An expense reported on the income statement that did not require the use of cash during the period shown in the heading of the income statement. The typical example is depreciation expense. Also, the write-down of an...
An expense reported on the income statement that did not require the use of cash during the period shown in the heading of the income statement. The typical example is depreciation expense. Also, the write-down of an...
The assigning or dividing up of amounts. For example, depreciation is an allocation process because it assigns an asset’s cost to expense in each of the years the asset is expected to be used. There is also an...
The ratio of total liabilities to stockholders’ equity. The higher the proportion of debt to equity, the more risky the company appears to be. An indicator of the amount of financial leverage at a company. It...
An accelerated method of depreciation, where two times the straight-line rate is applied to the book value of an asset. The result is more depreciation expense in the early years and less in the later years of the...
Transfer of an asset’s title from seller to buyer for a stated amount. The transfer/sale occurs at the shipping point (if terms are FOB shipping point), at the time when the item reaches the destination (if terms...
Costs that have been divided up and assigned to periods, departments, products, etc. In depreciation it is the asset’s cost that is assigned to each of the years that the asset is in use. In cost accounting it is...
Industries that are regulated by the government often have prescribed reporting requirements that carry over to the generally accepted reporting formats for financial reporting. For example, utilities’ balance...
An intangible asset reported on the balance sheet at the company’s cost (or lower). Often, successful trade names were developed by companies over many years. As a result the cost of the trade name is minimal, but...
The contra owner’s equity account that reports the amount of withdrawals of business cash or other assets by the owner for personal use during the current accounting year. At the end of the accounting year, the...
One of the main financial statements of a nonprofit organization. This financial statement reports the revenues and expenses and the changes in the amounts of each of the classes of net assets during the period shown in...
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...
How are the balance sheet and income statement connected? Connection between Balance Sheet and Income Statement The connection between the balance sheet and the income statement results from: The use of double-entry...
as an asset and expensed later. To defer the cost to the balance sheet is to capitalize the costs. Examples of Costs Being Expensed Costs are reported as expenses in the accounting period when they are used up, have...
What is an impairment? Definition of Impairment The term impairment is associated with an asset currently having a market value that is less than the asset’s book value . A test is done to determine whether the...
expense over the years of the asset’s useful life.) Example of Revenue Expenditure Let’s assume that a company made a capital expenditure of $100,000 to install a high efficiency machine. The new machine requires...
include the company’s employees (who are owed wages and bonuses), governments (who are owed taxes), and customers (who made deposits or other prepayments). Some creditors are referred to as secured creditors because...
and transferred to the owner’s capital account, thereby increasing owner’s equity. (At a corporation, the credit balances in the revenue accounts will be closed and transferred to Retained Earnings, which is a...
in the general ledger accounts To report revenues and gains along with the related assets for transactions that have occurred but are not yet recorded in the general ledger accounts To defer future expenses and the...
. To increase an asset, a debit entry is required. To increase a liability, a credit entry is required. Hence, the account Cash will be debited for $10,000 and the liability Loans Payable will be credited for $10,000....
Why does our company's balance sheet report its land at cost when it is so much more valuable? Accountants are guided by the cost principle. This requires accountants to report assets at their cost when...
will be too high A regular corporation’s income tax expense will be too high The overstating of inventory will also affect the following reported amounts on the corporation’s balance sheet: The amount of inventory...
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...
balances. Since expenses reduce owner’s equity, Advertising Expense must be debited for $500. Therefore, double entry requires that another account must be credited for $500. Since cash was used, the account Cash will...
. Therefore, to reduce the credit balance, the expense accounts will require debit entries. Example of Rent Expense as a Debit If a company pays $800 for the current month’s rent, the company’s assets and its...
and matching principle. Book value of an asset is: the asset’s cost minus the asset’s accumulated depreciation. Book value of the liability Bonds Payable is the combination of the following: Maturity or par value of...
the company lists its cash inflows and cash outflows resulting from the disposal or acquisition of the company’s long-term assets that took place during the time indicated in the heading of the statement. Examples of...
sheet account that is reported under the heading of Property, Plant and Equipment. The asset’s cost (except for the cost of land) will then be allocated to depreciation expense over the useful life of the asset. The...
report a corporation’s assets as dollar amounts (rather than reporting details of all of the assets). If an asset cannot be expressed as a dollar amount, it cannot be entered in a general ledger account. For example,...
accounting year will report the same amount of depreciation. The total amount of depreciation over the years of the asset’s useful life will be the asset’s cost minus any expected or assumed salvage value. In the...
What does the cost principle mean for a company's income statement? If a company has buildings, equipment and inventory, the cost principle will mean that the amount of depreciation expense and the cost of goods...
future transactions. The accountants’ cost principle prohibits a business from reporting some highly-valued assets such as trademarks, brand names, and an effective management team (assuming these were developed...
Is the drawing account a capital account? Definition of Drawing Account A sole proprietorship will have a drawing account in which the owner’s withdrawals or draws of cash or other assets are recorded. The amounts of...
is the sum of the following: the days’ sales in inventory (365 days/inventory turnover ratio), plus the average collection period (365 days/accounts receivable turnover ratio) The operating cycle has...
is calculated by dividing a company’s cost of goods sold during a year by the average inventory during the same year. Accounts receivable turnover ratio. This ratio is computed by dividing the credit sales during a...
expensing assets having a cost of less than $2,500 instead of setting up fixed asset records and depreciating those assets over their useful lives. Join PRO to Track Progress Mark the Question as Read Must-Watch Video...
appearing first followed by the income statement accounts. Examples of General Ledger Accounts Some of the more common balance sheet accounts and how they are further arranged in the general ledger include: asset...
, and/or Planned amounts that will be spent for future additions to property, plant and equipment When the depreciable assets that are included in capex are put into service, their costs will be depreciated over the...
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