of activities will have multiple columns in order to report the amounts for each of the...
is paid, the following will occur: Current liabilities (Dividends Payable) will decrease Current assets (Cash) will decrease The income statement is not affected by the declaration and payment of cash dividends on...
Why is the P&L profit entered on the credit side of the balance sheet? Profit’s Effect on the Balance Sheet The profit or net income belongs to the owner of a sole proprietorship or to the stockholders of a...
income statements. interim income statements These income statements are issued for periods other than the official annual income statements. An example is the quarterly income statements. Mark as wrong Mark as right...
Our Explanation of Accounts Payable provides insights on the bill paying process in a large company. Included are discussions of the three-way match, early payment discounts, end of period accruals, and more.
Our Explanation of Income Statement helps you learn the most important features of a corporation's income statement (also known as the statement of operations or profit and loss statement). We provide more understanding...
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...
ratio is current assets DIVIDED BY current liabilities. Working capital is current assets MINUS current liabilities. Net Worth Wrong. This answer is incorrect. Working Capital Right! This is the correct answer. 3....
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...
assume that a company uses the accrual basis of accounting. If the company borrows $100,000 on December 15 and agrees to pay interest on the 15th day of each month at the rate of 1% per month, the interest expense for...
and it is positioned immediately after current assets. The cash restricted for a long-term asset is not reported as part of the company’s current assets because the cash is not available to pay current liabilities....
What is Subchapter S? Subchapter S refers to a section of Chapter 1 of the U.S. Internal Revenue Code. A subchapter S corporation, which is also referred to as an S corporation, is a corporation that does not pay the...
What is carriage outwards? Definition of Carriage Outwards Carriage outwards refers to the transportation costs that a seller must pay when it sells merchandise with the terms FOB Destination. Carriage outwards is also...
Fees earned from providing services and the amounts of merchandise sold. Under the accrual basis of accounting, revenues are recorded at the time of delivering the service or the merchandise, even if cash is not received...
(or current ratio) is one indicator of a company’s ability to pay its current obligations. Example of Working Capital Ratio If a company has $600,000 of current assets and has $400,000 of current liabilities, its...
entitled Petty Cash when the petty cash fund is established. Example of Petty Cash Affecting Expenses Assume that the petty cash money is used to pay postage of $10. While the company incurs this cost at the time of...
pays for its purchases 90 days after it receives the goods. The corporation does not have sufficient money to purchase the raw materials, pay for the labor, and then wait 90 days to collect the receivable. The...
What are quick assets? Definition of Quick Assets Quick assets are a company’s current assets which can quickly be converted into cash. Quick assets provide the liquidity necessary to pay the company’s obligations...
of the preferred stock agreement requiring it to pay the $9 per share dividend. In turn, the stockholders will be deprived of receiving the $9 dividend in a 7% market. The call price has the effect of limiting how high...
What is solvency? Definition of Solvency I use the term solvency to mean a company is able to 1) pay its obligations when they come due, and 2) continue in business. Some people look to a company’s working capital to...
current ratio, but may not have liquidity. Hence, the inventory turnover ratio and the accounts receivable turnover ratio can provide insights as to a company’s ability to convert its current assets to cash in time to...
is guaranteeing that it will pay up to $500,000 if the insured company does not make its required payments for its purchases. We also use bond to mean that a company purchases insurance to protect itself from dishonest...
from Employees. Example of Employee Loan Assume an employee’s car needs an $800 repair and the employee does not have the money. The company employer agrees to give the employee an $800 advance to pay for the repair....
of purchases and payments. The company may also employ a payroll clerk to process its many employees’ pay and fringe benefits. Perhaps an accounts receivable clerk will be employed to focus solely on the company’s...
by discounting them with an appropriate interest rate The number of years it takes for a project’s cash flow to pay back the initial cash investment An assessment of risk along with the urgency of the project Join PRO...
suppliers. If you purchase an asset and the sales tax is required, the sales tax should be recorded as part of the cost of the goods or services received. For example, if you were required to pay sales tax on the new...
include: Billing for goods sold or services provided to clients Recording receipts from customers Verifying and recording invoices received from suppliers Paying suppliers Processing employees’ pay and the related...
Is the sales tax on merchandise purchased for resale included in inventory? In our state, sales tax is paid only by the end customer. In other words, a retailer does not pay sales tax on merchandise that is purchased for...
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