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...
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...
Accounting Principles The basic underlying accounting principles consist of the following: Economic entity assumption Going concern assumption Time period assumption Monetary unit assumption Cost principle or...
by the adjustments needed to convert the accrual accounting net income to the cash flows from operating activities. A few of the typical adjustments are: Adding back depreciation expense Adding the decrease in accounts...
(general office salaries, rent, utilities, etc.), and interest expense will be reported on the income statement when they are directly related to sales or when they are used up. For example, the insurance premiums that...
or simply the gross margin.) Companies should be continuously monitoring its gross margin ratio to be certain it is sufficient to cover its selling, general and administrative expenses, interest expense, and to earn a...
What is the advantage of issuing bonds instead of stock? Definition of Bonds Bonds payable are a form of long-term debt, which include a formal agreement to pay interest semiannually and the principal amount at maturity....
as a current liability such as Accrued Expenses Payable. On the corporation’s income statements, the interest that occurred (whether paid or not paid) during the period of the income statement will be reported as...
/declare the dividend. Hence, the board of directors may decide that a dividend will not be declared. Definition of Dividends It is important to note that the dividends declared and paid by a corporation are not an...
its earnings (net income after income tax expense) were $9,410,000 and it had 900,000 shares of common stock from January 1 through June 30, and 1,100,000 shares from July 1 through December 31. The corporation will...
to a liability account a debit to an expense account if the employees are not involved in the manufacturing of products. (The FUTA tax for employees in the manufacturing departments is recorded in an account associated...
mean a corporation’s net income after income tax expense. Many business owners refer to the company’s income statement as the profit and loss statement or the P&L. A company reporting a positive amount of net...
will be closed at the end of each year. However, the account’s debit balance is closed directly to the owner’s capital account. (The owner’s draws are not reported as an expense on the company’s income...
. Under the accrual method of accounting, both the borrower and the lender must report any accrued interest as of each balance sheet date. The maker/borrower of the note will report interest expense and interest...
, the company’s Marketing Consultants Expense will be the account that is understated by $20,000. As a result of the $20,000 understatement, the company’s income statement will report too little of SG&A expenses,...
Receivable.) Assume the company had a $10,000 plumbing repair done on May 31 and is told the amount will be $10,000 but the bill will not be received until June 3 and payment will be due on June 13. On May 31, the...
: Assets of $900 = Owner’s Equity of $900. In words, the equation indicates that SJCO has resources of $900 and that the owner has the only claim to its resources. The equation also indicates that the resources of $900...
$232,000. The result was a favorable SG&A expense budget variance of $8,000. Manufacturing overhead costs were budgeted to be $400,000 but were actually $393,000. The result was a favorable manufacturing overhead...
with Debit Balances The following general ledger account classifications normally have debit balances: Asset accounts Expense accounts Loss accounts (Loss on Sale of Plant Asset, Loss from Lawsuit, etc.) Sole...
prices based on their costs. In the long run, the products’ selling prices must be large enough to cover all of a company’s manufacturing costs (including the variable and fixed indirect manufacturing costs) plus...
in the factory. In addition to the manufacturing costs, there are selling, general and administrative (SG&A) expenses and perhaps interest expense. Generally, accountants do not consider these expenses to be product...
of goods and/or the providing of services Expenses, which include the cost of goods sold, SG&A expenses, and interest expense Gains and losses, such as the sale of a noncurrent asset for an amount that is...
. The reason is that the interest is not owed as of that date. Each month, one month’s interest on the note or loan should be recorded with a debit to Interest Expense and a credit to Cash or Interest Payable (if the...
Accounts. This credit balance will cause the amount of accounts receivable reported on the balance sheet to be reduced. Any adjustment to the Allowance account will also affect Uncollectible Accounts Expense, which is...
balances in the discount, premium, or issue costs accounts must be amortized to interest expense over the life of the bonds. Example of Recording a Bond Issue Assume that a corporation issues $100 million of bonds...
. (This means that 5/6 of the payment is a prepaid asset and only 1/6 of the payment should be reported as an expense on each of the monthly income statements.) A company’s customer paid in advance for...
in the bank’s liability account is reduced by a debit. In the company’s general ledger, the bank debit memo will reduce the company’s checking account (which is an asset) and will require the company to credit its...
per unit is $4 Fixed SG&A expenses per month is $12,000 Variable SG&A expenses per unit is $2 Fixed interest expense per month is $1,000 Using the above information the contribution margin per unit is $14 (the...
account for emergency computer maintenance services and had not recorded the credit to its Cash account, it is also omitting the debit to the account Computer Maintenance Expense. The bank reconciliation could prevent...
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...
for the sole proprietorship business does not include an expense for the owner working in the business. This means that the reported net income is the total return for the owner’s work and investment. Join PRO to...
are: Economic Entity Assumption Going Concern Assumption Time Period Assumption Monetary Unit Assumption Cost Principle (or Measurement Principle) Matching Principle (or Expense Recognition Principle) Revenue...
is $6,000. Under the accrual basis of accounting, the retailer must report the $6,500 of accrued payroll as: An expense on its income statement for the period ended December 31 Current liability on its balance sheet as...
a vendor’s invoice within the vendor’s early payment discount period. Purchase Discounts Lost is considered to be an interest expense or a financing charge resulting from the buyer not being able to pay the cash...
an impact on the company’s cost of goods sold. The cost of goods sold will likely be the largest expense reported on the income statement. Example of Inventory Cost and Cost of Goods Sold To show the connection...
to the expense Purchase Discounts Lost. In our example, if the company pays the invoice in 30 days, it is not entitled to the early payment discount and will therefore have to credit Cash for $1,000. The debit amounts...
account and credits the owner’s drawing account. Please note that the owner’s drawing account is not an expense and as a result it does not get closed to the Income Summary account nor will the amount appear on the...
ledger accounts will need to be adjusted with a credit to the Cash account and a debit to an account such as Bank Fees Expense. Therefore, as part of the bank statement reconciliation you need to show the bank service...
contains all of its asset, liability, owner equity, revenue, expense, gain, and loss accounts. Each account contains the transaction amounts that pertain to the account title. Definition of a Trial Balance A trial...
reduced to $0 Receiving and posting a customer’s payment that was greater than the customer’s balance in Accounts Receivable Continuing to reduce the balance in Prepaid Expenses and charging expense after the...
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