What are the effects of overstating inventory? Definition of Overstating Inventory Overstating inventory means that the reported amount for the cost of a company’s inventory is greater than the actual true cost based...
What are the effects of overstating inventory? Definition of Overstating Inventory Overstating inventory means that the reported amount for the cost of a company’s inventory is greater than the actual true cost based...
What is a fringe benefit rate? Definition of Fringe Benefit Rate A fringe benefit rate is a percentage that results from dividing the cost of an employee’s fringe benefits by the wages paid to the employee for the...
What is accrued payroll? Definition of Accrued Payroll Accrued payroll includes wages, salaries, commissions, bonuses, and other payroll related expenses that have been earned by a company’s employees, but have not yet...
What is the carrying amount? Definition of Carrying Amount The term carrying amount is also known as book value or carrying value. The term carrying amount is often used when there is a valuation account associated with...
Does a company have to use the IRS years of useful life for depreciation? For the company’s financial statements, the economic life of the asset should be used—not the years of useful life required for income tax...
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...
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 a promissory note? Definition of Promissory Note A promissory note is a written promise to pay an amount of money by a specified date (or perhaps on demand). The maker of the promissory note agrees to pay the...
How do you balance a checkbook? Definition of Balance a Checkbook To balance a company checkbook means comparing the amounts on the bank statement (or other bank account detail) to the amount in the company’s...
What is the cost of goods available? Definition of Cost of Goods Available For non-manufacturing companies using the periodic inventory system in its general ledger, the cost of goods available (COGA, or cost of goods...
What is a vendor? Definition of Vendor In the context of accounts payable, a vendor is a person or business that supplies goods or services to the company. Another term for vendor is supplier. The term vendor can also be...
What is the meaning of systematic and rational allocation? Definition of Systematic and Rational Allocation Systematic and rational allocation is typically included in the definition of depreciation. In this context, it...
What is a blank endorsement? In the case of a check payable to John Smith (the payee), a blank endorsement would be the signature of John Smith on the back side of the check without any other words above or below his...
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 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 is a fiscal year? Definition of Fiscal Year A fiscal year is an accounting year that does not end on December 31. (Accounting years of January 1 through December 31 are known as calendar years.) A fiscal year could...
How can a company have a profit but not have cash? Definition of Profit Under the accrual basis of accounting, profit is the amount of revenues earned minus the amount of expenses incurred. Note that revenues are not...
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....
What is Additional Medicare Tax? Definition of Additional Medicare Tax The Additional Medicare Tax is one of the U.S. government’s payroll withholding taxes that is paid solely by employees and the self-employed. In...
Should a retailer's delivery surcharges be reported as revenues or as other income? I believe that a retailer’s delivery surcharges are a price adjustment and should be reported as operating revenues. The surcharges...
What is an escrow payment? An escrow payment is an amount deposited with another party and it is to be released only for its specified purpose. The following is one example of an escrow payment. A borrower and lender...
What is the difference between unearned revenue and unrecorded revenue? Definition of Unearned Revenue In financial accounting, unearned revenue refers to money received prior to being earned. It is also referred to as...
What is the cost of goods manufactured? Definition of Cost of Goods Manufactured The cost of goods manufactured is a calculation of the production costs of the goods that were completed during an accounting period. In...
In bookkeeping, why are revenues credits? In bookkeeping, revenues are credits because revenues cause owner’s equity or stockholders’ equity to increase. Recall that the accounting equation, Assets = Liabilities +...
What is the cash flow statement? Definition of Cash Flow Statement The cash flow statement (officially known as the statement of cash flows) is one of the required financial statements issued by U.S. businesses (and by...
If a mortgage payment is due by December 31, but the payment is not made until the following month, should the loan payment be accrued at December 31? The interest portion of the mortgage payment should be accrued as of...
What is the difference between a bookkeeper and an accounting clerk? I envision a bookkeeper as a person employed by a smaller company and being responsible for recording nearly all of its transactions. Hence, the...
What is the effect on financial ratios when using LIFO instead of FIFO? Definition of Effect of LIFO Instead of FIFO During periods of significantly increasing costs, the LIFO cost flow assumption instead of the FIFO...
Why would a business change its chart of accounts? There can be several reasons for a business to change its chart of accounts. One reason for changing the chart of accounts is to better match how the business is...
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...
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...
How do you divide the cost of real estate into land and building? Dividing the Cost of Real Estate into Land and Building In accounting, the cost of real estate must be divided into: The cost of land (because land is not...
Why are wages reported as an expense when the work occurs, but the employees' tax records report them when they are paid? Accrual Method for the Corporation, Cash Method for the Employees The short answer is that the...
What is EBIT? EBIT is the acronym for earnings before interest and taxes. In other words, EBIT is a corporation’s net income assuming it had no interest expense and no income tax expense. (Since the amount of earnings...
Is the direct method still used in the statement of cash flows? The direct method is one of two methods allowed for preparing the statement of cash flows (or cash flow statement). The direct method is recommended by the...
Does sales commission get reported in the income statement? Definition of Sales Commissions Sales commissions are amounts earned by selling another company’s goods or services and paid by the company whose goods or...
How do I record an advance to an employee and the deduction? Definition of Advance to an Employee A cash advance to an employee is usually a temporary loan by a company to an employee. In other words, the company is the...
What is the procedure for preparing a trial balance? Definition of a Trial Balance A trial balance consists of the following information: The title of each general ledger account that has a balance To the right of the...
What is the difference between revenue, income, and gain? Definition of Revenue Revenue is the amount earned from a company’s main operating activities, such as a retailer selling merchandise or a law firm providing...
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