Are sales discounts reported as an expense? Definition of Sales Discounts Sales discounts are also known as cash discounts or early payment discounts. Sales discounts (along with sales returns and allowances) are...
Are sales discounts reported as an expense? Definition of Sales Discounts Sales discounts are also known as cash discounts or early payment discounts. Sales discounts (along with sales returns and allowances) are...
Are bonds payable reported as a current liability if they mature in six months? Definition of Bonds Payable Bonds payable are formal, long-term obligations that promise to pay interest every six months and the principal...
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...
What are accruals? Definition of Accruals The accounting and bookkeeping term accruals refers to adjustments that must be made before a company’s financial statements are issued. Accruals involve the following types of...
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 YOY? In financial analysis and data analytics, YOY is the acronym for year over year. YOY indicates the change from the comparable amount reported in the same period one year earlier. Below are three examples of...
What is the face value of a bond payable? Definition of Face Value of a Bond Payable The face value of a bond payable is the amount printed on the bond. The face value is also referred to as the following: Face amount...
How do I calculate depreciation using the sum of the years' digits? Definition of the Sum-of-the-Years’-Digits Depreciation The sum-of-the-years’-digits depreciation (SYD depreciation) is one method for calculating...
What is the working capital ratio? Definition of Working Capital Ratio The working capital ratio is defined as the amount of a company’s current assets divided by the amount of its current liabilities. Hence, the...
What is an unpresented cheque or check and does it require an adjustment to the balance sheet? Definition of Unpresented Cheque or Check An unpresented cheque is a check that a company has written, but the check has not...
Where does revenue received in advance go on a balance sheet? Definition of Revenue Received in Advance Under the accrual basis of accounting, revenues received in advance of being earned are reported as a liability. If...
What is the units of activity depreciation? Definition of Units-of-Activity Depreciation The units-of-activity depreciation is unique among the common methods of depreciation in that the useful life of the asset being...
What is the difference in salaries between a bookkeeper and an accountant? I estimate that a bookkeeper’s salary will be less than half of an accountant’s salary. For example, an accountant with a year or two of...
How do you record an asset that was partially financed? Example of Recording an Asset that was Partially Financed Assume that your company purchased a car for $10,000 by paying cash of $4,000 and signing a promissory...
How, when and why do you prepare closing entries? Definition of Closing Entries Closing entries transfer the balances from the temporary accounts to a permanent or real account at the end of the accounting year. As 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...
What to do with the balance in Allowance for Doubtful Accounts? Definition of Allowance for Doubtful Accounts The Allowance for Doubtful Accounts is a contra asset account that is used with the balance in Accounts...
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 is callable stock? Callable stock is an ownership interest (shares) in a corporation that can be “called in” by the corporation at a specified price. For example, a corporation might issue 9% $100 Preferred...
What is the return on assets ratio? Definition of Return on Assets Ratio The return on assets ratio, or return on total assets ratio, relates a company’s net income during a specific year, to the company’s average...
Which financial ratios are considered to be efficiency ratios? I consider the efficiency ratios to be the ratios also known as asset turnover ratios, activity ratios, or asset management ratios. These efficiency ratios...
What is apportionment? An apportionment is an allocation based on some proportions. I associate the term apportionment with a corporation’s taxable income that was earned in many states within the U.S. In that...
What is a recurring journal entry? Definition of Recurring Journal Entry A recurring journal entry is a journal entry that is recorded in every accounting period. Some recurring journal entries will involve the same...
What is the difference between expense and loss? Definition of Expense An expense is a cost that a company incurs or uses up when it earns revenues. Examples of Expenses A few examples of the many expenses that a company...
Are commissions considered to be revenues or expenses? Definition of Commissions Revenues or Expenses The company or person earning and receiving commissions (such as a percentage of sales) will have commissions revenue....
Why isn't a key employee reported as an asset on the balance sheet? While an employee could be an organization’s most valuable asset, accountants record past transactions that can be measured. Since an employee is not...
How should a mortgage loan payable be reported on a classified balance sheet? Definition of a Mortgage Loan Payable The account Mortgage Loan Payable contains the principal amount owed on a mortgage loan. (Any interest...
Weekly Income Statement When I became a director of a meatpacking company, I was concerned about the thin profit margins, the corporation’s lack of working capital, and my inexperience in the industry. The company...
How does one prepare a company's first bank statement reconciliation? To prepare a bank reconciliation for a company that never prepared one previously, I would first make a list of outstanding checks. For example, if...
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...
What is meant by accounts written off? Definition of Accounts Written Off Accounts written off is likely referring to accounts receivable that a company deemed to be uncollectible and were removed from the general ledger...
What is bad debts? Definition of Bad Debts The term bad debts usually refers to accounts receivable (or trade accounts receivable) that will not be collected. (Bad debts is also used for notes receivable that will not be...
What is a bill payable? Definition of Bill Payable A bill payable is a document which shows the amount owed for goods or services received on credit (meaning not paid at the time that the goods or services were...
Is a loan's principal payment included on the income statement? Definition of Loan Principal Payment When a company borrows money from its bank, the amount received is recorded with a debit to Cash and a credit to a...
Is a security deposit for a rental agreement recorded in a liability account? The person paying the security deposit would credit the asset account Cash and would debit the asset account Security Deposits. The person...
What is the book value of bonds payable? Definition of Book Value of Bonds Payable The book value of bonds payable is also known as the carrying value of bonds payable. The book value of bonds payable is the net or...
Where does a bond sinking fund appear on the balance sheet? Definition of Bond Sinking Fund A bond sinking fund is an investment made by a corporation that is restricted for the purpose of retiring its bonds payable,...
What is the difference between an unadjusted trial balance and an adjusted trial balance? Difference between Unadjusted Trial Balance and Adjusted Trial Balance The differences between an unadjusted trial balance and an...
What is an imprest system of petty cash? Definition of Petty Cash Petty cash refers to a small amount of currency and coins that a company uses to pay small amounts without writing a check. The amount of petty cash (also...
How do you calculate ending inventory? Physically Counting the Items in Inventory One method for calculating the cost of a company’s ending inventory is to 1) physically count the quantity of each of the items in...
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