The one-year period ending at an organization’s typical low point of activity. For example, a school’s natural business year is July 1 through June 30. It is practical to have the accounting and financial...
The one-year period ending at an organization’s typical low point of activity. For example, a school’s natural business year is July 1 through June 30. It is practical to have the accounting and financial...
A method where only the variable manufacturing costs are assigned to inventory and the cost of goods sold. Fixed manufacturing costs are viewed as expenses of the period in which they are incurred. This method is not...
The ratio of total liabilities to stockholders’ equity. The higher the proportion of debt to equity, the more risky the company appears to be. An indicator of the amount of financial leverage at a company. It...
Industries that are regulated by the government often have prescribed reporting requirements that carry over to the generally accepted reporting formats for financial reporting. For example, utilities’ balance...
The annual report to the Securities and Exchange Commission (SEC), a U.S. government agency. The Form 10-K must be filed by corporations whose stock is publicly-traded on a U.S. stock exchange. The report contains the...
Methods of Depreciation It is very common for a company to depreciate its plant assets by using straight-line depreciation on its financial statements, while using an accelerated method of depreciation on its income tax...
Where is a manufacturer's inventory reported in the balance sheet? A manufacturer’s inventory will be reported in the current assets section of the balance sheet and in the notes to the financial statements. In...
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...
of Bank Balance When a company receives its checking account statement from its bank showing June’s activity, the ending balance on June 30 is the bank balance. (Generally, this bank balance will not agree with the...
Our Explanation of Depreciation emphasizes what the depreciation amounts on the income statement and balance sheet represent. Learn why depreciation is an estimated expense that does not assist in determining the current...
income, income tax payments, and certain financial ratios. Economists feel more comfortable with LIFO since the cost of goods sold is closer to the replacement costs of the goods. The smaller amount of gross profit...
to better compare the financial statements of a company using LIFO with the financial statements of a company using FIFO. Since the accounting profession has discouraged the use of the word “reserve”, the inventory...
that certain equipment is to be depreciated on the income tax return over 7 years. However, the company knows that the equipment will be useful in producing revenues for 10 years. Accounting’s matching principle...
method) or Inventory (perpetual method) for the cost of the goods or merchandise received, and 2) credit a current liability account such as Accrued Liabilities. After the financial reporting for the accounting period...
Advertising Expense is the income statement account which reports the dollar amount of ads run during the period shown in the income statement. Advertising Expense will be reported under selling expenses on the income...
The most common method of preparing the statement of cash flows. Under this method the starting point is the net income reported on the income statement. To learn more, see Explanation of Cash Flow Statement.
statement account. However, the U.S. accounting textbooks are more likely to use Bad Debts Expense or Uncollectible Accounts Expense to describe the amount reported on the income statement. Join PRO to Track Progress...
Our Explanation of Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
Our Explanation of Working Capital and Liquidity provides you with an in-depth look at the components of working capital and the challenges of converting current assets to cash before obligations come due. You will see...
. The allowance account must be a zero or credit balance when reported on the balance sheet. Credit Right! 9. On which financial statement would you expect to find Allowance for Doubtful Accounts? Balance Sheet Right!...
Our Explanation of Working Capital and Liquidity provides you with an in-depth look at the components of working capital and the challenges of converting current assets to cash before obligations come due. You will see...
Also known as the periodicity assumption. The accounting guideline that allows the accountant to divide up the complex, ongoing activities of a business into periods of a year, quarter, month, week, etc. The precise time...
Comprehensive income consists of the following two components (which are reported on the statement of comprehensive income): Net income (or loss) from the income statement, and Other comprehensive income (some...
Our Explanation of Present Value of an Ordinary Annuity uses the appropriate present value factors for discounting a stream of equal cash amounts occurring at equal time intervals. An important feature is the use of loan...
Temporary differences between the reporting of a revenue or expense for financial statements (books) and the reporting of the item for income tax purposes. For example, it is common for companies to depreciate equipment...
What is NIFO? NIFO is the acronym for next-in, first-out. NIFO is a cost flow assumption, just as FIFO and LIFO are cost flow assumptions. However, NIFO is not acceptable for financial reporting since it calls for a...
a $2,000 deposit in the bank’s night depository after banking hours on June 30. As a result, the company’s Cash account (in its general ledger and referred to as the “books”) as of June 30 shows a positive,...
What does it mean to recognize an expense? Definition of Recognize an Expense To recognize an expense means to report the proper amount of an expense on the income statement for the appropriate accounting period. When...
Our Explanation of Bonds Payable covers the recording of bonds, the accrual of interest expense, and the amortization of the discount and premium on bonds payable. You gain an understanding on why the market value of...
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...
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...
capital uses amounts from which of the following financial statements? Select... Balance sheet only Cash flow statement only Income statement only Both the balance sheet and the income statement 3. For most companies...
In accounting this means to defer or to delay recognizing certain revenues or expenses on the income statement until a later, more appropriate time. Revenues are deferred to a balance sheet liability account until they...
The amount of income tax that is associated with (matches) the net income reported on the company’s income statement. This amount will likely be different than the income taxes actually payable, since some of the...
sheet equity account. These will result in the income statement accounts beginning each accounting year with a zero balance. closing entries These entries transfer the end-of-the-year balances from the income statement...
a lower amount of cost of goods sold. Smoothing income by abusing the leeway in accounting principles is unethical and does a disservice to the users of the financial statements. Accountants should follow the...
sections of the balance sheet. The classified balance sheets allow the users of this financial statement to quickly determine the amount of the company’s working capital and current ratio. Both of these metrics are...
to a balance sheet account until a later accounting period when it will be moved to the income statement. Deferral is also used to describe the type of adjusting entries used to defer amounts at the end of an accounting...
in the __________ ledger. 3. A sole proprietor’s withdrawal of cash for personal use is recorded in the account Salaries Expense. Select... True False 4. Bad Debts Expense is an income statement account used to report...
What is a noncash expense? Definition of a Noncash Expense A noncash expense is an expense that is reported on the income statement of the current accounting period, but the related cash payment took place in another...
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