What is the purpose of the cash flow statement? Definition of Cash Flow Statement The cash flow statement or statement of cash flows or SCF identifies a company’s major cash inflows and outflows that occurred the same...
What is the purpose of the cash flow statement? Definition of Cash Flow Statement The cash flow statement or statement of cash flows or SCF identifies a company’s major cash inflows and outflows that occurred the same...
current liability amount on its balance sheet. It also means that the accounts and amounts recorded as debits will better reflect the historical cost principle. If a company uses the net method, but fails to remit the...
What is a current asset? Definition of Current Asset A current asset is a company’s cash and its other assets that are expected to be converted to cash within one year of the date appearing in the heading of the...
What type of account is the Dividends account? Definition of Dividends Account When a corporation declares a cash dividend, the amount declared will reduce the amount of the corporation’s retained earnings. Instead of...
What are the journal entries for a stock split? Definition of a Stock Split A stock split usually increases the number of shares of a corporation’s common stock with the intention of reducing the market price of each...
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....
What is the difference between notes payable and notes receivable? Definition of Notes Payable and Notes Receivable Notes payable and notes receivable are both associated with a written note that promises to repay the...
When does a negative cash balance appear on the balance sheet? Definition of Negative Cash Balance A negative cash balance results when the cash account in a company’s general ledger has a credit balance. The credit or...
at the end of each accounting period. As a result, Accumulated Depreciation is viewed as a permanent account. Example of Depreciation Accounts Assume a company has equipment which is used in its business. The...
What is solvency? Definition of Solvency I use the term solvency to mean a company is able to 1) pay its obligations when they come due, and 2) continue in business. Some people look to a company’s working capital to...
and other adjusting entries Providing financial reports Today bookkeeping is done with the use of computer software. For example, QuickBooks (from Intuit) is a low-cost bookkeeping and accounting software package that...
What is the difference between Notes Payable and Accounts Payable? Definition of Notes Payable The account Notes Payable is a liability account in which a borrower’s written promise to pay a lender is recorded. (The...
What is the working capital turnover ratio? Definition of Working Capital Turnover Ratio The working capital turnover ratio is also referred to as net sales to working capital. It indicates a company’s effectiveness in...
Where is treasury stock reported on the balance sheet? Under the cost method of recording treasury stock, the cost of treasury stock is reported at the end of the Stockholders’ Equity section of the balance sheet....
Should receipts be recorded using the date the money was received or the date the money was deposited in the bank accounts? Cash receipts should be recorded with the date the money was received. For example, a church...
Isn't objectivity violated when estimates are used in bookkeeping and accounting? The use of estimates does not necessarily violate objectivity. If it is not possible to determine the exact amount of an expense and/or...
Why does an increase in accounts payable appear as an addition on the statement of cash flows? Adjustments from Accrual to Cash on Statement of Cash Flows When the statement of cash flows (SCF, cash flow statement) is...
Why is Interest Expense Included in the Operating Activities Section of the Cash Flow Statement? Definition of Interest Expense Interest expense is the cost of borrowing money. Under the accrual method of accounting,...
What is the difference between bad debt and doubtful debt? Definition of Bad Debt and Doubtful Debt In accounting, the terms bad debt and doubtful debt usually refer to the amounts owed by a company’s customers who...
What is the difference between depreciation expense and accumulated depreciation? Definition of Depreciation Expense Depreciation expense is the amount of depreciation that is reported on the income statement. In other...
What is an early payment discount? Definition of Early Payment Discount An early payment discount is a reduction in the amount on a supplier’s invoice if the customer pays the supplier promptly. The early payment...
What is the statement of activities? Definition of Statement of Activities The statement of activities is one of the main financial statements issued by a nonprofit organization. It is prepared instead of the income...
What is the full disclosure principle? Definition of Full Disclosure Principle The full disclosure principle requires a company to provide the necessary information so that people who are accustomed to reading financial...
What is the difference between stock dividend and cash dividend? Definition of a Stock Dividend A stock dividend is a dividend consisting of additional shares of stock. Assume that before a corporation declares a stock...
vs Operating Income Let’s assume that a company is a retailer whose main business activities are the purchasing and reselling of merchandise. When the retailer sells $5,000 of merchandise that it had purchased at a...
What is the difference between paid-in capital and retained earnings? Definition of Paid-in Capital Paid-in capital is one of the major categories of stockholders’ equity. Generally, paid-in capital reports the amount...
, Statement of Cash Flows. You can read Statement No. 95 at no cost at www.FASB.org/st. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping...
What is an account payable? Definition of an Account Payable An account payable is an amount owed to a supplier or vendor for goods or services that were provided in advance of payment. However, some people use the term...
How do you calculate accrued vacation pay? Definition of Accrued Vacation Pay Accrued vacation pay is the amount of vacation pay that a company’s employees have earned, but the company has not yet paid. Example of...
30, and will not include the goods in transit as its December 31 inventory. On December 31, the customer (buyer) is the owner of the goods in transit and will need to report a purchase, a payable, and must include the...
How do you write off a bad account? Definition of the Write-off of a Bad Account The write-off of a bad account usually refers to eliminating an account receivable due to the customer’s inability to pay the amount...
What is the proper use of the words lend and borrow? If a company is granted a loan from its bank, the company is borrowing money from its bank, and the bank is lending money to one of its customers. In other words, the...
What is the difference between a general ledger and a general journal? Definition of General Ledger The general ledger contains the accounts used to sort and store a company’s transactions. The general ledger is...
What is interest expense? Definition of Interest Expense Interest expense is the cost of borrowing money during a specified period of time. Interest expense is occurring daily, but the interest is likely to be paid...
How should an interest only loan be recorded? Defintion of an Interest Only Loan An interest only loan specifies that only interest payments are required during the life of the loan. No principal payment is required...
Depreciation However, U.S. companies continue to use the term reserve in regards to the accounting for inventories using the LIFO cost flow method. For example, the company will use a contra inventory account entitled...
expense. The term gross profit means sales minus the cost of goods sold. Knowing that people might use terms differently, you may need to ask the person a question to clarify their intended meaning. Join PRO to Track...
What is lead time in purchasing? In purchasing, lead time is the estimated time between ordering goods and receiving the goods. For instance, if 100 units of Product X are ordered on April 11 and are expected to be...
Are dividend payments shown as an expense on the income statement? Definition of Dividend Payments The cash dividends paid to stockholders are a distribution of the corporation’s earnings. Dividends are not an expense...
What are net assets? Definition of Net Assets Net assets is defined as total assets minus total liabilities. Examples of Net Assets In a sole proprietorship the amount of net assets is reported as owner’s equity. In a...
Featured Review
"AccountingCoach PRO Plus was a great asset in my job hunt. I was tested on essential accounting skills and concepts and did great. After trying to review textbook material in preparation for my first accountant job, I found myself struggling with the structure and presentation of the material. I decided to use AccountingCoach and attain 3 certificates. The material is very accessible and well structured and the tests and flashcards are great practice to reinforce your knowledge. In 4 days of constant study I improved my confidence and earned the 3 certificates. PRO Plus is worth it and I highly recommend it." - Jose Z.
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: