What is a controller's cushion? A controller’s cushion or controller’s reserve involves temporarily recording too much expense for an item that the controller calculates. For example, the controller might budget...
What is a controller's cushion? A controller’s cushion or controller’s reserve involves temporarily recording too much expense for an item that the controller calculates. For example, the controller might budget...
What is salvage value? Definition of Salvage Value In accounting, salvage value is the amount that is expected to be received at the end of a plant asset‘s useful life. Salvage value is sometimes referred to as...
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 is the debt to total assets ratio? Definition of Debt to Total Assets Ratio The debt to total assets ratio is an indicator of a company’s financial leverage. It tells you the percentage of a company’s total...
What are the accounting entries for a fully depreciated car? Definition of a Fully Depreciated Car A fully depreciated car is one where the car’s historical cost has already been allocated to expense (except for the...
What are accounting principles? Definition of Accounting Principles Accounting principles are the common rules that must be followed when preparing financial statements that are distributed to people outside of 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...
How do I compute the product cost per unit? Definition of Product Cost per Unit In accounting, a product’s cost is defined as the direct material, direct labor, and manufacturing overhead. Other costs such as...
What are gains? Definition of Gains In financial accounting, gains often pertain to some of a company’s transactions which occur outside of the company’s main business activities. Transactions which are outside of a...
What is an incremental cost? Definition of Incremental Cost An incremental cost is the difference in total costs as the result of a change in some activity. Incremental costs are also referred to as the differential...
What is accumulated other comprehensive income? Definition of Accumulated Other Comprehensive Income Accumulated other comprehensive income is a separate line within the stockholders’ equity section of the balance...
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...
What is safety stock? Definition of Safety Stock Safety stock is an additional quantity of an item held by a company in inventory in order to reduce the risk that the item will be out of stock. Safety stock acts as a...
What is working capital? Definition of Working Capital Working capital is the amount of a company’s current assets minus the amount of its current liabilities. Example of Working Capital Let’s assume that a...
What is an accounting period? Definition of Accounting Period An accounting period is the period of time covered by a company’s financial statements. Common accounting periods for external financial statements include...
Where do dividends appear on the financial statements? Definition of Dividends Cash dividends are a distribution of a company’s profits. Financial Statements of a Corporation The main financial statements of a...
What is the difference between cost and price? Definition of Cost and Price In accounting, the term cost can mean the cash or cash equivalent amount a company paid to acquire an asset or the amount of an expense it...
What is the difference between product costs and period costs? A manufacturer’s product costs are the direct materials, direct labor, and manufacturing overhead used in making its products. (Manufacturing overhead is...
What is the average collection period? Definition of Average Collection Period The average collection period is the average number of days between 1) the dates that credit sales were made, and 2) the dates that the money...
What is the difference between a deferred expense and a prepaid expense? Definition of Deferred Expense and Prepaid Expense Deferred expense and prepaid expense both refer to a payment that was made, but due to the...
What is the current ratio? Definition of Current Ratio The current ratio is a financial ratio that shows the proportion of a company’s current assets to its current liabilities. The current ratio is often classified as...
What is a balance sheet and why is it prepared? Definition of Balance Sheet The balance sheet is prepared in order to report an organization’s financial position at the end of an accounting period, such as midnight on...
What causes an increase in break-even point? Definition of Break-even Point The break-even point is the sales volume or sales revenue that is needed to cover the company’s expenses. In other words, it is the point...
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 are goods in transit? Definition of Goods in Transit Goods in transit refers to inventory items and other products that have been shipped by a seller, but have not yet reached the purchaser. When goods are in...
What is value billing? Value billing is a way of billing a client for services provided. Basically, the amount billed is based on the value of the service (or information) instead of the number of hours spent. The...
What is the difference between the current ratio and working capital? Definition of Current Ratio The current ratio is the proportion, quotient, or relationship between the amount of a company’s current assets and the...
Is an entry made for outstanding checks when preparing a bank reconciliation? Definition of Outstanding Checks Outstanding checks are checks written by the company, recorded in the company accounts, but not yet appearing...
What is the income statement? Definition of Income Statement The income statement is also known as the statement of operations, profit and loss statement, and statement of earnings. It is one of a company’s main...
What is trend analysis? Definition of Trend Analysis In the analysis of financial information, trend analysis is the presentation of amounts from several years all expressed as a percentage of a base year. Trend analysis...
What is insurance expense? Definition of Insurance Expense Under the accrual basis of accounting, insurance expense is the cost of insurance that has been incurred, has expired, or has been used up during the current...
What are invoice payment terms? Definition of Invoice Payment Terms Invoice payment terms appear as part of the information shown on the invoice (or bill) prepared by a seller of goods or a provider of services....
What is obsolete inventory? Definition of Obsolete Inventory Obsolete inventory refers to products that a company had purchased or produced which cannot be sold. The obsolete items may be the result of one or more of 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...
What does a balance sheet tell us? Definition of Balance Sheet A balance sheet reports the dollar amounts of a company’s assets, liabilities, and owner’s equity (or stockholders’ equity) as of midnight of the...
Where is accrued income reported in the balance sheet? Definition of Accrued Income Accrued income refers to amounts that have been earned, but the amounts have not yet been received. For example, a corporation may have...
What is a classified balance sheet? Definition of Classified Balance Sheet A classified balance sheet arranges the amounts from a company’s balance sheet accounts into a format that is useful for the readers. For...
What is the difference between stockholder and stakeholder? Definition of Stockholder A stockholder or shareholder is the owner of shares of a corporation’s common or preferred stock. Definition of Stakeholder A...
What is an outstanding deposit? Definition of Outstanding Deposit An outstanding deposit refers to a company’s receipts (cash, checks from customers, etc.) which have been recorded in the company’s general ledger...
What is going concern? Definition of Going Concern The going concern assumption is a basic underlying assumption of accounting. For a company to be a going concern, it must be able to continue operating long enough to...
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