How do you calculate the cost of goods sold for a retailer? Formula for Calculating a Retailer’s Cost of Goods Sold A retailer’s cost of goods sold is: The cost of the retailer’s beginning inventory Plus the cost...
How do you calculate the cost of goods sold for a retailer? Formula for Calculating a Retailer’s Cost of Goods Sold A retailer’s cost of goods sold is: The cost of the retailer’s beginning inventory Plus the cost...
What is a letter of credit? A letter of credit is a letter or document issued by a bank for use by one of its customers. The letter of credit states that the bank will guarantee payment up to the stated amount for...
How can I determine the difference in earnings from using LIFO instead of FIFO? The difference in a corporation’s earnings from using LIFO instead of FIFO can be determined by the amounts reported in the balance sheet...
Why does an inventory error affect two periods? Definition of Inventory Error An inventory error could be the result of any of the following: Omitting some items when physically counting inventory Double counting some...
Does the accrual method apply to the purchase of equipment? The accrual method does apply to the purchase of equipment (as well as applying to revenues and expenses). To illustrate, let’s assume that on December 29 a...
What is the meaning of systematic and rational allocation? Definition of Systematic and Rational Allocation Systematic and rational allocation is typically included in the definition of depreciation. In this context, it...
How many days after a month ends should the bank reconciliation be done? Definition Bank Reconciliation The bank reconciliation (if prepared or reviewed by someone other than the person with access to the checking...
Will the adjusting entry amounts appear in the balance sheet and income statement? Absolutely. The adjusting entry amounts must be included on the income statement in order to report all revenues earned and all expenses...
Is it a requirement for a small business to have a CPA? Generally, a small business is not required to have a CPA or certified public accountant. A CPA would be needed if the small business must have its financial...
Is the sales tax paid on merchandise that you will resell an expense? I believe that most states have sales tax exemptions for merchandise purchased for resale. Check with your state’s sales tax department to see if...
Why can a retailer record its purchase of merchandise as a debit to purchases within the cost of goods sold, instead of the asset inventory? Before we explain why companies will record the purchases of merchandise in the...
What if an employee's actual vacation payment is greater than the amount that has been accrued? Let’s assume that a company’s accounting year ends on December 31 and the company has only one employee who worked the...
Is an automobile loan payment an expense? Only the interest portion of an automobile loan payment is an expense. The principal portion of the loan payment is a reduction of the loan balance, which is reported as a Note...
Is a utility bill an expense? The utility bill for a retailer or for a service company is an expense. Under the accrual basis of accounting, the utility bill is an expense for the period indicated by the meter reading...
Reducing the Need for Accruing Expenses One day I was explaining to the owner of a small business that I would have to accrue for the shipping expenses associated with his company’s sales. Since the shipping company...
How do I record an advance to an employee and the deduction? Definition of Advance to an Employee A cash advance to an employee is usually a temporary loan by a company to an employee. In other words, the company is the...
Is the cost of goods sold an expense? Why the Cost of Goods Sold is an Expense We often think of expenses as salaries, advertising, rent, commissions, interest, and so on. However, the cost of goods sold is also an...
How do you balance a checkbook? Definition of Balance a Checkbook To balance a company checkbook means comparing the amounts on the bank statement (or other bank account detail) to the amount in the company’s...
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...
What is a plant asset? What is a Plant Asset A plant asset is an asset with a useful life of more than one year that is used in producing revenues in a business’s operations. Plant assets are also known as fixed...
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...
What is the abbreviation for debit and credit? Abbreviation for Debit and Credit The abbreviation for debit is dr. and the abbreviation for credit is cr. Apparently the “dr.” is associated with the term used in Italy...
How do you compute a selling price if you know the cost and the required gross margin? Definition of Selling Price A selling price is the amount that a customer will pay to buy a product. If a retailer wants to earn a...
In what order are liabilities listed in the chart of accounts? Order for Listing Liabilities It is logical for a company’s liabilities to be organized in the chart of accounts in the same way as they are presented on...
What is the difference between liability and debt? Definition of Liability In accounting and bookkeeping, the term liability refers to a company’s obligation arising from a past transaction. Examples of Liabilities A...
What is the meaning of pro rata? Pro rata is a Latin term that means in proportion. Pro rata is related to prorate, a term used in cost accounting. To illustrate the term pro rata, let’s assume that a company’s...
What is accounts receivable? Definition of Accounts Receivable Accounts receivable is the amount owed to a company resulting from the company providing goods and/or services on credit. The term trade receivable is also...
Should a retailer's delivery surcharges be reported as revenues or as other income? I believe that a retailer’s delivery surcharges are a price adjustment and should be reported as operating revenues. The surcharges...
Why are wages reported as an expense when the work occurs, but the employees' tax records report them when they are paid? Accrual Method for the Corporation, Cash Method for the Employees The short answer is that 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....
What is not sufficient funds? Definition of Not Sufficient Funds Not sufficient funds or NSF or insufficient funds is a term to describe a check that has been returned by the bank because the balance in the checking...
How do you calculate the payroll accrual? Definition of Payroll Accrual The payroll accrual is the amounts a company owes for work done by employees, but the amounts have not yet been recorded in the company’s general...
How is the account Cash Short and Over used? Definition of Cash Short and Over Account The account Cash Short and Over is an income statement account (within a company’s general ledger) in which shortages or overages...
What is the free cash flow ratio? Definition of Free Cash Flow Free cash flow for a year is an amount (as opposed to a ratio or percentage) usually defined as: net cash provided by operating activities for the year minus...
What is the difference between revenue, income, and gain? Definition of Revenue Revenue is the amount earned from a company’s main operating activities, such as a retailer selling merchandise or a law firm providing...
Why is an increase in inventory shown as a negative amount in the statement of cash flows? Meaning of a Negative Amount on Statement of Cash Flows A negative amount on the statement of cash flows (SCF) indicates that the...
What is notes receivable? Definition of Notes Receivable Notes receivable is an asset of a company, bank or other organization that holds a written promissory note from another party. (The other party will have a note...
What is gross pay? Definition of Gross Pay Gross pay is the amount an employee is paid before the employer withholds FICA (Social Security and Medicare payroll taxes), income taxes (federal, state, local) if applicable,...
What is a common carrier? A common carrier is a business that transports goods for other companies, organizations, or individuals. The common carrier is responsible for any loss associated with the transport of the...
How can a business increase its cash flow from operations? A business can increase its cash flow from operations (or operating activities) by looking closely at each of its current assets and current liabilities. For...
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