must remit the sales taxes collected within a prescribed time period. The items subject to sales tax will vary from state to state. In some states basic food items might not be taxed, but meals at restaurants will be...
must remit the sales taxes collected within a prescribed time period. The items subject to sales tax will vary from state to state. In some states basic food items might not be taxed, but meals at restaurants will be...
market value of this bond is: Interest of $30,000 paid at the end of each of 4 semiannual periods discounted by 4% per semiannual period = $108,897 Maturity value of $1,000,000 discounted by 4% for 4 semiannual periods...
Calculation Assume that a company’s beginning inventory was $100 and its ending inventory was $110, which is an increase of 10. Let’s assume that a company purchased $1,000 of goods during the accounting period. A...
of common stock that are outstanding during the period of the earnings. If a corporation had preferred stock outstanding, the required preferred stock’s dividend is shown as a deduction before the earnings that are...
to the financial statements of the parties to a noncancelable contract. Examples of No Entry When Signing a Contract Assume that an electric utility signs a noncancelable contract with a coal company to purchase 100...
are the depreciation of the building, salaries of the company’s management, etc. For a company’s financial statements to have relevance they must be issued within several weeks after each accounting period ends. To...
What is an equivalent unit of production? Definition of Equivalent Unit of Production An equivalent unit of production is an expression of the amount of work done by a manufacturer on units of output that are partially...
are: Economic Entity Assumption Going Concern Assumption Time Period Assumption Monetary Unit Assumption Cost Principle (or Measurement Principle) Matching Principle (or Expense Recognition Principle) Revenue...
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...
is $6,000. Under the accrual basis of accounting, the retailer must report the $6,500 of accrued payroll as: An expense on its income statement for the period ended December 31 Current liability on its balance sheet as...
. Example of Correlation Assume that during a 10-year period the number of cars sold in the U.S. moved in the same direction as the country’s rate of inflation. Even with a 10-year correlation between the two sets of...
between the amount of assets and liabilities as of the final instant of the accounting period. In the U.S., the amounts are based on generally accepted accounting principles (GAAP). Example of Main Difference Between...
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...
Are utility bills an expense or a liability? Definition of Utility Bills Utility bills are invoices received by a company for the natural gas, electricity, water, and sewer charges that the company used during a previous...
of goods sold. SG&A Not Included in Product Costs The selling, general, administrative (SG&A) and interest costs of a retailer and/or a manufacturer are not product costs. Rather, they are reported as...
and the associated adjusting entries will result in a more complete and accurate reporting of a company’s assets, liabilities, equity, and a more accurate reporting of its revenues, expenses, and earnings during each...
and operating budgets. When standard costs are used in a manufacturing setting, a product’s standard cost for a future accounting period will consist of the following: Direct materials: a standard quantity of each...
What is an asset's useful life? Definition of Asset’s Useful Life An asset’s useful life is the estimated period of time (or total amount of activity) that a long-lived asset will be economically feasible for...
is the sum of the following: the days’ sales in inventory (365 days/inventory turnover ratio), plus the average collection period (365 days/accounts receivable turnover ratio) The operating cycle has...
, it is common for half of the annual amount to be paid at the end of each 6-month period (semiannually). Generally, a bond’s stated interest rate is fixed (does not change) for the life of the bond. As a result, the...
What is a balance sheet and why is it prepared? Definition of Balance Sheet The balance sheet is prepared in order to report an organization’s financial position at the end of an accounting period, such as midnight on...
that are not reported on the corporation’s income statement. Treasury stock. This is a reduction of stockholders’ equity for the amount the corporation paid to purchase but not retire its own shares of capital...
as an expense for the period (year, month, etc.) shown in the income statement’s heading. Definition of Accumulated Depreciation Accumulated depreciation reports the total amount of depreciation that has been reported...
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...
to the company’s general ledger accounts, since the outstanding checks were recorded when they were issued.) Checks that are outstanding for a long period of time are known as stale checks. In the U.S., outstanding...
they are depreciated over their useful lives. The accumulated depreciation for these assets is also reported as part of the property, plant and equipment. The amount of capital expenditures for an accounting period is...
What is an expense? Definition of Expense Under the accrual method of accounting, an expense is a cost that is reported on the income statement for the period in which: The cost best matches the related revenues The cost...
impairment test at least once per year. (Beginning in 2015, private companies may opt to amortize goodwill generally over a 10-year period and thereby minimize the cost and complexity involved with testing for...
contingent liability is the warranty that automakers provide on new cars. Since it is probable (not merely possible) that some vehicles will require work during the warranty period and the automakers can estimate that...
other than payroll taxes (employers’ share of health insurance, holiday and vacation pay, company contributions to retirement plans, etc.) will also appear on the income statement.] The company’s payroll tax expense...
What is the difference between revenues and earnings? Definition of Revenues and Earnings Revenues are the amounts earned from providing goods or services to customers during the period shown in the heading of the income...
Expense and credit a liability account in the accounting period when the sales occur. When the commission payment is made, the liability account is debited and the Cash account is credited. If the sales are related to...
labor the cost of manufacturing overhead Note: Expenses that are outside of the manufacturing facilities, such as selling, general and administrative expenses, are not product costs and are not inventoriable. They are...
a 10-year period. (This will result in the most accurate measurement of the company’s accounting net income.) However, on the tax return the company must follow the IRS rules and will depreciate the asset over 7...
of interest that will be received every six months for 5 years to its present value and 2) the $100,000 maturity amount that will be received at the end of 5 years. These cash amounts are discounted by the market...
What are the two methods for recording prepaid expenses? Definition of Prepaid Expenses Prepaid expenses refers to payments made in advance and part of the amount will become an expense in a future accounting period. A...
of the year. Accumulated Depreciation is a matching principle. In each accounting period, part of the cost of certain assets (equipment, building, vehicle, etc.) will be moved from the balance sheet to depreciation...
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...
accounting period. Subtracting accumulated depreciation from an asset’s cost results in the asset’s book value or carrying value. Hence, the credit balance in the account Accumulated Depreciation cannot exceed the...
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