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...
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...
Our Explanation of Inventory and Cost of Goods Sold will take your understanding to a new level. You will see how the income statement and balance sheet amounts are affected by the various inventory systems and cost flow...
of goods sold on the income statement. Inventory is important for a company’s profitability and survival. For instance, if a retailer or manufacturer does not have sufficient inventory of requested items, the result...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
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...
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...
method. Examples include accounts receivable, interest receivable, prepaid expenses, accounts payable, accrued liabilities, interest payable, deferred revenues, and others. 3. Which of the following is more descriptive...
: The cost of the merchandise that is sold is being matched with the revenues from selling the goods. Selling, general and administrative expenses (SG&A). These costs are reported as operating expenses on the income...
statements to the earlier financial statements of the same company Compare a company’s financial statements to those of other companies (especially within the same industry) Understand how a company...
What is the difference between expenses and payments? Definition of Expenses and Payments Under the accrual method of accounting, expenses are costs that have been used up or have been incurred in the process of earning...
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...
the liability) Debit the current asset Cash for $20,000 Credit the income statement account Revenues from Machine Construction for $25,000 Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How...
. Therefore, the relevant amounts for the decision include the cost of the new equipment and the revenues and cost savings that will result from purchasing and using the new equipment. Further, the costs that will remain...
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...
of the year. Accumulated Depreciation is a matching principle. In each accounting period, part of the cost of certain assets (equipment, building, vehicle, etc.) will be moved from the balance sheet to depreciation...
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 +...
of the unique services it provided nor does it know the market value. As a result, WSC discounts the future $100,000 by using the interest rate of 20% for two years to arrive at the present value of $69,400. WSC will...
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....
asset will be in service for earning revenues. With technological advances, an asset’s useful life will likely be shorter than its physical life. Example of an Asset’s Useful Life Assume that a high tech company’s...
or notes payable Accrued expenses payable Deferred revenues Bonds payable Income taxes payable and deferred income taxes Definition of Debt When some people use the term debt, they are referring to all of the amounts...
the December 31 financial statements: The tenant will debit Rent Expense for $1,000 and will credit Rent Payable for $1,000 The landlord will debit Rent Receivable for $1,000 and will credit Rent Revenues for $1,000...
. Liquidation value is subjective and the amount can vary significantly depending on the assumptions made. The matching principle requires that the cost of plant assets be allocated to depreciation expense. This means...
one year later. The $11,000 represents: An amount for today’s services Interest compensation for the company waiting 365 days to be paid Under the accrual basis of accounting and with a time value of money of 10%, the...
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...
, the difference between the amounts of assets and liabilities is reported as net assets (instead of owner’s or stockholders’ equity). The net assets are presented as: without donor restrictions or with donor...
to the next accounting year, a nominal account is also referred to as a temporary account. Examples of Nominal Accounts The nominal accounts are almost always the income statement accounts such as the accounts for...
statement accounts, and The owner’s drawing account The income statement accounts record and report the company’s revenues, expenses, gains, and losses. When the company is a sole proprietorship, the balances in...
. This is needed because the accrual basis of accounting requires the income statement to show the revenues that were earned (not the money actually received) and the expenses incurred or matched to the accounting period...
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...
which are the amounts owed to vendors who have supplied goods or services. The amount of accounts payable is documented by the vendor invoices that have been approved and processed, but have not yet been paid. Deferred...
can see, the entry does not involve the account Cash. Hence, depreciation expense is referred to as a noncash expense. Example of Depreciation Assume that a sidewalk florist operates a cash only business. During the...
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...
cash inflows and cash outflows during the same period as the company’s income statement. The cash flow statement is important because the income statement reflects the accrual method of accounting. This means the...
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...
), and Income statement accounts (revenues, expenses, gains, losses) Under the double entry system of accounting and bookkeeping, every business transaction will affect two (or more) general ledger accounts. In addition,...
and the depreciation expense begins. This expense will reduce the company’s profits (net income, earnings). There may also be some additional revenues and costs, and perhaps cost savings, that will also affect the...
revenues with a limited amount of expenses. In short, the financial statements provide only some of the information needed when attempting to determine the value of a business. Join PRO to Track Progress Mark the...
on the company’s balance sheet. The cash received from the bank loan is referred to as the principal amount. The principal amount received from the bank is not part of a company’s revenues and therefore will not be...
+ $10,000 of owner’s equity. Next, let’s assume the new company completes a service for another business and earns revenues of $1,500 and allows the business to pay in 10 days. This means the new company will have...
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...
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