What are prepaid expenses? Definition of Prepaid Expenses Prepaid expenses are future expenses that have been paid in advance. In other words, prepaid expenses are costs that have been paid but are not yet used up or...
What are prepaid expenses? Definition of Prepaid Expenses Prepaid expenses are future expenses that have been paid in advance. In other words, prepaid expenses are costs that have been paid but are not yet used up or...
, reimbursing an employee for a company errand, etc. Reporting Petty Cash on the Financial Statements The petty cash amount may appear as the first or second item listed in the current asset section of the balance sheet....
What is going concern? Definition of Going Concern The going concern assumption is a basic underlying assumption of accounting. For a company to be a going concern, it must be able to continue operating long enough to...
What is cost incurred? Definition of Cost Incurred A cost incurred is a cost that a company (or other organization) becomes liable for. Example of Cost Incurred Assume that a retailer begins operations on December 1 and...
Is the sales tax on merchandise purchased for resale included in inventory? In our state, sales tax is paid only by the end customer. In other words, a retailer does not pay sales tax on merchandise that is purchased for...
investments with a maturity date that was 3 months or less at the time of purchase. In other words, there is very little risk of collecting the full amount being reported. Examples of Cash Equivalents Examples of cash...
Does paying an account payable affect net income? Definition of Paying Accounts Payable Under the accrual basis of accounting, expenses are recorded when they have occurred, not when they are paid. Therefore, if an...
What is work-in-process inventory (WIP)? Definition of Work-in-process Inventory Work-in-process (WIP) inventory pertains to the goods for which the manufacturing has begun, but not yet completed. In other words, WIP is...
Where are short-term bank loans reported on the statement of cash flows? Definition of Short-Term Bank Loans Short-term bank loans are generally loans that must be repaid within one year of the date of the balance sheet....
that are needed for the external financial statements which must comply with US GAAP. Other topics involve analyses and reports that are not distributed outside of the company but are used by management in its decision...
journal. Computerized Accounting Systems With today’s computerized accounting systems, the recording and posting of most transactions will occur automatically when sales and vendor invoice information is entered,...
such as buildings, equipment, furnishings and vehicles is known as depreciation. The systematic expensing of the cost of natural resources is referred to as depletion. The systematic expensing of other long-term costs...
In accounting, are debit balances good? It is best if you accept the meaning that the word debit has had for 500 years: a debit is an amount entered on the left-side of an account. Don’t add “good” or “bad” or...
An account with a balance that is the opposite of the normal balance. For example, Accumulated Depreciation is a contra asset account, because its credit balance is contra to the debit balance for an asset account....
the defined benefit pension plan, the employer commits to depositing enough money into a pension fund in order to cover the future benefits. Since there is uncertainty in the investment returns, the life expectancy of...
on the disposal, the owner’s equity is unchanged. On the other hand, if the same truck is sold for $3,000 there will be a $2,000 loss ($3,000 of cash received versus the $5,000 of book value removed) reported on the...
How are fully depreciated assets reported on the balance sheet? Definition of Fully Depreciated Asset A fully depreciated asset is a depreciable asset for which no additional depreciation expense will be recorded. In...
What are payroll withholding taxes? Definition of Payroll Withholding Taxes In the U.S. payroll withholding taxes are the taxes that an employer is required to deduct from its employees’ gross wages, salaries, bonuses,...
What is ERP? Definition of ERP In accounting, ERP is the acronym for enterprise resource planning. ERP could be described as a database software package that supports all of a business’s processes and operations...
What is a depreciable asset? Definition of Depreciable Asset A depreciable asset has the following characteristics: A tangible asset (other than land) Has a useful life of more than a year Is used in the business The...
of working capital during the year was $400,000. Therefore, its working capital turnover ratio was: net sales of $2,400,000 divided by average working capital of $400,000 = 6 times during the year. As with most...
using the asset. Since it is difficult to precisely match a productive asset’s cost to a company’s revenues, the asset’s cost is usually allocated to the years in which the asset is used. In other words,...
. to utilize an outside accountant to assist in the preparation of the annual financial statements and tax reports. The outside accountant may also serve as a business advisor when needed. Some outside accountants are...
Costs that are matched with revenues on the income statement. For example, Cost of Goods Sold is an expense caused by Sales. Insurance Expense, Wages Expense, Advertising Expense, Interest Expense are expenses matched...
of 10 years for its financial statements, while using a useful life of 7 years for its income tax return. Even the depreciation for a company’s financial statements could consist of some assets being depreciated...
), it will result in a present value of approximately $522,000. The $522,000 of present value coming in minus the $500,000 of present value going out results is a positive net present value of $22,000. In other words,...
What is an independent variable? In accounting, an independent variable is ideally a factor that causes a change in the total amount of the dependent variable. In other words, an independent variable should be something...
2001, the Financial Accounting Standards Board issued its Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, which ended the automatic amortization of goodwill to expense on the...
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...
What increases a break-even point? Definition of Break-even Point The break-even point is the volume of sales in units or in dollars that is equal to a company’s total expenses (including the cost of goods sold). In...
there is a total of $2,900 in Accounts Receivable that will not be collected, you need to enter an additional credit amount of $900 into the Allowance for Doubtful Accounts. The other part of this adjusting entry will...
the following will be attached: vendor’s invoice, company’s purchase order, company’s receiving report, and other information needed to further process the vendor’s invoice for payment. Join PRO to Track...
is a debit balance. In other words, the corporation has a negative amount of retained earnings. Example of Deficit Within Stockholders’ Equity Assume a corporation was formed just over three years ago. In its first...
Financial information posted on a corporation’s website Financial reports to governmental agencies including quarterly and annual reports to the Securities and Exchange Commission (SEC) Prospectuses pertaining to the...
What is a restrictive endorsement? Definition of Restrictive Endorsement A restrictive endorsement or restricted endorsement places a limitation on the use of a check or other negotiable financial instrument. Using a...
independently. The synergy might come from shared research, ability to meet the needs of each other’s customers, ability to attract new customers that want a single global supplier, elimination of duplicate...
of $1,000,000 in total assets. The company’s return on assets ratio for the year was 6% ($60,000 divided by $1,000,000). This company’s return on assets can be compared to other companies in the same industry. Join...
instead of 30 days) Purchases Returns and Allowances (credit memos received for returning goods to vendors or for other conditions) These accounts are used by a company that purchases goods for resale and uses the...
recorded with accrual adjusting entries made at the end of the accounting period. Examples of Accrued Expenses Payable In addition to the amounts associated with vendors’ invoices, accrued expenses may also include...
, to bid on a job, or some other unique requirement. Although most small businesses are not required to have a CPA involved, a small business may engage a CPA to review its internal controls, evaluate accounting...
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