the depreciation expense had reduced net income but cash was not reduced. In other words, the positive $8,000 of depreciation expense is not a source of cash, it is merely a needed adjustment to convert the accrual net...
the depreciation expense had reduced net income but cash was not reduced. In other words, the positive $8,000 of depreciation expense is not a source of cash, it is merely a needed adjustment to convert the accrual net...
margin ratios vary between industries. Therefore, you should compare a company’s gross margin ratio to other companies in the same industry and to its own past ratios or its planned ratios. Join PRO to Track Progress...
What is the break-even point? Definition of Break-even Point In accounting, the break-even point refers to the revenues necessary to cover a company’s total amount of fixed and variable expenses during a specified...
What is the difference between a budget and a standard? Definition of a Budget In business and other organizations, a budget often refers to a department’s or a company’s projected revenues, costs, or expenses....
accountants or CPAs. Many accountants leave the larger public accounting firms after several years of experience and become an employee at a business or other organization. In their new position they are referred to as...
of goods sold is $440,000. One calculation is: beginning inventory of $50,000 + net purchases of $450,000 = cost of goods available of $500,000 – $60,000 of ending inventory = cost of goods sold of $440,000. The other...
What is the difference between break-even point and payback period? Definition of Break-Even Point The break-even point is the amount of sales required to cover a company’s costs and expenses that are reported on its...
period. These costs are expenses because they may have expired, may have been used up, or may not have a future value that can be measured. Some authors define operating expenses as only SG&A. In other words, they...
variance indicates that the variance (or difference between the budgeted and actual amounts) was not good for the company’s profits. In other words, this unfavorable variance is one reason for the company’s actual...
How many days after a month ends should the bank reconciliation be done? Definition Bank Reconciliation The bank reconciliation (if prepared or reviewed by someone other than the person with access to the checking...
minus $40,000 of accumulated depreciation). Net book value or simply book value indicates that $60,000 of the noncurrent asset’s cost has not yet been charged to depreciation expense. Net book value or book value can...
, and other items might begin with “9”. At a large company, the second digit of the account numbers might indicate the division within the company, while the third digit will indicate a department within the...
used in a company’s peripheral activities will reduce the company’s non-operating (or other) income. Examples of Depreciation Expense Reported as an Administrative Expense The depreciation of the following assets...
over that life. Other intangible assets have an unlimited life and are not amortized. However, their reported cost is reviewed annually. If there is an impairment loss, the amount on the balance sheet is reduced and the...
What is meant by owner's draws? Definition of Owner’s Draws Owner’s draws are withdrawals of a sole proprietorship’s cash or other assets made by the owner for the owner’s personal use. The account in which...
Does a company have to use the IRS years of useful life for depreciation? For the company’s financial statements, the economic life of the asset should be used—not the years of useful life required for income tax...
electricity to customers for up to one month before it reads the customers’ meters, calculates the bills and records the billings as revenues and accounts receivable. As a result, the electric utility will have up to...
that the number of shares has changed and that the par value per share has changed (if the stock has a par value). However, a typical journal entry (one with a debit and a credit) is not needed since the total dollar...
What is marginal cost? Definition of Marginal Cost Marginal cost is a manufacturer’s cost to produce one more unit of product. In other words, marginal cost is the change in total costs when one additional unit is...
and general management, are expenses of the accounting period and are not applied or assigned to products.) Actual overhead are the manufacturing costs other than direct materials and direct labor. Since the overhead...
space and other costs of holding/carrying inventory While inventory is critical to meet demand for the goods, but having too much of the wrong inventory items can result in cash flow problems that may jeopardize...
What are goods in transit? Definition of Goods in Transit Goods in transit refers to inventory items and other products that have been shipped by a seller, but have not yet reached the purchaser. When goods are in...
What is a blank check? Definition of Blank Check A blank check often refers to a check that has been signed by an authorized check signer without completing the other information (date, payee, amount). A blank check...
is the result of discounting all of the cash inflows and outflows and then combining all of their present values. This means that the original outflow (often the investment made at the present time) is a deduction from...
average time for all four websites will be 64 hours (80% of 80 hours). After the eighth website the cumulative average for all 8 websites will be 51.2 hours (80% of 64 hours). In other words, the total time to have...
value. For example, the “A” items might be 20% of the items in inventory which account for 70% of the inventory value. At the other extreme the “C” items might be 60% of the items in inventory but they account...
that the variance or difference between the budgeted and actual amounts was good or favorable for the company’s profits. In other words, this variance will be one reason why the amount of the company’s actual...
example of a semivariable cost is the annual cost of operating a vehicle. Some of the vehicle’s total annual operating costs will be the same regardless of the miles driven. These fixed costs include depreciation,...
of a company’s revenues, expenses, gains, losses, and the resulting net income that occurred during a year, quarter, or other period of time. Examples of Items Appearing in the Income Statement The main items reported...
, there will be no difference whether FIFO or LIFO is used. The reason is that the first costs (oldest costs) will be the same as the latest or recent costs. On the other hand, if the costs of the inventory items are...
that are discounted for the time value of money. The time value of money recognizes that a dollar today is more valuable than a dollar received in the future. Other capital budgeting models use cash flows without...
What causes an increase in break-even point? Definition of Break-even Point The break-even point is the sales volume or sales revenue that is needed to cover the company’s expenses. In other words, it is the point...
What does understated mean? Definition of Understated In accounting, understated means that a reported amount is less than the actual, true amount based on the accounting rules. In other words, the reported amount can be...
What is the difference between entries in a general journal versus a general ledger? Definition of General Journal The general journal is described as the book of original entry. Today the general journal is used to...
Bulletins FASB Emerging Issues Task Force (EITF) Abstracts FASB Concepts (Statements of Financial Accounting Concepts) Each of the “FASB Statements” has three options: Text, Summary, and Status. The Status option...
What is a contra revenue account? Definition of Contra Revenue Account A contra revenue account is a revenue account that is expected to have a debit balance (instead of the usual credit balance). In other words, its...
on credit and offers an early payment discount expressed as 1/10, net 30. This means that a customer is allowed to deduct 1% of the invoice amount, if payment is made within 10 days (instead of paying the full...
What are income statement accounts? Definition of Income Statement Accounts Income statement accounts are one of two types of general ledger accounts. (The other accounts in the general ledger are the balance sheet...
and then getting it entered. At smaller companies the bookkeeper is likely to process the payables (receiving suppliers’ invoices, verifying them, and remitting the amounts), receivables (billing customers, processing...
$1,000 bond. An investor will purchase the 5% bond only if the cost is low enough to yield 6% over the remaining life of the bond. In other words, the investor will pay less than the $1,000 so that the effective...
Featured Review
"My background includes a hotel management degree, and I also have an accounting diploma. I became a PRO user as my mother tongue is Greek, but I needed to learn accounting terminology in English in order to work in the UK. AccountingCoach’s materials are very good, as they explain in plain language what every term means so as to be easily understood by anyone, whether or not they are in accounting. These materials have helped me to learn and understand the matching terms in English so I could get an AAT Level 3 Diploma. Thank you very much for all this useful information, which is updated frequently." - Angeliki A.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: