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 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...
What is income smoothing? Definition of Income Smoothing Income smoothing involves reducing the fluctuations in a corporation’s earnings. The reductions in fluctuations can result from some legitimate business methods...
How do the income statements of a sole proprietorship and a regular corporation differ? Definition of Income Statements of Sole Proprietorship and Regular Corporation The income statement of a sole proprietorship and a...
Bookkeeping (Test for Prospective Employees #1) Download PDF After you have answered all 40 questions, click "Grade This Quick Test" at the bottom of the page to view your grade and receive feedback on your answers....
What is the gross profit method of inventory? Definition of Gross Profit Method The gross profit method is a technique for estimating the amount of ending inventory. The gross profit method might be used to estimate each...
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 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 the allowance method? Definition of Allowance Method The allowance method usually refers to one of the two ways for reporting bad debts expense that results from a company selling goods or services on credit....
What are phantom profits? The terms phantom profits or illusory profits are often used in the context of inventory (but can also pertain to depreciation) during periods of rising costs. The amount of phantom or illusory...
What is a reclassification? Definition of Reclassification In accounting, the term reclassification is often used to describe moving an amount from one general ledger account to another. Examples of Reclassification...
A credit is not a normal balance for what accounts? Definition of Credit Balance A credit balance refers to the balance on the right side of a general ledger account or T-account. Normally, the liability and owner’s...
What is work-in-process inventory (WIP)? Definition of Work-in-process Inventory Work-in-process (WIP) inventory pertains to the goods for which the manufacturing has begun, but not yet completed. In other words, WIP is...
What is the definition of net sales? Definition of Net Sales Net sales is a company’s gross sales of products minus any sales discounts and sales returns and allowances. When a company makes a sale, the general ledger...
What is the carrying amount? Definition of Carrying Amount The term carrying amount is also known as book value or carrying value. The term carrying amount is often used when there is a valuation account associated with...
What is the purpose of assigning accounts receivable? The purpose of assigning accounts receivable is to provide collateral in order to obtain a loan. To illustrate, let’s assume that a corporation receives a special...
How is a voucher used in accounts payable? Definition of Voucher A voucher is often a prenumbered form used in the accounts payable department to standardize and enhance a company’s internal control over payments to...
What is Form 10-K? Definition of Form 10-K Form 10-K is a required annual report filed with the U.S. Securities and Exchange Commission (SEC) by U.S. corporations whose common stock is publicly traded. It is common for a...
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...
Is there a difference between the accounts Purchases and Inventory? Purchases Account Under the Periodic Inventory System The general ledger account Purchases is used to record the purchases of inventory items under the...
Which items on a bank reconciliation will require a journal entry? Journal Entries for Bank Reconciliation The items on the bank reconciliation that require a journal entry are the items noted as adjustments to books....
What is the role of a company's controller? Definition of Company Controller A company’s controller is considered to be the chief accounting officer and the head of the accounting department. Role of the Controller As...
What is carriage inwards? Definition of Carriage Inwards Carriage inwards refers to the transportation costs required to be paid by the purchaser when it receives merchandise it ordered with terms FOB shipping point....
Why would a business change its chart of accounts? There can be several reasons for a business to change its chart of accounts. One reason for changing the chart of accounts is to better match how the business is...
When calculating inventory turnover, do you use sales or the cost of goods sold? I calculate the inventory turnover by using the cost of goods sold. I use the cost of goods sold because inventory is in the general ledger...
How do you record the sale of land? Definition of Sale of Land Assume that a retailer sells land that it had been holding for a future store. The retailer must remove the cost of the land from its general ledger asset...
What journal entries are prepared in a bank reconciliation? Definition of Journal Entries in a Bank Reconciliation Journal entries are required in a bank reconciliation when there are adjustments to the balance per...
What is a depreciable asset? Definition of Depreciable Asset A depreciable asset has the following characteristics: A tangible asset (other than land) Has a useful life of more than a year Is used in the business The...
What is a financial statement? Definition of Financial Statement Generally, the term financial statement could be referring to: General-purpose, external financial reports that are distributed by a company to people...
What is an indirect cost? Definition of Indirect Cost An indirect cost is a cost that is not directly traceable to a cost object (product, department, etc.). Rather, the indirect cost is sometimes referred to as a common...
Where in the chart of accounts is a suspense account located? Suspense Account in the Chart of Accounts A suspense account could be located in any one of these sections of an organization’s chart of accounts: Asset...
What is a petty cash voucher? Definition of Petty Cash Voucher A petty cash voucher is usually a small form that is used to document a disbursement (payment) from a petty cash fund. Petty cash vouchers are also referred...
What is the segregation of duties? Definition of Segregation of Duties The segregation of duties involves dividing a task so that more than one person is involve in the company’s transactions. By segregating duties, it...
What is the entry when a company lends money to an employee? Definition of Employee Loan When a company lends money to one of its employees, the company is reducing its Cash and increasing another asset such as Other...
How do you determine whether a person is an independent contractor or an employee? To assist you in determining whether someone is an independent contractor or an employee, you should refer to the Internal Revenue...
What is a permanent account? Definition of Permanent Account In accounting, a permanent account refers to a general ledger account that is not closed at the end of an accounting year. The balance in a permanent account...
What is a contra inventory account? A contra inventory account is a general ledger account with a credit balance. The credit balance in the contra inventory account will be combined with the debit balance in the...
How do you treat voided checks on the bank reconciliation? Definition of Voided Check on Bank Reconciliation If a check was voided in the current month but was written in the previous month and appeared on the previous...
How do I record money received for an insurance claim on inventory loss? Definition of Money from Insurance Claim for Inventory Loss Let’s assume that a company has insurance on its inventory and its inventory is...
What is a certified public accountant? Definition of Certified Public Accountant A certified public accountant (CPA) is a person who has completed the required accounting degree, passed the very difficult CPA Exam, has...
Featured Review
"Back in November of 2010, while attending an online university I was totally freaking out because I am at a loss when it comes to accounting. I had to take Financial Accounting Concepts and Principles. Had I not purchased your accounting package, I would have had to pay for another class. So, I want to thank you AccountingCoach because I got a B+ for my XACC/280 class and went on to receive my Associates back in 2011. I could not have achieved this had it not been for AccountingCoach, for that I truly thank you." - Jane B.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: