Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
will likely be reinvested in additional income-producing assets or used to reduce the corporation’s liabilities. Where do Retained Earnings Come From? At the end of an accounting year, the balances in a...
What is a deferral? Definition of Deferral A deferral often refers to an amount that was paid or received, but the amount cannot be reported on the current income statement since it will be an expense or revenue of a...
: 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 following information: December 31 (and the year) Depreciation Expense $10,000 (in the debit column) Accumulated Depreciation $10,000 (in the credit column) A short explanation such as “Depreciation for the...
, they are part of comprehensive income). Net income is also known as net earnings. The details of the net income calculation are reported in the business’s income statement. The net income of a regular U.S....
. If the general office worker comp rates are 0.2% of the general office wages and salaries, then 0.2% of January’s general office wages and salaries will be expensed as worker comp insurance expense. If the employer...
What is the entry to remove equipment that is sold before it is fully depreciated? Entries To Record a Sale of Equipment When equipment that is used in a business is disposed of (sold) for cash before it is fully...
by the employer. The matching amount is an additional expense of the employer Withheld from employees’ wages but are not matched by the employer. Paid solely by the employer. The amount is additional expense of the...
which is lower than the market interest rate for similar bonds. The difference between the amount received and the face or maturity amount is recorded in the corporation’s general ledger contra liability account...
. The equipment’s cost was $100,000 and its accumulated depreciation as of its recent balance sheet date was $40,000. This means that up to the balance sheet date $40,000 of the asset’s cost had been reported as...
statements. I reported on the impact on the company’s expenses in great detail. I thought I was done until the controller drew two T-accounts on a piece of paper and noted my comments in the expense T-account, and...
A classic example of the materiality concept is a company expensing a $20 wastebasket in the year it is acquired instead of depreciating it over its useful life of 10 years. The matching principle directs you to record...
that are reported on the statement of cash flows in the section entitled cash flows from investing activities. When the equipment is placed into service, the company will begin to report depreciation expense on the...
taxes, Social Security taxes, Medicare taxes, state income taxes (if applicable) withholding for the employees’ portion of health insurance premiums, employees’ contributions to savings plans, garnishments of...
. As the prepaid amount expires, the company will reduce the asset account Prepaid Insurance with a credit entry and will debit Insurance Expense. (If the company arranges for its insurance premiums to be paid monthly,...
How do I calculate the after-tax cost of debt? Definition of After-Tax Cost of Debt The after-tax cost of debt is the interest paid on the debt minus the income tax savings as the result of deducting the interest expense...
of another account. Accountants often use T-accounts to visualize the debit and credit effects on the accounts’ balances. It may take some time to learn which general ledger accounts will be debited and credited, but...
.] Under the accrual method of accounting the tenant should report: Rent Expense during the period of time that the space was occupied but was not paid, and A current liability Rent Payable for the amount owed to the...
the depreciation expense of an asset, the expected amount of the salvage value is not included. Example of Salvage Value Assume that a plant asset has a cost of $325,000 and is expected to have a salvage value of...
been recorded. If the fully depreciated asset continues to be used without improvement expenditures, there will be no further depreciation expense. The asset’s cost and its accumulated depreciation will continue to be...
other than payroll taxes (employers’ share of health insurance, holiday and vacation pay, company contributions to retirement plans, etc.) will also appear on the income statement.] The company’s payroll tax expense...
or discount is to be amortized to interest expense over the life of the bonds. Hence, the balance in the premium or discount account is the unamortized balance. Where the Premium or Discount on Bonds Payable is...
owner’s equity increases. When the company pays cash for an advertisement expense, its assets decrease and its owner’s equity decreases. In accounting and bookkeeping there is a separate financial statement known as...
by reading our Nonmanufacturing Overhead (Explanation). 1. Selling expenses should be allocated to the cost of goods sold for external financial reporting. True Wrong. False Right! 2. According to U.S. accounting...
, this employee will earn vacation pay of $3,120 (120 hours x $26), or $60 per week ($3,120 per year divided by 52 weeks). This means that in the current year the company must record vacation pay expense and a related...
or covenants regarding interest and principal payments, maintaining certain financial ratios, and more. Failure to meet those conditions can result in severe consequences. In the U.S., a benefit of debt financing is...
when Depreciation Expense is recorded. The credit balance in Accumulated Depreciation means that the cost of the property, plant and equipment will continue to be reported. Looking at the cost of the plant assets and...
to as a contra-liability account. Examples of Contra-Liability Accounts Some contra-liability accounts include: Discount on Bonds Payable Bond Issue Costs Discount on Notes Payable The debit balances in the above...
by a company’s liabilities will generally have a lower cost than money raised from stockholders’ equity for the following reasons: Some liabilities such as accounts payable have no interest expense associated with...
. This journal entry will debit Depreciation Expense and will credit Accumulated Depreciation. Another example of a general journal entry is the adjusting entry to accrue interest on a bank loan. This journal entry will...
, and an accountant might add “…and charge Advertising Expense for $300.” Another accountant might say “…and debit Advertising Expense for $300.” Join PRO to Track Progress Mark the Question as Read...
is less than $100,000. Let’s assume that the note’s present value is computed to be $90,000. This means that the asset’s cost will be $140,000?the cash of $50,000 plus the note’s $90,000 of present value....
that the company’s balance sheet will include the amount as a current liability. (The adjusting entry typically debits Wages Expense and credits Wages Payable.) Example of Wages Payable To illustrate wages payable we...
revenues and the related liabilities that were included in a previously recorded transaction To record depreciation expense and/or bad debts expense and the change in the related contra asset account Definition of...
methods: Indirect method (almost always used) Direct method (rarely used) The indirect method begins with the company’s net income based on the accrual method. That amount is then converted to the cash from operating...
with accrual adjusting entries by the borrower and the lender before issuing their financial statements. The borrower’s adjusting entry will debit Interest Expense and credit Accrued Interest Payable (a current...
of depreciation. The entry debits Depreciation Expense for $3,000 and credits Accumulated Depreciation for $3,000 each and every month. A company may also have recurring journal entries in which the accounts are...
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...
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