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...
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...
What is workers' compensation insurance? Workers’ compensation insurance is likely to be an insurance policy obtained by a company to cover the medical costs and lost wages for its employees’ work-related injuries...
What is the difference between a cost and an expense? Definitions of Cost and Expense Some people use cost interchangeably with expense. However, we use the term cost to mean the amount spent to purchase an item, a...
Would you please explain unearned income? Definition of Unearned Income Unearned income or deferred income is a receipt of money before it has been earned. This is also referred to as deferred revenues or customer...
What conditions cause a discount on bonds payable? Discount on bonds payable occurs when a bond’s stated interest rate is less than the bond market’s interest rate. If a $1,000,000 bond issue promises to pay interest...
What are some reasons that cause the balance on the bank statement to differ from the cash balance on the books? Reasons a Bank Balance Will Differ from a Company’s Balance Some of the reasons for a difference between...
What is a journal? Definition of a Journal In accounting and bookkeeping, a journal is a record of financial transactions in order by date. Traditionally, a journal has been defined as the book of original entry. The...
Are the sales taxes part of a retailer's sales? Definition of Sales Taxes Sales taxes are likely state and local taxes collected by the sellers of specified goods and the providers of specified services. The sales taxes...
What is a cash cow? A cash cow is often a profitable product or service that dominates a market and generates far more cash than is needed to maintain its market position. Companies may use the money from the cash cow to...
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...
What is a rubber check? A rubber check is a check that is not paid (or honored) by the bank on which it is drawn. The reason the check is not paid is the maker’s account had insufficient funds or not sufficient funds...
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...
What is the difference between dividends and interest expense? Definition of Dividends Dividends are a distribution of a corporation’s earnings to its stockholders. Dividends are not an expense of the corporation and...
Why would a balance sheet list current liabilities as negative amounts? Reasons for Negative Current Liabilities on a Balance Sheet Some older accounting software used minus signs or parentheses to indicate credit...
What are income statement accounts? Definition of Income Statement Accounts Income statement accounts are one of two types of general ledger accounts. (The other accounts in the general ledger are the balance sheet...
What is the profit margin (after tax) ratio? Definition of Profit Margin Ratio The after tax profit margin ratio expresses the company’s net income or earnings as a percent of the company’s net sales. In other words,...
What is an ordinary annuity? Definition of Ordinary Annuity In accounting, an ordinary annuity refers to a series of identical cash amounts with each amount occurring at the end of equal time intervals. Another term for...
Why does a company debit Purchases instead of Inventory? Definition of Purchases and Inventory When a company uses the periodic inventory system the amount of the company’s inventory is determined by a physical count...
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 materiality? Definition of Materiality In accounting, materiality refers to the relative size of an amount. Relatively large amounts are material, while relatively small amounts are not material (or immaterial)....
Where is accrued income reported in the balance sheet? Definition of Accrued Income Accrued income refers to amounts that have been earned, but the amounts have not yet been received. For example, a corporation may have...
How many years is the appropriate time for depreciating leasehold improvements? Leasehold improvements should be depreciated or amortized according to the lessee’s normal depreciation policy except that the time period...
What is Form 10-K? Definition of Form 10-K Form 10-K is a required annual report filed with the U.S. Securities and Exchange Commission (SEC) by U.S. corporations whose common stock is publicly traded. It is common for a...
At what point are revenues considered to be earned? Revenues, which are derived from an entity’s main activities such as the sale of merchandise or the performance of service, are considered to be earned when the...
Why are sales a credit? Definition of Sales In accounting, sales are revenues earned when a company transfers ownership of its goods to its customers. Under the accrual basis or method of accounting, the sale occurs when...
Is contribution margin the same as operating income? Definition of Contribution Margin Contribution margin is defined as revenues minus the variable costs and variable expenses. Example of Contribution Margin Assume that...
What is window dressing? Definition of Window Dressing Window dressing refers to actions taken or not taken prior to issuing financial statements in order to improve the appearance of the financial statements. Example...
Is the sale of a plant asset recorded in the sales account? Definition of Sale of a Plant Asset The sale of a plant asset is often the disposal of a company’s equipment (or other asset) that had been used in the...
Why would a company use double-declining depreciation on its financial statements? Definition of Double-Declining-Balance Depreciation The double-declining-balance method of depreciation is a form of accelerated...
What is a suspense account? Definition of Suspense Account A suspense account is a general ledger account in which amounts are temporarily recorded. The suspense account is used because the appropriate general ledger...
What are debits and credits? Definition of Debits and Credits Debits and credits are terms used in accounting and bookkeeping systems for the past five centuries. They are part of the double entry system which results in...
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...
How do I calculate the amount of sales tax that is included in total receipts? Sales Tax Calculation To calculate the sales tax that is included in a company’s receipts, divide the total amount received (for the items...
What is an unpresented check? An unpresented check is a check written by a company and entered in its records, but the check has not yet cleared the company’s checking account. In other words, the check has not yet...
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...
Can you help me to understand credit memo and debit memo in the bank reconciliation? Definition of Bank Credit Memo A bank credit memo is an item on a company’s bank account statement that increases a company’s...
What is the reorder point? Definition of Reorder Point The reorder point is the quantity of units in inventory at which time an order should be placed to purchase additional units. The reorder point is calculated by...
What is a contra inventory account? A contra inventory account is a general ledger account with a credit balance. The credit balance in the contra inventory account will be combined with the debit balance in the...
If cash and a note are exchanged for a plant asset, is the amount of the note used in the depreciation calculation? A plant asset’s cost is depreciated, unless the asset is land. Cost is defined as the cash or cash...
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