the systematic allocation of an asset or liability amount from the balance sheet to expense (or revenue) on the income statement. Here are a few examples: The debit balance in the contra liability account Discount of...
the systematic allocation of an asset or liability amount from the balance sheet to expense (or revenue) on the income statement. Here are a few examples: The debit balance in the contra liability account Discount of...
result in an income statement gain or loss. The shares of treasury stock can be sold, retired, or could continue to be held as treasury stock. Example of Treasury Stock A corporation has excess cash and does not see any...
to Interest Expense, which is reported on the monthly income statement. 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...
More than it should be Examples of the Effect of Overstating Inventory If a corporation overstates its inventory, it will affect the following reported amounts on the corporation’s income statement: Cost of goods sold...
is $6,000. Under the accrual basis of accounting, the retailer must report the $6,500 of accrued payroll as: An expense on its income statement for the period ended December 31 Current liability on its balance sheet as...
the warranty period. That expected cost is recorded as a liability on its balance sheet and as an expense on its income statement. Note that the expected future cost to repair or replace is matched with the sales...
Accounts. This credit balance will cause the amount of accounts receivable reported on the balance sheet to be reduced. Any adjustment to the Allowance account will also affect Uncollectible Accounts Expense, which is...
in the factory. In addition to the manufacturing costs, there are selling, general and administrative (SG&A) expenses and perhaps interest expense. Generally, accountants do not consider these expenses to be product...
and Allowances for $500 and will credit Accounts Receivable for $500. Company K’s income statement will report the gross Sales of $100,000 minus the sales returns and allowances of $500 and the resulting net sales of...
are traded on a stock exchange, the earnings per share must appear on the face of its income statement. Example of Earnings per Share Assume a corporation has only one class of common stock outstanding and has no...
of the owner’s capital account and a drawing account. The drawing account is a temporary account in which the owner’s current year draws or withdrawals are recorded. The sole proprietor withdraws money for personal...
on the income statement. Therefore the plant asset’s carrying amount will be decreasing each period. The going concern assumption implies that the company will be continuing in business. Since it is assumed that the...
’ equity section of the balance sheet. The weighted-average number of shares of common stock outstanding during the year is used to compute the corporation’s earnings per share often shown at the bottom of the...
as a current liability such as Accrued Expenses Payable. On the corporation’s income statements, the interest that occurred (whether paid or not paid) during the period of the income statement will be reported as...
the liability) Debit the current asset Cash for $20,000 Credit the income statement account Revenues from Machine Construction for $25,000 Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How...
to pay at a later date, the company records the sale with a debit to Accounts Receivable and a credit to the revenue account Sales. The Sales account is a temporary account used to keep a tally of the sales made during...
Our Explanation of Bank Reconciliation will show you the needed adjustments to the balance on the bank statement and also the adjustments needed to the balance in the related general ledger account. A comprehensive...
A sole proprietorship, partnership, or corporation organized for the purpose of earning profits and enhancing the financial position of the owners.
The preparation of financial statements from a client’s information and without any review or audit of the amounts.
Bonds and other debt securities that a company intends to hold until the securities mature. In addition to intent, the company must have the financial ability to be able to hold them until they mature.
This indicates (on average) how many days it takes to sell the merchandise held in inventory. To learn more, see Explanation of Financial Ratios.
A section of a publicly traded corporation’s annual report to the SEC (Form 10-K). This section contains extensive information from management about the corporation’s financial condition and its operations.
The general guidelines and principles, standards and detailed rules, plus industry practices that exist for financial reporting. Often referred to by its acronymn GAAP. To learn more, see Explanation of Accounting...
This financial statistic is the net income of a corporation after income tax (less any preferred dividends) divided by the weighted average number of shares of common stock outstanding during the same period of time.
In some countries turnover refers to sales. Turnover is also associated with some financial ratios such as the inventory turnover ratio, the accounts receivable turnover ratio, and asset turnover ratio.
In financial accounting this term refers to the amount of debt excluding interest. Payments on mortgage loans usually require monthly payments of principal and interest.
Costing system wherein fixed manufacturing overhead is allocated to (or absorbed by) products being manufactured. This system, which treats fixed manufacturing costs as a product cost, is required for external financial...
One of the first efforts begun in the 1970s by the Financial Accounting Standards Board to articulate and organize into a cohesive framework all of the accounting rules that had been developed in the past. It was hoped...
The depreciation computed on the tax return according to the income tax code and regulations. This amount is usually different from the depreciation used on the financial statements (book depreciation).
Using debt in order to control more assets. Also known as financial leverage.
Usually a person without a four-year or five-year accounting degree employed to record routine financial transactions for smaller companies.
An official pronouncement by the Financial Accounting Standards Board that involves a previously issued FASB Standard. FASB Interpretations are part of the generally accepted accounting principles.
In financial accounting this term often refers to the accounting guidelines or principles of conservatism and materiality.
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.
The result of dividing a corporation’s net income by the average amount of common stockholders’ equity during the time interval when the net income was earned. To learn more about this ratio, see Explanation...
The depreciation used on a company’s income tax return. Usually this is different from the depreciation used on the financial statements.
The net amount of revenues and gains minus expenses and losses for the current year for the sole proprietorship owned by R. Smith. After the financial statements are prepared for the year, this amount will be transferred...
This ratio relates the costs in inventory to the cost of the goods sold. To learn more about this ratio, see Explanation of Financial Ratios.
The standards, rules, guidelines, and industry-specific requirements for financial reporting. To learn more about accounting principles, see our Accounting Principles Outline.
A loss from holding an asset and the loss has not yet been reported in the financial statements.
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