What is the proper use of the words lend and borrow? If a company is granted a loan from its bank, the company is borrowing money from its bank, and the bank is lending money to one of its customers. In other words, the...
What is the proper use of the words lend and borrow? If a company is granted a loan from its bank, the company is borrowing money from its bank, and the bank is lending money to one of its customers. In other words, the...
The total annual return on a bond investment if held to maturity. For example, if a bond is purchased at less than its maturity value, the yield to maturity includes the annual interest plus the gain as the bond...
The statement of comprehensive income covers the same period of time as the income statement, and consists of two major sections: Net income (taken from the income statement) Other comprehensive income (adjustments...
. (The balance sheet reports the assets, liabilities, and stockholders' equity at a point in time, such as the final moment of the accounting period.) 4. The first section of the cash flow statement will report the...
What is an expense? Definition of Expense Under the accrual method of accounting, an expense is a cost that is reported on the income statement for the period in which: The cost best matches the related revenues The cost...
profit might have a variety of definitions. We will assume that net profit means a company’s net sales minus all expenses. The expenses include the cost of goods sold, the selling, general, and administrative...
are not allocated to the products, the company must have its selling prices and sales revenues sufficiently large to cover both the product costs and the period expenses to have a positive amount of net income. Join PRO...
policies such as how and when revenues are recognized, how property is depreciated, how inventory and income taxes are accounted for, and more. Other disclosures in the notes to the financial statements include the...
Why are sales a credit? Definition of Sales In accounting, sales are revenues earned when a company transfers ownership of its goods to its customers. Under the accrual basis or method of accounting, the sale occurs when...
Temporary accounts include all of the various groups of income statement accounts: Revenues Expenses Gains Losses Having temporary income statement accounts makes for easy reporting of each year’s details. After the...
be reported. The negative net income occurs when the current year’s revenues are less than the current year’s expenses. If the cumulative earnings minus the cumulative dividends declared result in a negative...
What is the difference between a budget and a standard? Definition of a Budget In business and other organizations, a budget often refers to a department’s or a company’s projected revenues, costs, or expenses....
of $0 on an income statement prepared using the accrual method of accounting. The break-even point expressed in dollars of revenues is calculated by dividing the company’s total fixed expenses for the accounting...
number will begin with the digit “1”. Liability accounts will begin with the digit “2”. Operating revenue accounts will begin with the digit “3”, etc. Operating expenses will use accounts beginning with...
to Cash and a $3,000 credit to the liability account Customer Deposits or Unearned Revenues. With no downpayment or advance payment in December, there is no entry recorded.) The $20,000 contract is not reported as an...
What are the required financial statements? The required financial statements for U.S. business corporations are: Statement of income. This financial statement is also known as the statement of operations, statement of...
operating businesses each of which is responsible for its revenues and expenses. However, investment decisions for the operating businesses remain centralized. That is, the corporation’s executive officers decide...
of $250, but the bill will be paid 10 days later. Since owner’s equity is reduced by expenses (and is increased by revenues), the bookkeeping equation will show the following: Assets of $900 = Liabilities of $250 +...
sales revenues (quantity and prices) to cover both the product costs of the units sold and the other expenses of the accounting period. Example of Product Cost per Unit The product cost per unit is used for valuing a...
What is net income? Definition of Net Income Net income is the positive result of a company’s revenues and gains minus its expenses and losses. A negative result is referred to as net loss. (There are a few gains and...
, since working capital = current assets minus current liabilities. Net income does not change since revenues (and the related receivables) were recorded when the sale or service was earned (not when cash is received)....
the classification current __________. 14. Under the accrual method of accounting, a repair expense is reported as a liability only if the invoice for the repair has been received as of the balance sheet date. Select......
was returned unpaid. Perhaps, the customer’s checking account balance was insufficient, perhaps a stop payment order prevented the check from being paid, or perhaps there was another reason. When the unpaid check...
What accounts for the difference in inventory values between periodic LIFO and perpetual LIFO? Difference Between Periodic LIFO and Perpetual LIFO The difference between periodic LIFO and perpetual LIFO involves the time...
year 2022, the Social Security payroll tax rate of 6.2% is applied to each employee’s earnings up to the maximum of $147,000. The amount withheld from employees is then matched by the employer. As a result, the total...
appears in the operating activities section. 2. Proceeds from the sale of equipment used in the business. Operating Wrong. The entire proceeds from the sale of a long-term asset are shown in the investing activities...
accounts as of the final moment of the date shown in the heading. Note: Typically the final moment of the balance sheet is the last instant of the last day of an accounting period, such as midnight of December 31, June...
Our Explanation of Depreciation emphasizes what the depreciation amounts on the income statement and balance sheet represent. Learn why depreciation is an estimated expense that does not assist in determining the current...
What is the free cash flow ratio? Definition of Free Cash Flow Free cash flow for a year is an amount (as opposed to a ratio or percentage) usually defined as: net cash provided by operating activities for the year minus...
income statement. Since the costs of products may be higher when they are reordered/purchased, the order in which their costs are removed from inventory will have an impact on the inventory valuation and the amount...
What is the difference between a land improvement and a leasehold improvement? Definition of Land Improvement A land improvement is a long-term (long-lived) asset resulting from a physical addition to a company’s land....
of Long-term Assets Long-term assets include long-term investments in financial securities, property, plant, equipment, and intangible assets. Definition of Proceeds from Long-term Assets The money a company receives...
the amount of current assets by the amount of current liabilities. Definition of Working Capital Working capital is the amount remaining after a company’s current liabilities are subtracted from its current assets....
Inventory and Cost of Goods Sold Inventory Inventory is usually the most significant current asset of a retailer or manufacturer. Generally, inventory is reported on the balance sheet at its cost (or lower). When the...
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...
amounts of revenues, expenses, gains, losses, assets, liabilities, and stockholders’ equity. Common Characteristic of Adjusting Entries Every adjusting entry will involve: At least one balance sheet account, and At...
. accounts receivable This current asset represents a right to receive payment from customers who were provided goods or services on credit. Mark as wrong Mark as right sales on credit (or) sales on account These...
to be paid at time and one-half for the hours worked that are in excess of a 40-hour workweek. FLSA allows for some companies and employees to be exempt from the overtime pay. For example, if a salaried manager earns...
receiving ticket/record Some companies use an internal form known as the accounts payable voucher to which the above documents are attached. 3. On January 3, AVCO received a shipment of goods from a...
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