Our Explanation of Present Value of an Ordinary Annuity uses the appropriate present value factors for discounting a stream of equal cash amounts occurring at equal time intervals. An important feature is the use of loan...
Our Explanation of Present Value of an Ordinary Annuity uses the appropriate present value factors for discounting a stream of equal cash amounts occurring at equal time intervals. An important feature is the use of loan...
Our Explanation of Working Capital and Liquidity provides you with an in-depth look at the components of working capital and the challenges of converting current assets to cash before obligations come due. You will see...
Why is depreciation on the income statement different from the depreciation on the balance sheet? Definition of Depreciation Depreciation is the systematic allocation of an asset’s cost to expense over the useful life...
The systematic allocation of the discount on bonds payable (reported as a debit in a contra-liability account) to Bond Interest Expense over the life of the bonds. The journal entry to amortize contains a debit to the...
A long term asset account containing the cost of delivery equipment acquired by a company and used in its business. The account will appear on the balance sheet under the heading of Property, Plant and Equipment. There...
A liability account used to record an amount received from a customer before a service has been provided or before goods have been shipped. This account is referred to as a deferred revenue account and could be entitled...
Interest on interest. For example, if $1,000 is deposited in an account earning interest of 6% per year the account will earn $60 in the first year. In year two the account balance will earn $63.60 (not $60.00) because...
The systematic allocation of the premium on bonds payable (reported as a credit in a liability account) to Bond Interest Expense over the life of the bonds. The journal entry to amortize the premium contains a debit to...
A method for recognizing bad debts expense arising from credit sales. Under this method there is no allowance account. Rather, an account receivable is written-off directly to expense only after the account is determined...
A temporary account used in the periodic inventory system to record the purchases of merchandise for resale. (Purchases of equipment or supplies are not recorded in the purchases account.) This account reports the gross...
Our Explanation of Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
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...
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...
Bank Reconciliation For multiple-choice and true/false questions, simply press or click on what you think is the correct answer. For fill-in-the-blank questions, press or click on the blank space provided. If you have...
What is the operating cycle? Operating cycle definition The operating cycle is the time required for a company’s cash to be put into its operations and then return to the company’s cash account. Operating cycle...
What is a special journal? Definition of a Special Journal A special journal (also known as a specialized journal) is useful in a manual accounting or bookkeeping system to reduce the tedious task of recording both the...
What is an outstanding check? Definition of Outstanding Check An outstanding check is a check that a company has issued and recorded in its general ledger accounts, but the check has not yet cleared the bank account on...
What is the net method? Definition of Net Method In accounting, the net method likely refers to the way a company records each vendor’s invoice that offers an early payment discount. Example of Net Method Assume that a...
What are wages payable? Definition of Wages Payable Wages payable refers to the wages that a company’s employees have earned, but have not yet been paid. Under the accrual method of accounting, this amount is likely...
Accounts Receivable and Bad Debts Expense For multiple-choice and true/false questions, simply press or click on what you think is the correct answer. For fill-in-the-blank questions, press or click on the blank space...
What is the statement of comprehensive income? Definition of Statement of Comprehensive Income The statement of comprehensive income is one of the five financial statements required in a complete set of financial...
What is notes receivable? Definition of Notes Receivable Notes receivable is an asset of a company, bank or other organization that holds a written promissory note from another party. (The other party will have a note...
What is the difference between periodic and perpetual inventory systems? Periodic Inventory System In a periodic system the account Inventory: Has only the ending balance from the previous accounting year Excludes the...
Inventory and Cost of Goods Sold For multiple-choice and true/false questions, simply press or click on what you think is the correct answer. For fill-in-the-blank questions, press or click on the blank space provided....
What is net sales? Definition of Net Sales Under the accrual basis of accounting, net sales is the total amount of goods shipped/delivered to customers during a specified period of time minus any early payment discounts...
Is standard costing GAAP? Definition of Standard Costing Standard costing is a cost accounting system used by some manufacturers to assist in planning and controlling its manufacturing operations. When standard costing...
The technique of recording accounts payable at the amount that will be paid after deducting any discount that is available for paying within the discount period. This has a theoretical advantage over the gross method...
What is the accounts receivable turnover ratio? Definition of Accounts Receivable Turnover Ratio The accounts receivable turnover ratio (or receivables turnover ratio) is an important financial ratio that indicates a...
The general guidelines and principles, standards and detailed rules, plus industry practices that exist for financial reporting. Often referred to by its acronymn GAAP. To learn more, see Explanation of Accounting...
Is Accounts Payable a debit or a credit or both? Definition of an Accounts Payable Credit Since Accounts Payable is a liability account, it should have a credit balance. The credit balance indicates the amount that a...
What does 2/10 mean in accounting? Definition of 2/10 2/10 is part of an early payment discount that allows a customer or client to pay after the sale or service has been provided. This sales discount allows the...
A nongovernment group of seven members assisted by a large research staff which is responsible for the setting of accounting standards, rules, and principles for financial reporting by U.S. entities. Go to www.fasb.org...
What is accounting for price level changes? In 1979 the Financial Accounting Standards Board (FASB) issued its Statement of Financial Accounting Standards No. 33 entitled Financial Reporting and Changing Prices. (You...
In accounting, what is meant by relevant costs? Definition of Relevant Costs Relevant costs are future costs that will differ between two or more alternative actions. Expressed another way, relevant costs are the costs...
What are the accounting principles, assumptions, and concepts? Definition of Accounting Principles, Assumptions, and Concepts The basic underlying accounting principles, assumptions, and concepts include the following:...
What are generally accepted accounting principles (GAAP)? Definition of Generally Accepted Accounting Principles Generally accepted accounting principles (commonly referred to as GAAP or US GAAP) are the common...
This is a national organization of certified public accountants. For more information go to www.aicpa.org.
Should I delay graduation for an accounting internship? If an accounting internship is optional, there are many factors to consider. The students who have been leaders in their college accounting organizations and have...
This series of output by the Financial Accounting Standards Board is part of the board’s conceptual framework project. The original goal in the 1970’s was to articulate the definitions, practices, and rules...
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