income statement as the cost of goods sold. The goods that are unsold at the end of the accounting period must be reported on the retailer’s balance sheet as inventory. Accounting for the Goods Purchased There are two...
income statement as the cost of goods sold. The goods that are unsold at the end of the accounting period must be reported on the retailer’s balance sheet as inventory. Accounting for the Goods Purchased There are two...
Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
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...
on January 10. Without an accrual adjusting entry as of December 31 New Corp’s financial statements will have the following problems: Its December income statement will report $0 commissions expense in getting...
a fixed asset had been put into service and simply keeps the asset in working order. (The amount spent to acquire a fixed asset is referred to as a capital expenditure. The amount of the capital expenditure will be...
What is the accounting journal entry for depreciation? Definition of Journal Entry for Depreciation The journal entry for depreciation is: Debit to the income statement account Depreciation Expense Credit to the balance...
What are accounting ratios? Definition of Accounting Ratios Accounting ratios, which are also known as financial ratios, are one part of financial statement analysis. Accounting ratios will often relate one financial...
account Inventory is reduced through a credit to a contra inventory account, which is referred to as a valuation account. The debit in the entry to write down inventory is recorded in an account such as Loss on...
What is the accrual method? Definition of Accrual Method The accrual method of accounting reports revenues on the income statement when they are earned even if the customer will pay 30 days later. The accrual method of...
of an income statement that reports expenses in excess of revenues. The FASB’s Statement of Financial Accounting Concepts No. 6 (December 1985) discusses expenses and losses in paragraphs 80-89. You can access this...
that a company’s: Income statement reports the revenues that have been earned during the accounting period Balance sheet reports the receivables that it has a right to receive as of the end of the accounting period...
the amount of the write-down (reduction) as a loss on its income statement. Examples of Impairment A meat packing plant in recent years invested large amounts in its plant and equipment. Since then, the company...
, but is not paid until the bill is received in the first month of the following year. For the current year’s financial statements to be complete (under the accrual method of accounting) the following is necessary: the...
What is the difference between break-even point and payback period? Definition of Break-Even Point The break-even point is the amount of sales required to cover a company’s costs and expenses that are reported on its...
What is the difference between depreciation expense and accumulated depreciation? Definition of Depreciation Expense Depreciation expense is the amount of depreciation that is reported on the income statement. In other...
, advertising revenue, interest revenue, etc. The revenue accounts are temporary accounts that facilitate the preparation of the income statement. However, when a corporation earns revenue, it has the effect of...
What is an outstanding deposit? Definition of Outstanding Deposit An outstanding deposit refers to a company’s receipts (cash, checks from customers, etc.) which have been recorded in the company’s general ledger...
on its investments. The investment interest and dividend amounts earned will be reported on the income statement as other income. To provide more clarity, accountants use the term net income to describe the amount...
that the balance sheet reports the net amount that is expected to be collected. The credit balance in the Allowance account is associated with the income statement account Bad Debts Expense. In other words, when a...
What is the difference between interest expense and interest payable? Definition of Interest Expense Assuming the accrual method of accounting, interest expense is the amount of interest that was incurred on debt during...
What is depreciation expense? Definition of Depreciation Expense Depreciation expense is the appropriate portion of a company’s fixed asset’s cost that is being used up during the accounting period shown in the...
should be recorded in a __________ account. Select... liability sales 12. Which accounts will have their end-of-the-year balances carried forward to the next accounting year? Select... Balance sheet accounts only Income...
See Statement of Financial Accounting Standards.
of a corporation’s earnings to its cash flows from __________ activities is often used to assess the quality of earnings. Select... financing investing operating 3. A highly profitable corporation with $30 million in...
Our Explanation of Adjusting Entries gives you a process and an understanding of how to make the adjusting entries in order to have an accurate balance sheet and income statement. Eight examples including T-accounts for...
up within one year are reported on a company’s balance sheet as a current asset. As the amount expires, the current asset is reduced and the amount of the reduction is reported as an expense on the income statement....
statement will report the commissions revenues and its balance sheet will report the commissions receivable. Accounting for Commissions Expense Under the accrual basis of accounting, the commissions do not have to be...
of an Expense As a prepaid cost such as the $6,000 in the asset account Prepaid Insurance expires, the part that expires will be reported on the income statement as Insurance Expense. If the insurance cost is expiring...
What is the difference between the terms capitalize and depreciate? Definition of Capitalize In accounting, the term capitalize refers to adding an amount to the balance sheet as an asset (as opposed to immediately...
The accounting method under which revenues are recognized on the income statement when they are earned (rather than when the cash is received). The balance sheet is also affected at the time of the revenues by either an...
of carriage outwards should be reported on the income statement as an operating expense in the same period as the revenue from the sale of the goods. (Carriage outwards is not part of the cost of goods sold.) Example of...
reported as other comprehensive income on each period’s statement of comprehensive income. It is similar to the amount of retained earnings which is the net cumulative amount of the items reported on each period’s...
Also referred to as a subsequent event. An event occurring after the date of the balance sheet, but prior to the date that the balance sheet is actually released. For example, a balance sheet dated December 31 might be...
Under the accrual method of accounting, this account reports the amount of worker compensation insurance expense that pertains to the period indicated in the heading of the income statement, whether or not the company...
computed using replacement costs. This smaller amount of costs charged to the income statement means reporting greater profit. The difference in the profit is said to be illusory. In the case of plant assets used during...
as of the date of the bank statement, but were not deposited in time for them to appear on the bank statement Bank errors which resulted in too much withdrawn from the bank account or too little added to the bank...
months. Between the interest payment dates, the company will have: Accrued interest income that is to be reported on the income statement Accrued interest receivable that is to be reported on the balance sheet Accrued...
What is ROI? Definition of ROI ROI is the acronym for return on investment. Traditionally, ROI related 1) the income statement profit to the 2) the balance sheet investment. A drawback of ROI is that the accounting...
containing each account’s unadjusted balance, Adjustments containing any adjusting entries, Adjusted Trial Balance containing the combination of the unadjusted balance and any adjustments, Income Statement containing...
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