Is there a difference between the accounts Purchases and Inventory? Purchases Account Under the Periodic Inventory System The general ledger account Purchases is used to record the purchases of inventory items under the...
Is there a difference between the accounts Purchases and Inventory? Purchases Account Under the Periodic Inventory System The general ledger account Purchases is used to record the purchases of inventory items under the...
What is apportionment? An apportionment is an allocation based on some proportions. I associate the term apportionment with a corporation’s taxable income that was earned in many states within the U.S. In that...
What is the return on assets ratio? Definition of Return on Assets Ratio The return on assets ratio, or return on total assets ratio, relates a company’s net income during a specific year, to the company’s average...
How are period costs reported in the financial statements? Under the accrual method of accounting, period costs such as selling, general and administrative expenses are reported on the income statement in the accounting...
Why are wages reported as an expense when the work occurs, but the employees' tax records report them when they are paid? Accrual Method for the Corporation, Cash Method for the Employees The short answer is that the...
Is advertising an asset or an expense? Definition of Advertising Expense Advertising is the amount a company incurs to promote its products, brands, and image via television, radio, magazines, Internet, etc. Since the...
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 is the employee's Social Security tax rate for 2022 and 2023? Social Security Payroll Tax for 2022 The employee’s Social Security payroll tax rate for 2022 (January 1 through December 31, 2022) is 6.2% of the...
What is a contra inventory account? A contra inventory account is a general ledger account with a credit balance. The credit balance in the contra inventory account will be combined with the debit balance in the...
What is a fringe benefit rate? Definition of Fringe Benefit Rate A fringe benefit rate is a percentage that results from dividing the cost of an employee’s fringe benefits by the wages paid to the employee for the...
If I want a gross margin of 25%, what percent should I mark up my product? Definition of Gross Margin Gross margin as a percentage is the gross profit divided by the selling price. For example, if a product sells for...
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...
Where does the interest paid on bank loans get reported on the statement of cash flows. Definition of Interest on Bank Loans The interest on bank loans is usually an expense of the accounting period in which the interest...
What does current portion of long term debt mean? Definition of Current Portion of Long-Term Debt The current portion of long-term debt is the amount of principal that will be due within one year of the date of the...
What is SG&A? Definition of SG&A SG&A is the acronym for selling, general and administrative. SG&A are the operating expenses incurred to 1) promote, sell, and deliver a company’s products and services, and 2) manage...
What is a liability? Definition of Liability A liability is an obligation arising from a past business event. It is reported on a company’s balance sheet. Liabilities are also part of the basic accounting equation:...
Why are assets and expenses increased with a debit? Definition of Debit In accounting the term debit indicates the left side of a general ledger account or the left side of a T-account. (The right side of an account or a...
What is the difference between accounts payable and accounts receivable? Definition of Accounts Payable Accounts payable is a current liability account in which a company records the amounts it owes to suppliers or...
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...
What is the difference between a cost and an expense? Definitions of Cost and Expense Some people use cost interchangeably with expense. However, we use the term cost to mean the amount spent to purchase an item, a...
What is principles of accounting? Three meanings come to mind when you ask about principles of accounting… Principles of accounting was often the title of the introductory course in accounting. It was also common for...
What are sundry expenses? Definition of Sundry Expenses In accounting and bookkeeping, sundry expenses are expenses that are small in amount and rare in occurrence. For these rare and insignificant expenses, a company...
What is a recurring journal entry? Definition of Recurring Journal Entry A recurring journal entry is a journal entry that is recorded in every accounting period. Some recurring journal entries will involve the same...
What does it mean to replenish the petty cash fund? Definition of Replenishing Petty Cash Replenishing the petty cash fund means the petty cash custodian requests and receives cash from the company’s regular checking...
What is the accrual basis of accounting? Definition of Accrual Basis of Accounting Under the accrual basis of accounting (or accrual method of accounting), revenues are reported on the income statement when they are...
What is the accounts receivable collection period? Definition of Accounts Receivable Collection Period The accounts receivable collection period is similar to the days sales outstanding or the days sales in accounts...
I don't understand the conservatism principle. Why do losses get recorded but not gains? Conservatism has to do with uncertainty. When uncertainty exists between two alternatives that appear to be reasonable, the...
What is the difference between a trial balance and a balance sheet? Definition of Trial Balance A trial balance is an internal report that remains in the accounting department. The trial balance lists all of the accounts...
In what order are liabilities listed in the chart of accounts? Order for Listing Liabilities It is logical for a company’s liabilities to be organized in the chart of accounts in the same way as they are presented on...
How do you compute a selling price if you know the cost and the required gross margin? Definition of Selling Price A selling price is the amount that a customer will pay to buy a product. If a retailer wants to earn a...
Why are revenues credited? Why Revenues are Credited Revenues cause owner’s equity to increase. Since the normal balance for owner’s equity is a credit balance, revenues must be recorded as a credit. At the end of...
How do you calculate the cost of goods sold for a retailer? Formula for Calculating a Retailer’s Cost of Goods Sold A retailer’s cost of goods sold is: The cost of the retailer’s beginning inventory Plus the cost...
What is the cost of sales? Definition of Cost of Sales Cost of sales is often a line shown on a manufacturer’s or retailer’s income statement instead of cost of goods sold. The cost of sales for a manufacturer is the...
What is the meaning of pro rata? Pro rata is a Latin term that means in proportion. Pro rata is related to prorate, a term used in cost accounting. To illustrate the term pro rata, let’s assume that a company’s...
What is the cost of goods manufactured? Definition of Cost of Goods Manufactured The cost of goods manufactured is a calculation of the production costs of the goods that were completed during an accounting period. In...
How do I record an advance to an employee and the deduction? Definition of Advance to an Employee A cash advance to an employee is usually a temporary loan by a company to an employee. In other words, the company is the...
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 +...
How do you estimate the amount of uncollectible accounts receivable? Definition of Estimating Uncollectible Accounts Receivable When a company sells goods and/or provides services on account (on credit) using the accrual...
What is Subchapter S? Subchapter S refers to a section of Chapter 1 of the U.S. Internal Revenue Code. A subchapter S corporation, which is also referred to as an S corporation, is a corporation that does not pay the...
What is a temporary account? Definition of Temporary Account A temporary account is a general ledger account that begins each accounting year with a zero balance. Then at the end of the year its account balance is...
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