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...
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...
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...
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...
is the cost of goods on hand, it makes sense to relate it to the cost of goods sold. Assume that during the past year a company’s inventory had an average cost of $10,000. (This was the average of the amounts in the...
What is gross margin? Definition of Gross Margin Gross margin is the amount remaining after a retailer or manufacturer subtracts its cost of goods sold from its net sales. In other words, gross margin is the retailer’s...
How do you calculate the cost of carrying inventory? Definition of Cost of Carrying Inventory The cost of carrying inventory (or cost of holding inventory) is the sum of the following: Cost of money tied up in inventory,...
starting next year. Because of this assurance, the utility will record the $300,000 as a deferred asset. In each of the five subsequent years, the utility will credit the deferred asset account for $60,000 and will...
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...
When do you adjust the amount of prepaid expenses? Definition of Adjusting Prepaid Expenses The balance in the current asset account Prepaid Expenses should be adjusted prior to a company issuing its financial...
What is the debt to total assets ratio? Definition of Debt to Total Assets Ratio The debt to total assets ratio is an indicator of a company’s financial leverage. It tells you the percentage of a company’s total...
Is the sales tax on merchandise purchased for resale included in inventory? In our state, sales tax is paid only by the end customer. In other words, a retailer does not pay sales tax on merchandise that is purchased for...
What is FICA? Definition of FICA FICA is the acronym for Federal Insurance Contributions Act. FICA consists of the U.S. Social Security payroll tax and the Medicare payroll tax. The FICA payroll tax is withheld from...
What is the meaning of pro rata? Pro rata is a Latin term that means in proportion. Pro rata is related to prorate, a term used in cost accounting. To illustrate the term pro rata, let’s assume that a company’s...
What are cost flow assumptions? Definition of Cost Flow Assumptions The term cost flow assumptions refers to the manner in which costs are removed from a company’s inventory and are reported as the cost of goods sold....
What is the difference between stockholder and stakeholder? Definition of Stockholder A stockholder or shareholder is the owner of shares of a corporation’s common or preferred stock. Definition of Stakeholder A...
Is the sales tax paid on merchandise that you will resell an expense? I believe that most states have sales tax exemptions for merchandise purchased for resale. Check with your state’s sales tax department to see if...
Why is an amount in the cash flows from investing activities shown in parenthesis? An amount shown in parenthesis within the investing activities section of the cash flow statement indicates that cash was used to...
What is Construction Work-in-Progress? Definition of Construction Work-in-Progress Construction Work-in-Progress is a noncurrent asset account in which the costs of constructing long-term, fixed assets are recorded. The...
What is the effective interest rate for a bond? Definition of Effective Interest Rate of a Bond The effective interest rate of a bond is usually the market interest rate and the bond’s yield-to-maturity (as opposed to...
What is equity? Definitions and Examples of Equity Equity has several definitions that pertain to accounting: Equity can indicate an ownership interest in a business, such as stockholders’ equity or owner’s equity....
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...
Is it a requirement for a small business to have a CPA? Generally, a small business is not required to have a CPA or certified public accountant. A CPA would be needed if the small business must have its financial...
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 the difference between a contingent liability and an estimated liability? Definition of a Contingent Liability A contingent liability is a potential liability (and a potential loss or potential expense). For a...
Why are the amounts on the financial statements rounded to thousands or millions? Definition of Rounding Amounts on Financial Statements Rounding the amounts on a company’s financial statements means dropping the less...
Are utility bills an expense or a liability? Definition of Utility Bills Utility bills are invoices received by a company for the natural gas, electricity, water, and sewer charges that the company used during a previous...
coverage from December 1 through May 31. Examples of Two Methods for Recording Prepaid Expenses One method for recording a prepaid expense is to record the entire payment in an asset account. For example, assume that on...
Is a utility bill an expense? The utility bill for a retailer or for a service company is an expense. Under the accrual basis of accounting, the utility bill is an expense for the period indicated by the meter reading...
). The company will record a December 31 accrual adjusting entry which debits Interest Receivable for $300 and credits Interest Income for $300. The Interest Receivable account balance will be reported on the company’s...
What is a letter of credit? A letter of credit is a letter or document issued by a bank for use by one of its customers. The letter of credit states that the bank will guarantee payment up to the stated amount for...
What is a deposit in transit? Definition of Deposit in Transit A company’s deposit in transit is the currency and customers’ checks that have been received and are rightfully reported as cash on the date received,...
) amount of retained earnings is reported as a separate line within stockholders’ equity. The owner’s drawing account in a sole proprietorship will have a debit balance. Hence, if it is reported as a separate line,...
What is the book value per share of stock? Definition of Book Value per Share of Stock The book value of a corporation is the amount of its stockholders’ equity. Assuming the corporation does not have preferred stock...
What is the fixed asset turnover ratio? Definition of Fixed Asset Turnover Ratio The fixed asset turnover ratio shows the relationship between a company’s annual net sales and the net amount of its fixed assets. The...
What is the difference between information and data? I was taught that information is useful data. The point is there are lots of data (plural of datum) everywhere, and most of the data will not be useful to a decision...
What is the total asset turnover ratio? Definition of Total Asset Turnover Ratio The total asset turnover ratio indicates the relationship between a company’s net sales for a specified year to the average amount of...
Treasury stock is usually the amount that a corporation has paid to repurchase some of its own shares of stock (and has not reissued or retired the shares). The corporation’s cost is debited to the general ledger...
our Bonds Payable (Explanation). 1. The expected balance in the account Bonds Payable. Debit Wrong. Credit Right! 2. The expected balance in the account containing the amount of the unamortized bond discount. Debit...
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
, the balance sheet reflects the accounting equation: assets = liabilities + stockholders’ equity. Assets are resources such as cash, inventory, investments, buildings, equipment, and prepaid or deferred expenses....
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