How can a company with a net loss show a positive cash flow? Definition of Net Loss A net loss occurs when a company’s revenues and gains are less than its operating expenses, other expenses and losses. The net loss or...
How can a company with a net loss show a positive cash flow? Definition of Net Loss A net loss occurs when a company’s revenues and gains are less than its operating expenses, other expenses and losses. The net loss or...
What does drop ship mean? One example of drop ship is a manufacturer shipping goods directly to one of its customers’ customer (instead of delivering the goods to the customer that placed the order with the...
What is a trade discount? Definition of Trade Discount A trade discount is a routine reduction from the regular, established price of a product. The use of trade discounts allows a company to vary the final price based...
What is the difference between adjusting entries and correcting entries? Definition of Adjusting Entries Generally, adjusting entries are required at the end of every accounting period so that a company’s financial...
What is the self-employed person's FICA tax rate for 2022 and 2023? 2022 FICA Tax Rate for Self-Employed The self-employed person’s FICA tax rate for 2022 (January 1 through December 31, 2022) is 15.3% on the first...
When should a product warranty liability be recorded? Definition of Product Warranty Liability A product warranty means the manufacturer or seller has a potential liability and expense if its product or service fails to...
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 notes receivable? Definition of Notes Receivable Notes receivable is an asset of a company, bank or other organization that holds a written promissory note from another party. (The other party will have a note...
Should a cash discount be recorded as a reduction to an expense? Yes, a cash discount should be a reduction to an expense. After all, accountants define cost as the cash amount (or cash equivalent amount) at the time of...
What is the difference between gross margin and markup? Definition of Gross Margin Gross margin or gross profit is defined as net sales minus the cost of goods sold. However, some people intend for the term gross margin...
What are cost flow assumptions? Definition of Cost Flow Assumptions The term cost flow assumptions refers to the manner in which costs are removed from a company’s inventory and are reported as the cost of goods sold....
How do I determine the cost of missing inventory? Definition of Determining the Cost of Missing Inventory The approximate cost of missing inventory is the difference between 1) the cost of the inventory items that are...
What is the FUTA tax? Definition of FUTA Tax FUTA is the acronym for the Federal Unemployment Tax Act and is associated with a federal payroll or employment tax paid solely by the employer. (This unemployment tax is in...
What is cash from operating activities? Definition of Cash from Operating Activities Cash from operating activities usually refers to the first section of the statement of cash flows. Cash from operating activities...
What are gross sales? Definition of Gross Sales Gross sales are the amounts a company earned from selling its products. The amounts originate from the company’s sales invoices but the total will be adjusted to the...
What is the difference between cash flow and free cash flow? Definition of Cash Flow Cash flow refers to the amounts of cash that a company, investment or project generates. The cash that a company generates is different...
What does it mean to check the extensions and to foot an invoice? To check the extensions on a purchase invoice means to verify that the number of units of each item multiplied by its unit cost agrees with the total...
What is the difference between an adjunct account and a contra account? Definition of Adjunct Account An adjunct account is a general ledger account that is related to another general ledger account. The combination of...
What is bank balance and book balance? Definition of Bank Balance The term bank balance is commonly used when reconciling the bank statement. It is also known as the balance per bank or balance per bank statement....
How can I determine the inventory methods used by other companies in my industry? Definition of Inventory Methods Inventory methods refers to the order or manner in which a company moves its actual costs out of the...
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...
What is the Allowance for Doubtful Accounts? Definition of Allowance for Doubtful Accounts The Allowance for Doubtful Accounts is a balance sheet contra asset account that reduces the reported amount of accounts...
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 a toxic asset? I would define a toxic asset as an investment whose value has dropped significantly and there is no market in which to sell the asset. To illustrate, let’s assume that at the peak of the real...
Is income tax an expense or liability? Definition of Income Tax In the accounting for a regular U.S. corporation, income tax usually refers to the federal, state, local, and foreign countries’ taxes that are levied...
What are direct materials? Definition of Direct Materials Direct materials are defined as: Traceable matter that is converted by a manufacturer into products Part of manufacturer’s production costs A variable cost of a...
What are the various types of adjusting entries? Types of Adjusting Entries Adjusting entries, which are required in order to have a company’s financial statements comply with the accrual method of accounting, are...
What are accrued liabilities? Definition of Accrued Liabilities Accrued liabilities are usually expenses that have been incurred by a company as of the end of an accounting period, but the amounts have not yet been paid...
Why are accruals needed every month? Reasons for Monthly Accruals Accrual adjusting entries are needed monthly only if a company issues monthly financial statements. Two reasons for the monthly accrual adjusting entries...
How much do you depreciate an asset and when? Definition of How and When to Depreciate an Asset Depreciation begins when you place an asset in service and it ends when you take an asset out of service or when you have...
Reducing the Need for Accruing Expenses One day I was explaining to the owner of a small business that I would have to accrue for the shipping expenses associated with his company’s sales. Since the shipping company...
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...
What is a credit memo? Definition of Credit Memo One type of credit memo is issued by a seller in order to reduce the amount that a customer owes from a previously issued sales invoice. Another type of credit memo, or...
What is net? In accounting, net usually refers to the combination of positive and negative amounts. For example, the amount of net sales is the combination of the amount of gross sales (a positive amount) and some...
Is a manufacturer's product warranty part of its manufacturing overhead or is it part of its SG&A expense? The costs associated with a manufacturer’s product warranty are part of its selling expenses and therefore part...
How do you account for the rebate on an automobile? The rebate on the purchase of an automobile should be recorded as a reduction of the automobile’s cost. The lower automobile cost will result in lower depreciation...
What is float? Definition of Float In accounting and bookkeeping, float is the time between the writing of a check and the time that the check clears the bank account on which it is drawn. Examples of Float Payer...
Why does a bond's price decrease when interest rates increase? Definition of Bond’s Price A bond’s price is the present value of the following future cash amounts: The cash interest payments that occur every six...
What is the aging method? Definition of Aging Method The aging method usually refers to the technique for estimating the amount of a company’s accounts receivable that will not be collected. The estimated amount that...
How can I learn bookkeeping at a low cost? You can use the Internet to learn bookkeeping at little or no cost. For example, at no cost you can read clear explanations of debits and credits, adjusting entries, financial...
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