Why does a bond's price decrease when interest rates increase? Definition of Bond’s Price A bond’s price is the present value of the following future cash amounts: The cash interest payments that occur every six...
Why does a bond's price decrease when interest rates increase? Definition of Bond’s Price A bond’s price is the present value of the following future cash amounts: The cash interest payments that occur every six...
What is the gross margin ratio? Definition of Gross Margin Ratio The gross margin ratio is a percentage resulting from dividing the amount of a company’s gross profit by the amount of its net sales. (The gross margin...
Where is interest on a note payable reported on the cash flow statement? Definition of Interest on a Note Payable The interest on a note payable is reported on the income statement as Interest Expense. Usually this means...
What is the difference between equity financing and debt financing? Definition of Equity Financing Equity financing involves increasing the owner’s equity of a sole proprietorship or increasing the stockholders’...
Is the installation labor for a new asset expensed or included in the cost of the asset? Accounting for Labor to Install Asset The definition of an asset’s cost is all costs that are necessary to get an asset in place...
What is double-entry bookkeeping? Definition of Double-Entry Bookkeeping Double-entry bookkeeping refers to the 500-year-old system in which each financial transaction of a company is recorded with an entry into at least...
What are sales? Definition of Sales In accounting, the term sales refers to the revenues earned when a company sells its goods, products, merchandise, etc. When a company sells a noncurrent asset that had been used in...
How do you account for payroll withholdings for health insurance? Definition of Payroll Withholdings for Health Insurance Payroll withholdings for health insurance are the amounts deducted from employees’ pay for their...
What is the difference between a note payable and a bond payable? Definition of Note Payable and Bond Payable For accounting purposes, a note payable and a bond payable have the following similarities: Formal written...
What is a bank reconciliation? What is a Bank Reconciliation A bank reconciliation is a process performed by a company to ensure that its records (check register, general ledger account, balance sheet, etc.) are correct....
What is the monthly close? Definition of Monthly Close In accounting, monthly close is a series of steps and procedures that are followed so that a company’s monthly financial statements are in compliance with the...
What is the entry to remove equipment that is sold before it is fully depreciated? Entries To Record a Sale of Equipment When equipment that is used in a business is disposed of (sold) for cash before it is fully...
What are the various types of adjusting entries? Types of Adjusting Entries Adjusting entries, which are required in order to have a company’s financial statements comply with the accrual method of accounting, are...
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 petty cash voucher? Definition of Petty Cash Voucher A petty cash voucher is usually a small form that is used to document a disbursement (payment) from a petty cash fund. Petty cash vouchers are also referred...
What is the cash flow statement? Definition of Cash Flow Statement The cash flow statement (officially known as the statement of cash flows) is one of the required financial statements issued by U.S. businesses (and by...
What is a limitation of the inventory turnover ratio? Definition of Inventory Turnover Ratio The inventory turnover ratio is often calculated by dividing a company’s cost of goods sold for a recent year by the average...
What is the difference between biweekly and semimonthly payroll? Definition of Biweekly Payroll Biweekly payroll refers to paydays that occur 26 times per year (52 weeks in a year divided by 2 weeks = 26 times per year)....
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...
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...
Does a dividend reduce profit? Definition of Dividend A dividend declared by a corporation is a distribution to its stockholders of the profits the corporation had earned. Since the dividends are not an expense, the...
Why do purchases appear as expenses on an income statement? Definition of Purchases In the context of companies that sell merchandise, the term purchases refers to the purchases of goods that are intended to be sold to...
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...
Is depreciation a source of funds? Definition of Depreciation Depreciation is the systematic allocation of the cost of a business asset to expense over the useful life of the asset. The accounting for depreciation is a...
Are earnings different from profits? Earnings and profits are often used interchangeably. Others might make a distinction between the two words. In the case of earnings per share, earnings means a corporation’s net...
How can I determine the inventory methods used by other companies in my industry? Definition of Inventory Methods Inventory methods refers to the order or manner in which a company moves its actual costs out of the...
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 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...
What is an overdraft? Definition of Overdraft An overdraft (also known as a bank overdraft) generally means that the amount of a company’s checks being presented at the bank for payment exceeded the amount on deposit....
If a mortgage payment is due by December 31, but the payment is not made until the following month, should the loan payment be accrued at December 31? The interest portion of the mortgage payment should be accrued as of...
What is the bookkeeping equation? Definition of Bookkeeping Equation The bookkeeping equation (or accounting equation) is similar to the structure of the balance sheet: For a sole proprietorship: Assets = Liabilities +...
What is a contra account? Definition of Contra Account A contra account is a general ledger account with a balance that is opposite of the normal balance for that account classification. The use of a contra account...
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...
Can you help me to understand credit memo and debit memo in the bank reconciliation? Definition of Bank Credit Memo A bank credit memo is an item on a company’s bank account statement that increases a company’s...
Should an owner's compensation be recorded as an expense or in the Drawing account? If the enterprise is a sole proprietorship, the owner’s compensation should be debited to the Drawing account. If the enterprise is a...
Weekly Income Statement When I became a director of a meatpacking company, I was concerned about the thin profit margins, the corporation’s lack of working capital, and my inexperience in the industry. The company...
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 the reorder point? Definition of Reorder Point The reorder point is the quantity of units in inventory at which time an order should be placed to purchase additional units. The reorder point is calculated by...
What does it mean to rotate stock? Definition of Rotating Inventory Stock To rotate stock means to arrange the oldest units in inventory so they are sold before the newer units. The goal is to avoid losses due to getting...
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...
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