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...
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...
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...
The sole proprietorship of J. Lee will include the following capital accounts: J. Lee, Capital, which is increased by J. Lee’s investment into the business plus each accounting period’s net income, and which is...
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...
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...
consisting of current liabilities of $950,000 + noncurrent liabilities of $1,250,000. AMP's total assets were given at $3,000,000. Therefore, AMP's debt to total assets ratio on December 31 was $2,200,000 to...
A rolling budget adds a future accounting period’s budget to replace a budget for an accounting period that has past. For example, a company’s 2024 annual budget will become a rolling budget if in February...
A measurement of net income arrived at by comparing the amount of total equity at the end of a period to the amount of total equity at the beginning of the period. For example, if Al Capone had $5 million of equity at...
Under the accrual method of accounting, this account reports the employer’s portion of the Social Security and Medicare tax that pertains to the period indicated in the heading of the income statement, whether or...
Selling expenses are part of the operating expenses (along with administrative expenses). Selling expenses include sales commissions, advertising, promotional materials distributed, rent of the sales showroom, rent of...
Accounting estimates include the estimated salvage value and the estimated useful life of depreciable assets, estimated percentage of bad debts expense, estimated percentage of units to be repaired or replaced during a...
Administrative expenses are part of the operating expenses (along with selling expenses). Administrative expenses include expenses associated with the general administration of the business. Examples include the salaries...
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
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...
for the accounting period. If the income statement was prepared using the accrual method of accounting, the net income must be adjusted for expenses that were not paid during the current accounting period revenues which...
to the amount invested. The computed number of years is referred to as the payback period. To illustrate, assume that a company invests $100,000 today in a project that is expected to generate cash of $50,000 for two...
Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
has credit terms of 2/10, net 30. The invoice is for $1,000 but $100 of the goods were returned within two days as instructed by the supplier. The amount to be remitted to the supplier within the discount period is...
Our Explanation of Bonds Payable covers the recording of bonds, the accrual of interest expense, and the amortization of the discount and premium on bonds payable. You gain an understanding on why the market value of...
cash amounts could be described as any of the following: desired rate of return target rate of return time value of money company’s cost of capital incremental interest rate of the borrower the inflation rate, etc....
Our Explanation of Nonprofit Accounting includes a chart that contrasts the financial statements of a nonprofit (or not-for-profit) organization with those of a for-profit business corporation. There are many examples to...
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...
. the vendor's __________ invoice, and 11. the company's __________ receiving report or ticket. 12. A $1,000 invoice from a supplier has terms of 2/10, n/30. The amount that should be remitted to the...
necessary to get the merchandise in place and ready for sale. For example, freight-in is part of the inventory cost.) 12. On December 1 a company paid its property insurance bill of $3,000 for the 6-month period of...
the documents are processed. To avoid the risk of this double-counting, reversing entries are prepared on the first day of the next accounting period to remove the previous period's accrual adjusting entries. For...
for the current period’s expense that is reported on the company’s income statement. If Provision for Doubtful Debts is the name of the account used for recording the current period’s expense associated with the...
What is a deferral? Definition of Deferral A deferral often refers to an amount that was paid or received, but the amount cannot be reported on the current income statement since it will be an expense or revenue of a...
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...
in the company’s general ledger accounts. If it is the end of the accounting period, these amounts must be recorded to comply with the accrual method of accounting. By entering these on an adjusting entry dated for...
What is accrued rent? Definition of Accrued Rent Accrued rent is the amount of rent that has not yet been paid by the tenant or received by the landlord for a past period of time. [If the tenant always pays the monthly...
in a year, each semimonthly pay period will have on average 2.16667 weeks per semimonthly payday. Example of Biweekly Payroll Let’s assume that a company pays its employees biweekly on every other Friday. If a new...
know that during this 15-day period, the shipping expense would be higher than any other 15-day period due to holiday sales.) He listened carefully as I explained the matching principle, accrual-type adjusting entries,...
Is the reversal of a previous year's accrued expense permanent? Definition of Reversal of Accrued Expense An accrued expense typically requires an accrual adjusting entry recorded at the end of an accounting year...
What is the difference between interest expense and interest payable? Definition of Interest Expense Assuming the accrual method of accounting, interest expense is the amount of interest that was incurred on debt during...
, gains and losses (except for items stipulated as other comprehensive income) for a period of time such as a year, quarter, 13 months, etc. Statement of comprehensive income. This financial statement begins with the...
cash inflows and cash outflows during the same period as the company’s income statement. The cash flow statement is important because the income statement reflects the accrual method of accounting. This means the...
cash inflows and cash outflows during the period of the income statement A reconciliation of the change in a company’s cash and cash equivalents from the beginning of the accounting period to the end of the accounting...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
Our Explanation of Chart of Accounts shows how a typical chart of accounts is organized and examples of possible account numbering. It concludes with a quick review of debits and credits.
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