as a current liability. The remaining amount of principal owed should be classified as a long-term (or noncurrent) liability. Example of Loan Payment A company makes monthly payments of $500.00 on the last day of every...
as a current liability. The remaining amount of principal owed should be classified as a long-term (or noncurrent) liability. Example of Loan Payment A company makes monthly payments of $500.00 on the last day of every...
: It is a note payable for the borrower who reports the note on its balance sheet as a liability It is a note receivable for the lender who reports the note on its balance sheet as an asset The interest promised in the...
the loan) Credit Notes Payable for $100,000 (the principal amount that is due in two years) Since the principal balance of $100,000 will not be reduced until two years later, the note payable is reported on the balance...
(a noncurrent or long-term asset). The total cost will then be depreciated over the building’s useful life. (On the other hand, interest to finance the company’s operations or to build equipment is not capitalized....
-term or noncurrent liability. Example of a Note Payable If a company borrows money from its bank, the bank will require the company’s officers to sign a formal loan agreement before the bank provides the money. The...
Where does the purchase of equipment show up on a profit and loss statement? Reporting the Purchase of Equipment Assuming that the purchase of equipment is a long-term or noncurrent asset that will be used in a business,...
of the balance sheet date will be a noncurrent or long-term liability. The company should also disclose pertinent information for the amounts owed on the notes. This will include the interest rates, maturity dates,...
(noncurrent) liability account Bonds Payable will be credited with the face value of the bond. Cash will be debited for the cash received, and any difference will be recorded in one or two of the following bond-related...
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 Financial Statements provides you with the highlights of each of the five external financial statements issued by U.S. corporations. Our insights will give you a good understanding of what 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...
, revenue recognition). The accrual method results in a better picture of a corporation’s net income during a specified period of time and it results in a better picture of a corporation’s assets and liabilities at...
and to increase the balance you need to CREDIT the account. Credit Right! To increase a liability you credit the liability account. Cash Debit Right! Cash and other assets are debited to increase their balances. Credit...
Our Explanation of Evaluating Business Investments compares four of the techniques for reviewing potential capital expenditures. You will be introduced to accounting rate of return, payback, net present value, and...
). The quick ratio differs from the current ratio in that some current assets are excluded from the quick ratio. The most significant current asset that is excluded is inventory. The reason is that inventory might not be...
How do drawings affect the financial statements? Definition of Drawings Drawings are the withdrawals of a sole proprietorship’s business assets by the owner for the owner’s personal use. The drawings or draws by the...
to be part of the cost of items purchased, since an asset’s cost is defined as all costs that are necessary to get the asset in place and ready for use. Join PRO to Track Progress Mark the Question as Read Must-Watch...
resources. The segregation of duties (or separation of duties) is part of a company’s internal controls for safeguarding its assets. Example of Segregation of Duties An example of the segregation of duties is a...
of a company’s financial position at the end of the accounting year. The reason is that all assets that were earned are reported and all liabilities that were incurred will be reported on the balance sheet. The...
asset turnover and fixed asset turnover are indicators of a company’s effectiveness in utilizing its assets. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting...
What is the difference between receivables and accounts receivable? Definition of Accounts Receivables Accounts receivable are usually current assets that result from selling goods or providing services to customers on...
marketable securities of $20,000 + accounts receivables of $93,000. This adds up to $120,000 of quick assets. If the company’s current liabilities amount to $100,000 the acid test ratio is 1.2:1. A large acid test...
Is it possible for owner's equity to be a negative amount? Definition of Negative Owner’s Equity Negative owner’s equity means the amount of a sole proprietorship’s liabilities exceeds the amount of its...
How do you amortize goodwill? Definition of Amortize Goodwill Prior to 2001, to amortize goodwill meant to consistently and in uniform increments move the reported amount of the intangible asset goodwill from the balance...
What is disinvestment? In business, disinvestment means to sell off certain assets such as a manufacturing plant, a division or subsidiary, or product line. Disinvestment is sometimes described as the opposite of capital...
: To have cash available for unforeseen events and for increases in its costs To reduce its long-term debt or repurchase shares of its common stock To increase inventory to expand, to purchase in larger quantities for...
What is historical cost? Definition of Historical Cost Historical cost is a term used instead of the term cost. Cost and historical cost usually mean the original cost at the time of a transaction. The term historical...
What is separation of duties? What is Separation of Duties The separation of duties is one of various internal control techniques for safeguarding a company’s assets. By separating employee’s duties, the likelihood...
Typically, the combined amount of cash and cash equivalents will be reported on the balance sheet as the first item in the section with the heading current assets. Join PRO to Track Progress Mark the Question as Read...
current assets and the calculation of its cost of goods sold. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your...
of a company’s customers who were given 30 days in which to pay has filed for bankruptcy and the customer’s assets are close to $0. Therefore, there will be no amount left to pay any of the $4,000 it owes to the...
, seasonal variations will be included. Using only the end of year point for two years is generally not indicative of the inventory levels in the months throughout the year. The 13-point average is also useful for...
the reported amount of assets. Since the reported amounts reflect the cost principle and other accounting principles, the net result cannot be assumed to be the company’s worth. Join PRO to Track Progress Mark the...
Are depreciation, depletion and amortization similar? In accounting the terms depreciation, depletion and amortization often involve the movement of costs from the balance sheet to the income statement in a systematic...
in which the office furniture is recorded, such as Furniture and Fixtures or Office Furniture. In other words, the discount is a reduction of the asset’s cost. [If the discount is received by a retailer who is in the...
with a reseller’s certificate, which allows the supplier to not charge the sales tax. If a sales tax is paid by the reseller and the sales tax could have been avoided, the sales tax would have to be expensed...
In bookkeeping, why are revenues credits? In bookkeeping, revenues are credits because revenues cause owner’s equity or stockholders’ equity to increase. Recall that the accounting equation, Assets = Liabilities +...
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