Should a company focus on cash flows or accounting profits when making a capital expenditure decision? Using the incremental cash flows and discounting them to reflect the time value of money is the preferred method. The...
Should a company focus on cash flows or accounting profits when making a capital expenditure decision? Using the incremental cash flows and discounting them to reflect the time value of money is the preferred method. The...
Under the accrual method of accounting, this account reports the employer’s portion of the health insurance cost incurred by the company during the period indicated in the heading of the income statement, whether...
Under the accrual method of accounting, this account reports the employer’s portion of the health insurance cost incurred by the company during the period indicated in the heading of the income statement, whether...
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...
A measurement of net income arrived at by comparing the amount of total equity at the end of a period to the amount of total equity at the beginning of the period. For example, if Al Capone had $5 million of equity at...
Bookkeeping Bookkeeping in the Past Historically, bookkeepers were responsible for the following steps in the accounting cycle: Record all the company’s transactions in journals Post the amounts from the journals to...
Balance Sheet(Quick Test #2 with Coaching) Download PDF This Quick Test with Coaching includes a “View Coaching” button to the right of each answer box. If you choose to click the button, an explanation for the...
Our Explanation of Improving Profits will assist you in focusing on the costs and revenues that are relevant (and ignoring those which are not relevant) for improving profits and eliminating losses. Examples of the...
What is the difference between expense and loss? Definition of Expense An expense is a cost that a company incurs or uses up when it earns revenues. Examples of Expenses A few examples of the many expenses that a company...
What is safety stock? Definition of Safety Stock Safety stock is an additional quantity of an item held by a company in inventory in order to reduce the risk that the item will be out of stock. Safety stock acts as a...
What is working capital? Definition of Working Capital Working capital is the amount of a company’s current assets minus the amount of its current liabilities. Example of Working Capital Let’s assume that a...
What is retained earnings? Definition of Retained Earnings Retained earnings is the cumulative amount of earnings since the corporation was formed minus the cumulative amount of dividends that were declared. Retained...
What is contribution margin? Definition of Contribution Margin In accounting, contribution margin is defined as: revenues minus variable expenses. The contribution margin can be expressed as an amount and/or as a ratio...
How do you report a write-down in inventory? Definition of Write-down in Inventory Under FIFO and average cost methods, when the net realizable value of inventory is less than the cost of the inventory, there needs to be...
What is common stock? Definition of Common Stock Common stock refers to the shares of ownership interest in a U.S. corporation. The owners of the common stock are referred to as common stockholders, common shareholders,...
What is a credit? Definition of a Credit In bookkeeping and accounting, a credit likely refers to the amount entered on the right side of a general ledger account or to the right side of a T-account. A credit could also...
What are the required financial statements? The required financial statements for U.S. business corporations are: Statement of income. This financial statement is also known as the statement of operations, statement of...
What is a T-account? Definition of T-Account A T-account is a visual aid used to depict a general ledger account. The account title is written above the horizontal part of the “T”. On the left-side of the vertical...
Is there a difference between work-in-process and work-in-progress? It depends on the user of the terms. Definition of Work-in-Process I use the term “work-in-process” to mean a manufacturer’s inventory that is not...
In accounting, what is meant by relevant costs? Definition of Relevant Costs Relevant costs are future costs that will differ between two or more alternative actions. Expressed another way, relevant costs are the costs...
The balance sheet and income statement are connected. Definition of Balance Sheet and Income Statement The balance sheet reflects the accounting equation: Assets = Liabilities + Owner’s (Stockholders’) Equity When a...
Accounts Receivable and Bad Debts Expense(Quick Test #2) Download PDF After you have answered all 15 questions, click "Grade This Quick Test" at the bottom of the page to view your grade and receive feedback on your...
Bookkeeping For multiple-choice and true/false questions, simply press or click on what you think is the correct answer. For fill-in-the-blank questions, press or click on the blank space provided. If you have difficulty...
Why does an increase in accounts payable appear as an addition on the statement of cash flows? Adjustments from Accrual to Cash on Statement of Cash Flows When the statement of cash flows (SCF, cash flow statement) is...
Accounts Payable(Quick Test #2 with Coaching) Download PDF This Quick Test with Coaching includes a “View Coaching” button to the right of each answer box. If you choose to click the button, an explanation for the...
Income Statement(Quick Test #2 with Coaching) Download PDF This Quick Test with Coaching includes a “View Coaching” button to the right of each answer box. If you choose to click the button, an explanation for the...
Inventory and Cost of Goods Sold For multiple-choice and true/false questions, simply press or click on what you think is the correct answer. For fill-in-the-blank questions, press or click on the blank space provided....
Financial Statements Annual Financial Statements The financial statements that are to be included as a complete set when a U.S. corporation distributes them to people outside* of the corporation are: *Examples of people...
Our Explanation of Financial Statements provides you with the highlights of each of the five external financial statements issued by U.S. corporations. Our insights will give you a good understanding of what the...
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...
Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
Our Explanation of Improving Profits will assist you in focusing on the costs and revenues that are relevant (and ignoring those which are not relevant) for improving profits and eliminating losses. Examples of the...
What is the consistency principle? Definition of Consistency In accounting, consistency requires that a company’s financial statements follow the same accounting principles, methods, practices and procedures from one...
What is carriage inwards? Definition of Carriage Inwards Carriage inwards refers to the transportation costs required to be paid by the purchaser when it receives merchandise it ordered with terms FOB shipping point....
Are salaries and wages part of expenses on the income statement? Definition of Salaries and Wages Salaries and wages are forms of compensation paid to employees of a company. Salaries and Wages as Expenses on Income...
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...
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