Is the provision for doubtful debts an operating expense? Definition of Provision for Doubtful Debts Some companies use Provision for Doubtful Debts as the name of the contra-asset account which is reported on the...
Is the provision for doubtful debts an operating expense? Definition of Provision for Doubtful Debts Some companies use Provision for Doubtful Debts as the name of the contra-asset account which is reported on the...
How do the responsibilities of a bookkeeper differ from those of an accountant? I see a bookkeeper’s responsibilities as getting the business transactions into the company’s general ledger. This involves a tremendous...
What if a company's Allowance for Doubtful Accounts is understated? Definition of Allowance for Doubtful Accounts The Allowance for Doubtful Accounts is a contra asset account. The Allowance account’s credit balance is...
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...
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...
What is the total asset turnover ratio? Definition of Total Asset Turnover Ratio The total asset turnover ratio indicates the relationship between a company’s net sales for a specified year to the average amount of...
Our income statement shows wide fluctuations in utilities expense from month to month. I suspect our accounting is not proper. Any suggestions? Under accrual accounting, your income statement should report the amount for...
What are gross wages? Definition of Gross Wages Gross wages are the amounts earned by employees before the payroll withholding taxes and other deductions are subtracted. Sometimes gross wages is used to describe the...
What is a revenue expenditure? Definition of Revenue Expenditure A revenue expenditure is a cost that will be an expense in the accounting period when the expenditure takes place. Revenue expenditures are often discussed...
Where does accrued interest on notes receivable get reported on the balance sheet? Definition of Accrued Interest on Notes Receivable Accrued interest on notes receivable is the amount of interest the lender has earned,...
What does arms length transaction mean? Definition of Arms Length Transaction An arms length transaction exists when two independent (unrelated) parties are each attempting to get the best deal possible. Example of Arms...
What is window dressing? Definition of Window Dressing Window dressing refers to actions taken or not taken prior to issuing financial statements in order to improve the appearance of the financial statements. Example...
Are fixed assets the same as plant assets? Definition of Fixed Assets and Plant Assets My experience indicates that people use the term fixed assets to mean the same as plant assets. As a result, I define both fixed...
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 does per annum mean? Definition of Per Annum Per annum means yearly or annually. It is a common phrase used to describe an interest rate. Often “per annum” is omitted, as in “I have a 4% mortgage loan.” or...
Should inventories be reported at their cost or at their selling prices? Definition of Inventory Cost Inventories are reported at cost, not at selling prices. A retailer’s inventory cost is the cost to purchase the...
What is a purchase allowance? Definition of Purchase Allowance A purchase allowance is a reduction in the buyer’s cost of merchandise that had been purchased. The purchase allowance is granted by the supplier because...
Is the installation labor for a new asset expensed or included in the cost of the asset? Accounting for Labor to Install Asset The definition of an asset’s cost is all costs that are necessary to get an asset in place...
What items are added to the balance per bank on the bank reconciliation? Bank Reconciliation Adjustments to Bank Balance The items that are added to the balance per bank when doing a bank reconciliation include: Deposits...
Are the sales taxes part of a retailer's sales? Definition of Sales Taxes Sales taxes are likely state and local taxes collected by the sellers of specified goods and the providers of specified services. The sales taxes...
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 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...
How do you account for bond issue costs? Definition of Bond Issue Costs The costs associated with issuing bonds are debited to a contra liability account such as Bond Issue Costs. Over the life of the bonds, the issue...
Weekly Income Statement When I became a director of a meatpacking company, I was concerned about the thin profit margins, the corporation’s lack of working capital, and my inexperience in the industry. The company...
Would you please help me understand opportunity cost? You might think of opportunity cost as the profit you had to forego. Let’s illustrate this with a little story. Suppose that you are the sole owner of a company...
What does the term organic growth mean? Organic growth often refers to the growth in a company’s sales that did not occur because of an acquisition of another company. Expressed another way, organic growth is...
Why would Prepaid Insurance have a credit balance? Definition of Prepaid Insurance Generally, Prepaid Insurance is a current asset account that has a debit balance. The debit balance indicates the amount that remains...
What is the provision for bad debts? Definition of Provision for Bad Debts The provision for bad debts could refer to the balance sheet account also known as the Allowance for Bad Debts, Allowance for Doubtful Accounts,...
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 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 is the effective interest rate? Definition of Effective Interest Rate The effective interest rate is the true rate of interest earned. It can also mean the market interest rate, the yield to maturity, the discount...
What is the allowance method? Definition of Allowance Method The allowance method usually refers to one of the two ways for reporting bad debts expense that results from a company selling goods or services on credit....
What is an imprest system of petty cash? Definition of Petty Cash Petty cash refers to a small amount of currency and coins that a company uses to pay small amounts without writing a check. The amount of petty cash (also...
What is depletion? Definition of Depletion In accounting, depletion refers to the expensing of a company’s cost of a natural resource. Ultimately, it means moving a natural resource’s cost from the company’s...
How does petty cash affect expenses? Definition of Petty Cash Petty cash is a small amount of currency and coins that a company has available to make very small payments instead of requesting and processing a company...
How do you record an asset that was partially financed? Example of Recording an Asset that was Partially Financed Assume that your company purchased a car for $10,000 by paying cash of $4,000 and signing a promissory...
How does an expense affect the balance sheet? Definition of Expense An expense is a cost that has been used up, expired, or is directly related to the earning of revenues. Most of a company’s expenses fall into the...
Where do worker compensation insurance costs get reported on the financial statements? Worker compensation insurance costs (also referred to as worker comp) should appear on the income statement and also on the balance...
What is the stated interest rate of a bond payable? Definition of Stated Interest Rate of a Bond The stated interest rate of a bond payable is the annual interest rate that is printed on the face of the bond and stated...
Can I capitalize this year's R&D? Generally, R&D costs cannot be capitalized for U.S. financial statements according to the Statement of Financial Accounting Standards No. 2, Accounting for Research and Development...
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