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 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 Stockholders' Equity covers the unique terminology for a corporation's paid-in capital, retained earnings, treasury stock, and accumulated other comprehensive income. Included are cash dividends, stock...
adjustments when reconciling the bank statement. For example, if a check is written in December but is voided in January, the Cash account in the company’s general ledger will need to be increased when the check is...
are considered to be operating expenses and are presented on the income statement as SG&A expenses. (SG&A is the acronym for selling, general and administrative expenses.) Sales commissions are not part of the...
Which accounts get closed at the end of a fiscal year? The temporary accounts get closed at the end of an accounting year. Temporary accounts include all of the income statement accounts (revenues, expenses, gains,...
Which date is used to record a credit card transaction? When a business uses its credit card, the transaction date is the date the credit card is used, not the date that the credit card statement is paid. For example, if...
Is the depreciation of delivery trucks a period cost or is it manufacturing overhead? The depreciation on the trucks used to deliver products to customers is a period cost. The depreciation on delivery trucks will be...
. If any of the items recorded in Sundry Expenses begin to occur frequently and/or become significant, a new account should be opened for such items. Sundry expenses could also refer to a line on a company’s...
bank fees would be better recorded in a separate account such as Bank Service Charges instead of recording them in Miscellaneous Expenses. Miscellaneous expense may also be the description on a company’s income...
another way, an automobile loan payment consists of two components: an interest payment and a principal payment. While the loan payment is a cash outflow or an expenditure, only the interest portion is an expense that...
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...
by reading our Manufacturing Overhead (Explanation). 1. Selling, general and administrative costs are part of manufacturing overhead. True Wrong. SG&A costs and interest expense are reported as expenses on the...
A written opinion of an independent certified public accountant that a company’s financial statements are a fair representation of the company’s financial performance and financial position. The...
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...
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...
absorption and variable costing Neither absorption nor variable costing 11. Required by GAAP for external financial reports. Select... Absorption costing only Variable or direct costing only Both absorption and variable...
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...
What is scrap value? Definition of Scrap Value In cost accounting, scrap value refers to a relatively insignificant amount that a manufacturer receives from the sale of production materials that remain after the...
are completed, their cost will be moved from the WIP account into the Finished Goods Inventory account. The cost of a manufacturer’s work-in-process inventory are to be disclosed in the company’s financial...
What is the return on stockholders' equity (after tax) ratio? Definition of Return on Stockholders’ Equity The financial ratio return on stockholders’ equity (or return on equity) is calculated by dividing a...
(as reported on the balance sheet) that is owed to creditors. The larger the debt ratio the greater is the company’s financial leverage. The appropriate debt ratio depends on the industry and factors that are unique...
Is it a requirement for a small business to have a CPA? Generally, a small business is not required to have a CPA or certified public accountant. A CPA would be needed if the small business must have its financial...
that were provided. This is done with a debit to the liability account Gift Certificates Outstanding and a credit to a revenue account. Our explanation pertains to financial accounting. To learn about the income tax...
. income tax regulations allow a business to use accelerated depreciation on its income tax return while using straight-line depreciation on its financial statements. For profitable corporations, this likely results in...
What is the quick ratio? Definition of Quick Ratio The quick ratio is a financial ratio used to gauge a company’s liquidity. The quick ratio is also known as the acid test ratio. The quick ratio compares the total...
to record the loss. By recording the potential loss, you will be reporting less profit and less asset amounts. If there is a potential loss, but it is impossible to measure the amount for a journal entry, there needs to...
, the company will not have to liquidate or be forced out of business. If there is uncertainty as to a company’s ability to meet the going concern assumption, the facts and conditions must be disclosed in its financial...
underlying guidelines. The extensive generally accepted accounting principles (US GAAP) are found in the authoritative source known as the Financial Accounting Standards Board Accounting Standards Codification. Join PRO...
for each month. However, the controller expects the actual depreciation to be only $44,000 for the year. For the first eleven months, the financial statements will report $44,000 of depreciation expense. Then in the...
, it is wise for a company to use some debt to control a larger amount of profitable assets. However, too much debt can mean significant risk when business conditions decline. Leverage is also known as trading on equity....
. to utilize an outside accountant to assist in the preparation of the annual financial statements and tax reports. The outside accountant may also serve as a business advisor when needed. Some outside accountants are...
What is ERP? Definition of ERP In accounting, ERP is the acronym for enterprise resource planning. ERP could be described as a database software package that supports all of a business’s processes and operations...
at a cost of $500,000. It is expected that the equipment will have no salvage value at the end of an estimated useful life of 10 years. For its financial statements the corporation will usually charge the same amount...
of working capital during the year was $400,000. Therefore, its working capital turnover ratio was: net sales of $2,400,000 divided by average working capital of $400,000 = 6 times during the year. As with most...
be broken down to be: [Sales divided by Assets Employed] times [Operating Income before taxes and interest divided by Sales] = Operating Income divided by Assets Employed = ROCE. Take our Financial Ratios Exam. Join...
to this landlord. Both parties use the accrual method of accounting and issue monthly financial statements. The rent is $2,000 per month and it is due on the first day of each month. If the rent is paid when due, the...
a profitable division that no longer meets its long range goals. The proceeds from this disinvestment are then used to improve the company’s financial position by reducing its debt. Join PRO to Track Progress Mark the...
that are needed for the external financial statements which must comply with US GAAP. Other topics involve analyses and reports that are not distributed outside of the company but are used by management in its decision...
in arrears also requires a disclosure in the notes to the financial statements. Arrears is also used in the context of annuities. When an annuity’s equal payments occur at the end of each period, the annuity is said...
maturity dates. Stocks pay dividends, which are a distribution of the corporation’s profits to its owners. However, the dividend occurs only if the corporation’s board of directors declare the dividend. The dividend...
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