Should capital budgeting decisions be based on cash flows or revenues and expenses? Definition of Capital Budgeting Decisions Capital budgeting assists in the investment decisions regarding assets that will have an...
Should capital budgeting decisions be based on cash flows or revenues and expenses? Definition of Capital Budgeting Decisions Capital budgeting assists in the investment decisions regarding assets that will have an...
What is a mortgage loan? Definition of Mortgage Loan A mortgage loan is a loan associated with the purchase of real estate, such as a home or buildings used in a business. As part of the loan process, the lender files a...
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...
How do you calculate accrued vacation pay? Definition of Accrued Vacation Pay Accrued vacation pay is the amount of vacation pay that a company’s employees have earned, but the company has not yet paid. Example of...
What is the cost of goods sold? Definition of Cost of Goods Sold The cost of goods sold is the cost of the products that a retailer, distributor, or manufacturer has sold. The cost of goods sold is reported on the income...
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...
Why would someone buy a bond at a premium? Definition of Bond Premium Bond premium or premium on bonds occurs when the bond’s actual interest payments are greater than the interest payments expected by the market. The...
What is the consistency principle? Definition of Consistency In accounting, consistency requires that a company’s financial statements follow the same accounting principles, methods, practices and procedures from one...
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,...
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...
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 are short-term bank loans reported on the statement of cash flows? Definition of Short-Term Bank Loans Short-term bank loans are generally loans that must be repaid within one year of the date of the balance sheet....
Where can I get official information for federal payroll taxes? For official information on federal payroll taxes we recommend the Internal Revenue Service Publication 15 which is known by two names: Circular E and...
What is the purpose of the cash flow statement? Definition of Cash Flow Statement The cash flow statement or statement of cash flows or SCF identifies a company’s major cash inflows and outflows that occurred the same...
What are byproducts? Byproducts, or by-products, are products with relatively little value that emerge from a common process along with the main products. The main products have significant value and are referred to as...
What are LIFO layers? Definition of LIFO Layer LIFO is the acronym for Last-In, First-Out. In the context of inventory, it means that the cost of the most recently purchased units will be the first costs to be matched...
What is the proper accounting for supplies? Definition of Supplies Office supplies are items used to carry out tasks in a company’s departments outside of manufacturing or shipping. Office supplies are likely to...
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...
assets in order to determine a company’s working capital. (Dividing current assets by the current liabilities is the company’s current ratio.) Examples of Current Liabilities The following are common examples of...
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 prepaid insurance? Definition of Prepaid Insurance Prepaid insurance is the portion of an insurance premium that has been paid in advance and has not expired as of the date of a company’s balance sheet. This...
What is the difference between gross profit and net profit? Definition of Gross Profit Gross profit is defined as net sales minus the cost of goods sold. Example of Gross Profit Assume that a retailer had gross sales of...
What is bookkeeping? Definition of Bookkeeping Bookkeeping includes the recording, storing and retrieving of financial transactions for a business, nonprofit organization, individual, etc. Examples of Bookkeeping Tasks...
What are the accounting principles, assumptions, and concepts? Definition of Accounting Principles, Assumptions, and Concepts The basic underlying accounting principles, assumptions, and concepts include the following:...
What is periodicity in accounting? Definition of Periodicity Periodicity is an accounting assumption made by accountants so that a company’s complex and ongoing activities can be divided up into annual, quarterly, and...
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 is the difference between inventory and the cost of goods sold? Definition of Inventory Inventory for a retailer or distributor is the merchandise that was purchased and has not yet been sold to customers. A...
Why is the Cash Flow Statement identified as one of the financial statements? The Cash Flow Statement or Statement of Cash Flows is required as part of a full set of financial statements because of the Financial...
What is owner's equity? Definition of Owner’s Equity Owner’s equity is one of the three main sections of a sole proprietorship’s balance sheet and one of the components of the accounting equation: Assets =...
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...
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 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 difference between interest expense and interest payable? Definition of Interest Expense Assuming the accrual method of accounting, interest expense is the amount of interest that was incurred on debt during...
When do you adjust the amount of prepaid expenses? Definition of Adjusting Prepaid Expenses The balance in the current asset account Prepaid Expenses should be adjusted prior to a company issuing its financial...
Why is prepaid insurance a short term asset? Definition of Prepaid Insurance as a Short-term Asset Prepaid insurance is usually a short term or current asset because insurance premiums are rarely billed for periods...
Is a money market account a current asset or a fixed asset? A money market account is a current asset unless it is restricted for a long-term purpose. The amount of an unrestricted money market account will likely be...
What is a capital expenditure versus a revenue expenditure? Definition of Capital Expenditure A capital expenditure is an amount spent to acquire or significantly improve the capacity or capabilities of a long-term asset...
What is the statement of financial position? Definition of Statement of Financial Position The statement of financial position is another name for the balance sheet. It is one of the main financial statements. The...
What are fixed assets? Definition of Fixed Assets Fixed assets are a company’s tangible, noncurrent assets that are used in its business operations. The word fixed indicates that these assets will not be used up,...
What are accrual adjusting entries? Definition of Accrual Adjusting Entries Accrual adjusting entries or simply accruals are one of three types of adjusting entries which are prepared at the end of an accounting period...
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