What is the working capital turnover ratio? Definition of Working Capital Turnover Ratio The working capital turnover ratio is also referred to as net sales to working capital. It indicates a company’s effectiveness in...
What is the working capital turnover ratio? Definition of Working Capital Turnover Ratio The working capital turnover ratio is also referred to as net sales to working capital. It indicates a company’s effectiveness in...
containing the adjusted balances for the asset, liability and owner’s equity accounts. Under the Income Statement columns, the difference between the total of the debit column and the credit column is the amount of...
What is gross profit? Definition of Gross Profit Gross profit is defined as net sales minus the cost of goods sold. Gross profit is sometimes referred to as gross margin. (However, gross margin can also mean the gross...
This is an owner’s equity account. The balance in this account reflects the owner’s investment in this sole proprietorship plus the net income and minus the owner’s draws since the company began. (The...
The owner’s equity account that contains the amount invested in the sole proprietorship by Mary Smith plus the net income since the company began minus the draws made by Mary Smith since the company began. The...
The owner’s equity account that contains the amount invested in the sole proprietorship by Matt Jones plus the net income since the company began minus the draws made by Matt Jones since the company began. The...
The owner’s equity account that contains the amount invested in the sole proprietorship by R. Smith plus the net income since the company began minus the draws made by R. Smith since the company began. The current...
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
that nearly all large U.S. corporations use the indirect method. Example of the Indirect Method of SCF When the indirect method of presenting a corporation’s cash flows from operating activities is used, this section...
What is the profit margin (after tax) ratio? Definition of Profit Margin Ratio The after tax profit margin ratio expresses the company’s net income or earnings as a percent of the company’s net sales. In other words,...
to mean all forms of taxable compensation including wages, salaries, tips, commissions, bonuses, etc. Gross Wages vs Net Wages If an employee works 40 hours during the week of December 25-31 and earns $20 per hour, the...
for the company to recoup its investment. Example of Payback Period Assume a company invests $100,000 in a project that is expected to have the following positive net cash inflows: $30,000 in Year 1 $40,000 in Year 2...
on its investments. The investment interest and dividend amounts earned will be reported on the income statement as other income. To provide more clarity, accountants use the term net income to describe the amount...
Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
is the calculation for the __________ ratio. 3. A common-size balance sheet is prepared by dividing all of the dollar amounts by the amount of total __________. 4. A common-size income statement is prepared by dividing...
by reading our Nonprofit Accounting (Explanation). 1. A nonprofit's revenues and expenses are reported on its statement of __________ activities. 2. The accounting equation of a nonprofit is Assets = Liabilities +...
describes an __________. 3. Methods that compute the present value of future cash flows are referred to as __________ cash flow techniques. 4. Part of the difference between a company’s net income during a specific...
Reports too little. If an error understates the inventory and the company’s net income, the amount of inventory and the amount of net income being reported are less than the correct amounts.
The reduction of an asset’s carrying amount. For example, we often reduce or write down inventory from its cost to its net realizable value when the net realizable value is lower.
Reports too much. If an error overstates the inventory and the company’s net income, the amount of inventory and the amount of net income being reported is more than the correct amount.
The account in which the owner’s investment is recorded plus the net income earned by the company minus the draws made by the owner. Current year net income and draws will be in temporary accounts until the end of...
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...
What is the difference between dividends and interest expense? Definition of Dividends Dividends are a distribution of a corporation’s earnings to its stockholders. Dividends are not an expense of the corporation and...
years all expressed in easier to absorb amounts. Example of Trend Analysis Assume you want to see the trend of a service company’s revenues, net income, and number of clients during the years 2017 through 2023. With...
Our Explanation of Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
from creditors (and the remaining 27% came from stockholders). 6. JamCorp’s income statement for its most recent year reported the following: Net sales $500,000 Cost of goods sold $350,000 Selling and admin expenses...
Our Explanation of Working Capital and Liquidity provides you with an in-depth look at the components of working capital and the challenges of converting current assets to cash before obligations come due. You will see...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
to the present. The rate that discounts the cash flows to a net present value of zero is the internal rate of return. Payback Wrong. The payback model uses the cash flows from the project to determine the time needed to...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
A type of financial analysis involving income statements and balance sheets. All income statement amounts are divided by the amount of net sales so that the income statement figures will become percentages of net sales....
The owner’s equity account that reports the amount invested in the sole proprietorship owned by Tony Mandella plus the cumulative amount of net income minus the cumulative amount of the sole proprietor’s...
What does NOI stand for? NOI is the acronym for net operating income. Net operating income is also referred to as income from operations. NOI excludes discontinued operations, extraordinary items, and nonoperating (or...
and reduces a company’s net income. However, the interest paid also causes a change in the company’s balance sheet and statement of cash flows. Reporting Interest Paid on the Statement of Cash Flows In the statement...
is a debit balance. In other words, the corporation has a negative amount of retained earnings. Example of Deficit Within Stockholders’ Equity Assume a corporation was formed just over three years ago. In its first...
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...
Are sales discounts reported as an expense? Definition of Sales Discounts Sales discounts are also known as cash discounts or early payment discounts. Sales discounts (along with sales returns and allowances) are...
What is comprehensive income? Definition of Comprehensive Income Comprehensive income for a corporation is the combination of the following amounts which occurred during a specified period of time such as a year,...
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