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 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 YOY? In financial analysis and data analytics, YOY is the acronym for year over year. YOY indicates the change from the comparable amount reported in the same period one year earlier. Below are three examples of...
How do I start a petty cash fund? Definition of Petty Cash Fund A petty cash fund is a small amount of money available to pay small amounts without requiring the processing of a business check. Example of Starting a...
How can I learn bookkeeping? You can learn bookkeeping at no cost on our website AccountingCoach.com. We recently expanded our Explanation of Bookkeeping, and we have many other topics that are relevant including debits...
Is the cost of goods sold an expense? Why the Cost of Goods Sold is an Expense We often think of expenses as salaries, advertising, rent, commissions, interest, and so on. However, the cost of goods sold is also an...
What is interest payable? Definition of Interest Payable Interest payable is the interest expense that has been incurred (has already occurred) but has not been paid as of the date of the balance sheet. [Interest payable...
What does a bookkeeper do? Definition of Bookkeeper A bookkeeper’s role at a company varies by the size and nature of the business. At a very small company without an accountant, the bookkeeper’s duties are likely to...
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...
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 a post-dated check? Definition of a Post-dated Check A post-dated check (or post-dated cheque) is a check written with a future date. In other words, the date that appears on the check is after the date when the...
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...
Should a cash discount be recorded as a reduction to an expense? Yes, a cash discount should be a reduction to an expense. After all, accountants define cost as the cash amount (or cash equivalent amount) at the time of...
What are term bonds and serial bonds? Term bonds are bonds which mature or come due on a single date. Serial bonds are bonds which do not mature or come due on a single date. Instead, serial bonds have maturity dates...
What are some examples of investing activities? Definition of Investing Activities Investing activities often refers to the cash flows from investing activities, which is one of the three main sections of the statement...
How do you determine whether a person is an independent contractor or an employee? To assist you in determining whether someone is an independent contractor or an employee, you should refer to the Internal Revenue...
What is a purchase discount? Definition of Purchase Discount A purchase discount is a deduction that a company may receive if the supplier offers it and the company pays the supplier’s invoice within a specified period...
Which financial statement shows a corporation's worth? Not one of the financial statements will show a corporation’s worth. The balance sheet, income statement, statement of cash flows, and stockholders’ equity...
What is a fringe benefit rate? Definition of Fringe Benefit Rate A fringe benefit rate is a percentage that results from dividing the cost of an employee’s fringe benefits by the wages paid to the employee for the...
What is a long-term liability? Definition of Long-term Liability A long-term liability is an obligation resulting from a previous event that is not due within one year of the date of the balance sheet (or not due within...
What is a toxic asset? I would define a toxic asset as an investment whose value has dropped significantly and there is no market in which to sell the asset. To illustrate, let’s assume that at the peak of the real...
What is purchase discounts lost? Definition of Purchase Discounts Lost The account Purchase Discounts Lost is a general ledger account used by a company that records vendors’ invoices using the net method. A debit...
What is a contra inventory account? A contra inventory account is a general ledger account with a credit balance. The credit balance in the contra inventory account will be combined with the debit balance in the...
Why will some asset accounts have a credit balance? Definition of Asset Account Balances In accounting, asset accounts normally have debit balances. That is, the general ledger accounts for assets typically have their...
What is a contingent liability? Definition of Contingent Liability A contingent liability is a potential liability that may or may not become an actual liability. Whether the contingent liability becomes an actual...
What is accrued income? Definition of Accrued Income Accrued income is an amount that: A company has earned The company has a right to receive The collection is probable Has not yet been recorded in the general ledger...
What is the units of activity depreciation? Definition of Units-of-Activity Depreciation The units-of-activity depreciation is unique among the common methods of depreciation in that the useful life of the asset being...
What is a blank endorsement? In the case of a check payable to John Smith (the payee), a blank endorsement would be the signature of John Smith on the back side of the check without any other words above or below his...
What is the difference between public companies and public sector? Definition of Public Companies Public companies are those businesses owned by individuals (and not by a government). Definition of Publicly-Held...
What is the income summary account? Definition of Income Summary Account The Income Summary account is a temporary account used with closing entries in a manual accounting system. (Computerized accounting systems may...
What does it mean to amortize the premium, discount, and issue costs on bonds payable? Definition of Amortize Premium, Discount, and Issue Costs With regards to bonds payable, the term amortize means to systematically...
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...
What is a nonprofit organization? A nonprofit organization is an organization without commercial owners and which addresses the needs of society. Nonprofit organizations are also known as not-for-profits, NFP’s or...
Why is inventory turnover important? Definition of Inventory Turnover A company’s inventory turnover is often expressed as the company’s cost of goods sold for a year divided by the average cost of inventory during...
What is goodwill? Definition of Goodwill In accounting, goodwill is an intangible asset associated with a business combination. Goodwill is recorded when a company acquires (purchases) another company and the purchase...
Is the current portion of long term debt adjusted monthly? A monthly adjustment to the current portion of long term debt is necessary when: 1. the company issues monthly balance sheets, and 2. the amount to be paid on a...
What is a credit memo? Definition of Credit Memo One type of credit memo is issued by a seller in order to reduce the amount that a customer owes from a previously issued sales invoice. Another type of credit memo, or...
What is a voided check? A voided check is a check written or partially written but then canceled or deleted by the maker of the check. The notation of “void” is used because checks are prenumbered for control...
When calculating inventory turnover, do you use sales or the cost of goods sold? I calculate the inventory turnover by using the cost of goods sold. I use the cost of goods sold because inventory is in the general ledger...
What is FIFO? Definition of FIFO In accounting, FIFO is the acronym for First-In, First-Out. It is a cost flow assumption usually associated with the valuation of inventory and the cost of goods sold. Under FIFO, the...
What is an intangible asset? Definition of Intangible Asset An intangible asset is an asset that you cannot touch, since it lacks physical substance. Accountants record intangible assets at their cost when they are...
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