What is a contingent liability? Definition of Contingent Liability A contingent liability is a potential liability that may or may not become an actual liability. Whether the contingent liability becomes an actual...
What is a contingent liability? Definition of Contingent Liability A contingent liability is a potential liability that may or may not become an actual liability. Whether the contingent liability becomes an actual...
What is the purpose of control accounts? Definition of Control Account A control account is a general ledger account containing only summary amounts. The details for each control account will be found in a related (but...
Where does the purchase of equipment show up on a profit and loss statement? Reporting the Purchase of Equipment Assuming that the purchase of equipment is a long-term or noncurrent asset that will be used in a business,...
Do variance accounts have an impact on financial statements? Or are they for performance evaluation only? Since the financial statements must reflect the cost principle, both the standard costs and the variances must be...
What is an unpresented cheque or check and does it require an adjustment to the balance sheet? Definition of Unpresented Cheque or Check An unpresented cheque is a check that a company has written, but the check has not...
What is the FISH inventory method? FISH is the acronym for first-in, still-here. FISH is an attempt to bring humor to the fact that some items have been sitting in inventory for years. Unlike FIFO and LIFO, which are...
What is the employer's Social Security tax rate for 2022 and 2023? Employer’s Social Security Payroll Tax for 2022 The employer’s Social Security payroll tax rate for 2022 (January 1 through December 31, 2022) is the...
What is the cost to store inventory? Definition of Cost to Store Inventory The cost to store, hold or carry inventory is the total of the following: Cost of the space used for storing inventory, such as rent, heat,...
How do you compute the selling price of a bond? Definition of Selling Price of Bond The selling price (or the market value) of a bond is the present value of the future contractual cash amounts that are going to be...
In a bank reconciliation, what happens to the outstanding checks of the previous month? Definition of Outstanding Checks Outstanding checks are checks written by a company, but the checks have not cleared the bank...
What is the definition of net sales? Definition of Net Sales Net sales is a company’s gross sales of products minus any sales discounts and sales returns and allowances. When a company makes a sale, the general ledger...
What causes a reduction in Accumulated Depreciation? Definition of Accumulated Depreciation Accumulated Depreciation is a general ledger contra asset account associated with a company’s property, plant and equipment....
What is the difference between an unadjusted trial balance and an adjusted trial balance? Difference between Unadjusted Trial Balance and Adjusted Trial Balance The differences between an unadjusted trial balance and an...
Why does commitment and contingencies appear on the balance sheet without an amount? Definition of Commitments and Contingencies Commitments and contingencies is a balance sheet line with no amount reported. The line...
Should a cash discount be recorded as a reduction to an expense? Yes, a cash discount should be a reduction to an expense. After all, accountants define cost as the cash amount (or cash equivalent amount) at the time of...
What is a customer deposit? Definition of Customer Deposit A customer deposit could be money that a company receives from a customer prior to the company earning it (by providing the customer with goods or services). In...
What is the days' sales in accounts receivable ratio? Definition of Days’ Sales in Accounts Receivable The days’ sales in accounts receivable ratio (also known as the average collection period) tells you the number...
What is financial leverage? Definition of Financial Leverage Financial leverage which is also known as leverage or trading on equity, refers to the use of debt to acquire additional assets. The use of financial leverage...
What is the accounting entry when an order is received? There is no accounting entry recorded in a company’s general ledger accounts when an order is received. The reason is that a sale or sales revenues has not yet...
What is the bookkeeping equation? Definition of Bookkeeping Equation The bookkeeping equation (or accounting equation) is similar to the structure of the balance sheet: For a sole proprietorship: Assets = Liabilities +...
What are external financial statements? Definition of External Financial Statements External financial statements are those distributed outside of the company’s management. Some of the recipients of the external...
What is the debt to equity ratio? Definition of Debt to Equity Ratio The debt to equity ratio or debt-equity ratio is the result of dividing a corporation’s total liabilities by the total amount of stockholders’...
What would cause a decrease in accumulated depreciation? Definition of Accumulated Depreciation Accumulated depreciation is the cumulative amount of depreciation taken since a depreciable asset was put into service. The...
What is a liability account? Definition of Liability Account A liability account is a general ledger account in which a company records the following which resulted from business transactions: Amounts owed to suppliers...
What is a contra asset account? Definition of Contra Asset Account A contra asset account is an asset account where the account balance is a credit balance. It is described as “contra” because having a credit balance...
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 assets....
What is net sales? Definition of Net Sales Under the accrual basis of accounting, net sales is the total amount of goods shipped/delivered to customers during a specified period of time minus any early payment discounts...
What will cause a change in net working capital? Definition of Net Working Capital Net working capital, which is also known as working capital, is defined as a company’s current assets minus itscurrent liabilities....
What entry is made when selling a fixed asset? Defining the Entries When Selling a Fixed Asset When a fixed asset or plant asset is sold, there are several things that must take place: The fixed asset’s depreciation...
What is the double declining balance method of depreciation? Definition of Double Declining Balance Method of Depreciation The double declining balance method of depreciation, also known as the 200% declining balance...
What is historical cost? Definition of Historical Cost Historical cost is a term used instead of the term cost. Cost and historical cost usually mean the original cost at the time of a transaction. The term historical...
What are common-size financial statements? Common-size financial statements present the financial statement amounts as a percentage of a base number. For example, the common-size income statement will report the revenue...
What is a defined benefit pension plan? A defined benefit pension plan is a retirement plan in which the employer commits to paying a specified monthly payment to each eligible employee when he or she retires at a stated...
What is the accounts receivable turnover ratio? Definition of Accounts Receivable Turnover Ratio The accounts receivable turnover ratio (or receivables turnover ratio) is an important financial ratio that indicates a...
How do you calculate the gain or loss when an asset is sold? Definition of Gain or Loss on Sale of an Asset The gain or loss on the sale of an asset used in a business is the difference between 1) the amount of cash that...
What is the difference between an implicit cost and an explicit cost? Definition of Implicit Cost An implicit cost is present but it is not initially shown or reported as a separate cost. Definition of Explicit Cost An...
What is a journal? Definition of a Journal In accounting and bookkeeping, a journal is a record of financial transactions in order by date. Traditionally, a journal has been defined as the book of original entry. The...
When does a negative cash balance appear on the balance sheet? Definition of Negative Cash Balance A negative cash balance results when the cash account in a company’s general ledger has a credit balance. The credit or...
What is contained on a 10-column worksheet? The 10-column worksheet that I am familiar with will have the general ledger account titles in the first column followed by ten columns of amounts. There will be one debit and...
Why does LIFO usually produce a lower gross profit than FIFO? Definition of LIFO LIFO (which is the acronym for Last In, First Out) is a cost flow assumption in which the most recent costs of inventory items are the...
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