Our Explanation of Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
Our Explanation of Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
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...
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...
What are turnover ratios? Definition of Turnover Ratios In accounting, turnover ratios are the financial ratios in which an annual income statement amount is divided by an average asset amount for the same year....
What is ROI? Definition of ROI ROI is the acronym for return on investment. Traditionally, ROI related 1) the income statement profit to the 2) the balance sheet investment. A drawback of ROI is that the accounting...
amount of working capital is solvent. This is a short run view since the focus is on the company’s current assets and its current liabilities. Others look at a company’s total assets and total liabilities or the...
How does the accounting equation stay in balance when the monthly rent is paid? How a Rent Payment Affects the Accounting Equation A company’s payment of each month’s rent reduces the company’s asset Cash. This is...
What is the difference between a debit and a debit balance? Definition of Debit A debit is an entry on the left side of a T-account. A debit entry is used to record assets, expenses, losses, and owner’s draws in their...
What is a current liability? Definition of Current Liability A current liability is: An obligation that will be due within one year of the date of the company’s balance sheet, and Will require the use of a current...
What is leverage? Definition of Leverage In accounting and finance, leverage is the use of a significant amount of debt to purchase an asset, operate a company, acquire another company, etc. Since the cost of debt is...
of land. Depreciation attempts to match an asset’s cost (minus any expected salvage value) with the revenues that the asset will be generating over an estimated number of accounting periods. Example of Depreciation...
on equity, let’s assume that a corporation uses long term debt to purchase assets that are expected to earn more than the interest on the debt. The earnings in excess of the interest expense on the new debt will...
What is the difference between liquidity and liquidation? Definition of Liquidity Liquidity usually refers to a company’s ability to pay its bills when they become due. Liquidity is often evaluated by comparing a...
What is a liquidity ratio? Definition of Liquidity Ratio A liquidity ratio is a financial ratio that indicates whether a company’s current assets will be sufficient to meet the company’s obligations when they become...
sheet account Accounts Receivable. The combination of the credit balance in Allowance for Doubtful Accounts and the debit balance in Accounts Receivable is the net realizable value of the company’s accounts...
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...
methods: Indirect method (almost always used) Direct method (rarely used) The indirect method begins with the company’s net income based on the accrual method. That amount is then converted to the cash from operating...
. In addition, your state government will likely have an office to assist in starting a new business. Accounting for Sole Proprietorships In accounting, the balance sheet of the sole proprietorship reflects the...
are closed at the end of the accounting year, the net amount will ultimately end up in a balance sheet equity account such as the proprietor’s capital account or the corporation’s retained earnings account....
Should capital budgeting decisions be based on cash flows or revenues and expenses? Definition of Capital Budgeting Decisions Capital budgeting assists in the investment decisions regarding assets that will have an...
% ($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...
, the U.S. accounting rules require that the cost of the obsolete inventory items be reduced to their net realizable value. Failure to reduce their cost will mean that the following amounts on the company’s financial...
Our Explanation of Financial Accounting introduces some of the basic accounting concepts and how they affect the income statement, balance sheet, and other financial statements.
Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
Payable for $8,000. On January 15, AVCO paid the repair bill. What was the effect on AVCO’s December 31 financial statements by recording its first entry with the date of January 5? Select... Current assets are too...
of a new warehouse should be depreciated. Select... True False 3. The entry to record depreciation includes a credit to the account __________ Depreciation. 4. The depreciation method likely to be used on a company’s...
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...
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...
An asset’s cost that has been assigned to Depreciation Expense.
The withdrawal of business cash or other assets by the owner for the personal use of the owner. Withdrawals of cash by the owner are recorded with a debit to the owner’s drawing account and a credit to the cash...
A balance sheet with classifications (groupings or categories) such as current assets, property plant and equipment, current liabilities, long term liabilities, etc. To learn more, see Explanation of Balance Sheet.
Repairs that do not improve an asset or extend the asset’s life. These repairs are charged to Repairs Expense or Maintenance Expense when incurred. Major repairs such as a complete engine overhaul that extends the...
A long-term asset account that reports the cost of real property exclusive of the cost of any constructed assets on the property. Land usually appears as the first item under the balance sheet heading of Property, Plant...
The ratio of current assets to current liabilities. This ratio is an indicator of a company’s ability to meet its current obligations. To learn more, see Explanation of Financial Ratios.
A company’s loss before nonoperating or other items. Other or nonoperating items include interest income, interest expense, and gains and losses on sale of assets used in the business, loss on lawsuit, etc.
Also known as a permanent account. Includes the balance sheet accounts (assets, liabilities, and owner’s or stockholders’ equity accounts) but excludes the owner’s drawing account, which is a temporary...
A balance on the left side of an account in the general ledger. Typically expenses, losses, and assets have debit balances.
Using debt (such as loans and bonds) to acquire more assets than would be possible by using only owners’ funds. Also referred to as trading on equity.
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