prices based on their costs. In the long run, the products’ selling prices must be large enough to cover all of a company’s manufacturing costs (including the variable and fixed indirect manufacturing costs) plus...
prices based on their costs. In the long run, the products’ selling prices must be large enough to cover all of a company’s manufacturing costs (including the variable and fixed indirect manufacturing costs) plus...
by the adjustments needed to convert the accrual accounting net income to the cash flows from operating activities. A few of the typical adjustments are: Adding back depreciation expense Adding the decrease in accounts...
with Debit Balances The following general ledger account classifications normally have debit balances: Asset accounts Expense accounts Loss accounts (Loss on Sale of Plant Asset, Loss from Lawsuit, etc.) Sole...
to the expense Purchase Discounts Lost. In our example, if the company pays the invoice in 30 days, it is not entitled to the early payment discount and will therefore have to credit Cash for $1,000. The debit amounts...
for the sole proprietorship business does not include an expense for the owner working in the business. This means that the reported net income is the total return for the owner’s work and investment. Join PRO to...
Receivable.) Assume the company had a $10,000 plumbing repair done on May 31 and is told the amount will be $10,000 but the bill will not be received until June 3 and payment will be due on June 13. On May 31, the...
in the product cost will be part of the cost of goods sold that is reported on the income statement. The remaining $5,000 of rent for nonmanufacturing functions is expensed each month without being allocated to the...
and net amounts for accounts receivable and for property, plant and equipment Contra-expense accounts such as Purchases Discounts, Purchases Returns and Allowances, and Expenses Reimbursed by Employees. The credit...
will be too high A regular corporation’s income tax expense will be too high The overstating of inventory will also affect the following reported amounts on the corporation’s balance sheet: The amount of inventory...
of insurance expense each and every year.) Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at your current job Refresh...
What is the advantage of issuing bonds instead of stock? Definition of Bonds Bonds payable are a form of long-term debt, which include a formal agreement to pay interest semiannually and the principal amount at maturity....
owed by the borrower. On any given date, the borrower is liable for the unpaid principal balance plus any accrued interest expense up to that point. The borrower’s balance sheets will report: A current liability for...
. The reason is that the interest is not owed as of that date. Each month, one month’s interest on the note or loan should be recorded with a debit to Interest Expense and a credit to Cash or Interest Payable (if the...
: Assets of $900 = Owner’s Equity of $900. In words, the equation indicates that SJCO has resources of $900 and that the owner has the only claim to its resources. The equation also indicates that the resources of $900...
or simply the gross margin.) Companies should be continuously monitoring its gross margin ratio to be certain it is sufficient to cover its selling, general and administrative expenses, interest expense, and to earn a...
by a certified public accountant. (The bank does not require the borrower to incur the expense of a CPA’s review or audit.) Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance...
its earnings (net income after income tax expense) were $9,410,000 and it had 900,000 shares of common stock from January 1 through June 30, and 1,100,000 shares from July 1 through December 31. The corporation will...
. Under the accrual method of accounting, both the borrower and the lender must report any accrued interest as of each balance sheet date. The maker/borrower of the note will report interest expense and interest...
a vendor’s invoice within the vendor’s early payment discount period. Purchase Discounts Lost is considered to be an interest expense or a financing charge resulting from the buyer not being able to pay the cash...
balances in the discount, premium, or issue costs accounts must be amortized to interest expense over the life of the bonds. Example of Recording a Bond Issue Assume that a corporation issues $100 million of bonds...
reduced to $0 Receiving and posting a customer’s payment that was greater than the customer’s balance in Accounts Receivable Continuing to reduce the balance in Prepaid Expenses and charging expense after the...
Accounts. This credit balance will cause the amount of accounts receivable reported on the balance sheet to be reduced. Any adjustment to the Allowance account will also affect Uncollectible Accounts Expense, which is...
per unit is $4 Fixed SG&A expenses per month is $12,000 Variable SG&A expenses per unit is $2 Fixed interest expense per month is $1,000 Using the above information the contribution margin per unit is $14 (the...
to a liability account a debit to an expense account if the employees are not involved in the manufacturing of products. (The FUTA tax for employees in the manufacturing departments is recorded in an account associated...
/declare the dividend. Hence, the board of directors may decide that a dividend will not be declared. Definition of Dividends It is important to note that the dividends declared and paid by a corporation are not an...
. Liquidation value is subjective and the amount can vary significantly depending on the assumptions made. The matching principle requires that the cost of plant assets be allocated to depreciation expense. This means...
during the asset’s construction The interest on the debt related to the asset’s construction Adding the capitalized interest to the asset’s cost instead of reporting it as interest expense of the current...
, the company’s Marketing Consultants Expense will be the account that is understated by $20,000. As a result of the $20,000 understatement, the company’s income statement will report too little of SG&A expenses,...
% ($120,000/$400,000). Definition of Operating Income A retailer’s operating income is its sales minus the cost of goods sold and all selling and administrative expenses (fixed and variable). Operating income is...
contains all of its asset, liability, owner equity, revenue, expense, gain, and loss accounts. Each account contains the transaction amounts that pertain to the account title. Definition of a Trial Balance A trial...
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...
as a current liability such as Accrued Expenses Payable. On the corporation’s income statements, the interest that occurred (whether paid or not paid) during the period of the income statement will be reported as...
of the sale. In order to know the asset’s book value at the time of the sale, the depreciation expense for the asset must be recorded right up to the date that the asset is sold. If the cash received is greater than...
to Interest Expense, which is reported on the monthly income statement. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at...
of the equipment, the total amount of depreciation expense is likely to be the same. It is just a matter of timing as to when that total amount is reported on the financial statements versus the income tax returns. Join...
ledger accounts will need to be adjusted with a credit to the Cash account and a debit to an account such as Bank Fees Expense. Therefore, as part of the bank statement reconciliation you need to show the bank service...
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...
on Bonds Payable A debit to Bond Issue Costs Between the date that a bond is issued and the date that the bond matures, the discount, premium, and/or issue costs must be amortized to the account Interest Expense....
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: