to cash in 10 to 40 days. However, inventory may require several months to be sold and the money collected. Hence, inventory is not considered to be a “quick asset.” To assist in evaluating a company’s liquidity,...
to cash in 10 to 40 days. However, inventory may require several months to be sold and the money collected. Hence, inventory is not considered to be a “quick asset.” To assist in evaluating a company’s liquidity,...
for both the payee and for the person writing the check. A check returned as not sufficient funds could be an indication that the financial condition of the maker of the check may be suspect. Example of Not Sufficient...
, and that your company prepares monthly financial statements. One way to enter the transaction is to debit the current asset Prepaid Subscriptions for $120 and to credit Cash for $120. At the end of each month an...
Expenses and debits Subscription Expense for the amount that is expiring. Example of Recording a Yearly Subscription Assume that a company pays $1,200 on March 20 for a one-year subscription for a business newsletter...
. These accountants do not include selling, administrative, or interest costs in their definition of the full cost of a product. Their view is consistent with the way that inventory and the cost of goods sold are...
What is double-entry bookkeeping? Definition of Double-Entry Bookkeeping Double-entry bookkeeping refers to the 500-year-old system in which each financial transaction of a company is recorded with an entry into at least...
. Examples of Journal Entries Even with computerized accounting systems some general journal entries are necessary. Common general journal entries are the adjusting entries. For example, prior to issuing the company’s...
the Purchase Price Variance Before a company’s financial statements are issued, the balance in the Materials Purchase Price Variance account must be reclassified or allocated to the following: raw materials inventory,...
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...
by reading our Nonmanufacturing Overhead (Explanation). 1. Selling expenses should be allocated to the cost of goods sold for external financial reporting. True Wrong. False Right! 2. According to U.S. accounting...
are paying interest. However, our agreement did not specify any interest, nor did it state an interest rate. To find the interest rate that is implicit in this arrangement, you need to carry out what’s known as a...
What is the gross profit method? Gross Profit Method Definition The gross profit method is a technique used to estimate the amount of ending inventory. The technique could be used for monthly financial statements when a...
What is the current ratio? Definition of Current Ratio The current ratio is a financial ratio that shows the proportion of a company’s current assets to its current liabilities. The current ratio is often classified as...
How can I learn bookkeeping? You can learn bookkeeping at no cost on our website AccountingCoach.com. We recently expanded our Explanation of Bookkeeping, and we have many other topics that are relevant including debits...
that it leases from the owner (lessor). The lease states that all improvements to the building will belong to the owner of the building. If the walls and offices cost $90,000 and are expected to be useful for 15 years,...
on the company’s balance sheet as follows: $188,000 as a long-term or noncurrent liability such as noncurrent portion of mortgage loan $12,000 as a current liability such as current portion of mortgage loan When the...
. Basically, the bank reconciliation compares the amounts in a company’s accounting records with the amounts in its bank’s records. Any differences are reconciled (explained) so that improper amounts will be exposed...
. Others use the term debt to mean only the formal, written loans and bonds payable. Examples of Debt As an example of debt meaning the total amount of a company’s liabilities, we look to the debt-to-equity ratio. In...
usually accept a fixed cash dividend that will be paid by the corporation before the common stockholders are paid a dividend. In exchange for this preferential treatment of dividends, the preferred stockholders...
the December 31 financial statements: The tenant will debit Rent Expense for $1,000 and will credit Rent Payable for $1,000 The landlord will debit Rent Receivable for $1,000 and will credit Rent Revenues for $1,000...
and development for the future leaders of the company. A disadvantage of decentralization occurs if a subunit makes a decision that is good for the subunit’s financial results, but it results in less than optimal...
of details, but still has the correct balance for preparing the company’s financial statements. Example of Control Accounts A common example of a control account is the general ledger account entitled Accounts...
accounts, but with differing amounts. Recurring journal entries may also be referred to as memorized journal entries or standard journal entries. Examples of Recurring Journal Entries A company that prepares monthly...
What is a post-closing trial balance? Definition of Post-closing Trial Balance A post-closing trial balance is a trial balance which is prepared after all of the temporary accounts in the general ledger have been closed....
. for a total of $2,460 Note that the $60 difference was recorded as Vacation Expense in the year of the payment. The financial statements of the prior year were not restated for the $5 monthly differences. The reason is...
variances and will be recorded in separate variance accounts. Any balance in a variance account indicates that the company is deviating from the amounts in its profit plan. While standard costs can be a useful...
contingent liabilities and their related contingent losses are: Recorded with a journal entry Are limited to a disclosure in the notes to the financial statements Not recorded or disclosed We have another Q&A that...
accounting amounts to see how the investments will impact its future Internal rate of return Net present value The discounting of cash flows can be done using computer software, financial calculators, or present value...
accounts. The amounts and balances in the general ledger accounts are used to prepare the company’s financial statements. Example of General Journal and General Ledger Assume that a company depreciates its equipment...
should normally be reported at its net realizable value. (U.S. income tax rules require conformity between tax and financial reporting. As a result, there are complexities involved.) Join PRO to Track Progress Mark the...
costs. In turn, management can take action to correct the problems, seek higher selling prices, etc. Since the company’s external financial statements must reflect the historical cost principle, the standard costs in...
, but will not recognize the variety of activities and efforts that occur with different products. The traditional method may have been reasonable or at least sufficient for the company’s external financial statements...
. On the other hand, some companies are required by government regulations to end their accounting years on December 31, even though it is not the end of their natural business year. The term fiscal year is associated...
, a corporation could instead debit a related account entitled Dividends (or Cash Dividends Declared). However, at the end of the accounting year, the balance in the Dividends account will be closed by transferring its...
What is the inventory turnover ratio? Definition of Inventory Turnover Ratio The inventory turnover ratio is an important financial ratio that indicates a company’s past ability to sell its goods. Converting inventory...
to maturity) is the interest rate that will discount the interest stream (an ordinary annuity) and the maturity amount (a lump sum) to $287,832. This can be done with software, a financial calculator, or via trial and...
is more subjective and could lead to some exaggerated amounts. Outside of the financial statements amounts, companies could get estimated current or replacement values from appraisers. Join PRO to Track Progress Mark...
financial statements while at the same time be using one of the Internal Revenue Service’s faster depreciation methods on its federal income tax return. Example of Straight-Line Depreciation To illustrate...
or within the operating cycle, whichever is longer. To assist you in computing and understanding accounting ratios, we developed 24 forms that are available as part of AccountingCoach PRO. You can also read our...
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