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...
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...
or the left side of a T-account. Example of Dr. Typically, the general ledger accounts for assets and expenses will have debit (dr.) balances and the balances in the asset accounts will be increased with debit amounts....
Financial statements that reflect the total economic entity. For example, on a consolidated income statement a corporation having several subsidiaries would report the total of all of its companies’ sales that were...
credit analysis. Financial analysis would also include calculations such as return on equity, return on assets, price earnings ratios, dividend yield, comparisons with industry averages, trend analysis, and so on....
. The objective of depletion is to match the cost of the natural resources that were sold with the revenues from the natural resources that were sold. Conceptually, depletion is similar to the depreciation of property,...
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...
with the current assets accounts receivable and inventory. While these two assets are initially recorded at cost, there are occasions when the company will collect less than the cost. When that occurs, the company must...
Why can a retailer record its purchase of merchandise as a debit to purchases within the cost of goods sold, instead of the asset inventory? Before we explain why companies will record the purchases of merchandise in the...
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...
Why is depreciation on the income statement different from the depreciation on the balance sheet? Definition of Depreciation Depreciation is the systematic allocation of an asset’s cost to expense over the useful life...
equal to credits, the account balances must satisfy the accounting equation, which is: Assets = Liabilities + Stockholders’ Equity Asset accounts (normally debit balances) include: Cash Accounts receivable Inventory...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
of opportunity cost is relevant in making decisions. For example, in deciding whether to make or to buy a component, the opportunity cost is an important consideration: If your plant has idle capacity, you might opt to...
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...
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...
Our Explanation of Financial Statements provides you with the highlights of each of the five external financial statements issued by U.S. corporations. Our insights will give you a good understanding of what the...
, revenue recognition). The accrual method results in a better picture of a corporation’s net income during a specified period of time and it results in a better picture of a corporation’s assets and liabilities at...
and to increase the balance you need to CREDIT the account. Credit Right! To increase a liability you credit the liability account. Cash Debit Right! Cash and other assets are debited to increase their balances. Credit...
in which the office furniture is recorded, such as Furniture and Fixtures or Office Furniture. In other words, the discount is a reduction of the asset’s cost. [If the discount is received by a retailer who is in the...
: To have cash available for unforeseen events and for increases in its costs To reduce its long-term debt or repurchase shares of its common stock To increase inventory to expand, to purchase in larger quantities for...
In bookkeeping, why are revenues credits? In bookkeeping, revenues are credits because revenues cause owner’s equity or stockholders’ equity to increase. Recall that the accounting equation, Assets = Liabilities +...
What is the difference between receivables and accounts receivable? Definition of Accounts Receivables Accounts receivable are usually current assets that result from selling goods or providing services to customers on...
marketable securities of $20,000 + accounts receivables of $93,000. This adds up to $120,000 of quick assets. If the company’s current liabilities amount to $100,000 the acid test ratio is 1.2:1. A large acid test...
current assets and the calculation of its cost of goods sold. 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...
How do drawings affect the financial statements? Definition of Drawings Drawings are the withdrawals of a sole proprietorship’s business assets by the owner for the owner’s personal use. The drawings or draws by the...
to improve the internal control of its assets. Examples of Restrictive Endorsements The most common restrictive endorsement is the phrase For Deposit Only written along with the payee’s signature on the back of a...
to be part of the cost of items purchased, since an asset’s cost is defined as all costs that are necessary to get the asset in place and ready for use. Join PRO to Track Progress Mark the Question as Read Must-Watch...
How do you amortize goodwill? Definition of Amortize Goodwill Prior to 2001, to amortize goodwill meant to consistently and in uniform increments move the reported amount of the intangible asset goodwill from the balance...
asset turnover and fixed asset turnover are indicators of a company’s effectiveness in utilizing its assets. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting...
Is it possible for owner's equity to be a negative amount? Definition of Negative Owner’s Equity Negative owner’s equity means the amount of a sole proprietorship’s liabilities exceeds the amount of its...
with a reseller’s certificate, which allows the supplier to not charge the sales tax. If a sales tax is paid by the reseller and the sales tax could have been avoided, the sales tax would have to be expensed...
What is separation of duties? What is Separation of Duties The separation of duties is one of various internal control techniques for safeguarding a company’s assets. By separating employee’s duties, the likelihood...
, their balances are on the right side of the accounts similar to their position in the accounting equation: assets = liabilities + owner’s equity. The revenue accounts (which are temporary accounts) also have credit...
Are depreciation, depletion and amortization similar? In accounting the terms depreciation, depletion and amortization often involve the movement of costs from the balance sheet to the income statement in a systematic...
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