Our Explanation of Financial Accounting introduces some of the basic accounting concepts and how they affect the income statement, balance sheet, and other financial statements.
Our Explanation of Financial Accounting introduces some of the basic accounting concepts and how they affect the income statement, balance sheet, and other financial statements.
Our Explanation of Accounting Principles provides you with clear and concise descriptions of the basic underlying guidelines of accounting. You will see how the accounting principles affect the balance sheet and income...
flows. Select... asset liability 11. Generally, a decrease in the balances of __________ accounts will result in an increase of cash on the statement of cash flows. Select... asset liability 12. Under the indirect...
and has also used many supplies during the accounting period, both the asset account Supplies and the account Supplies Expense should have debit balances. Select... True False 8. The account balances for revenues and...
A measurement of financial performance of a company’s operating division that is not responsible for its financing and income taxes. The calculation is likely to be 1) the division’s operating income before...
The contra owner’s equity account that reports the amount of withdrawals of business cash or other assets by the owner for personal use during the current accounting year. At the end of the accounting year, the...
One of the main financial statements of a nonprofit organization. This financial statement reports the revenues and expenses and the changes in the amounts of each of the classes of net assets during the period shown in...
The ratio of total liabilities to stockholders’ equity. The higher the proportion of debt to equity, the more risky the company appears to be. An indicator of the amount of financial leverage at a company. It...
One of the main financial statements. The balance sheet reports the assets, liabilities, and owner’s (stockholders’) equity at a specific point in time, such as December 31. The balance sheet is also referred...
A listing of the accounts available in the accounting system in which to record entries. The chart of accounts consists of balance sheet accounts (assets, liabilities, stockholders’ equity) and income statement...
In the 1970’s the Financial Accounting Standards Board (FASB) articulated three objectives of financial reporting. In summary, financial information should (1) be useful to investors and lenders, (2) be helpful in...
The activities involved in earning revenues. For example, the purchase or manufacturing of merchandise and the sale of the merchandise including marketing and administration. In the statement of cash flows the operating...
Also referred to as peripheral activities. A company’s activities outside of its main activities of buying/producing and selling. Examples include a retailer’s financing function involving interest revenue...
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...
How do you record the sale of land? Definition of Sale of Land Assume that a retailer sells land that it had been holding for a future store. The retailer must remove the cost of the land from its general ledger asset...
suppliers. If you purchase an asset and the sales tax is required, the sales tax should be recorded as part of the cost of the goods or services received. For example, if you were required to pay sales tax on the new...
produced. In other words, the utility bill will be clinging to the units produced. Some of the utility cost will be clinging to the units in inventory and therefore will be part of the cost of the asset inventory. Some...
A current asset whose ending balance should report the cost of a merchandiser’s products awaiting to be sold. The inventory of a manufacturer should report the cost of its raw materials, work-in-process, and...
the company immediately, you can record the $100 phone bill by debiting Telephone Expense for $80 and debiting the asset account Receivable from Employees for $20. When you receive the $20 from the employee, you will...
containing the adjusted balances for the asset, liability and owner’s equity accounts. Under the Income Statement columns, the difference between the total of the debit column and the credit column is the amount of...
What is a reclassification? Definition of Reclassification In accounting, the term reclassification is often used to describe moving an amount from one general ledger account to another. Examples of Reclassification...
on December 31 has a prepaid expense if on December 1, it paid $6,000 for insurance coverage from December 1 through May 31. Recording a Prepaid Expense A prepaid expense can be recorded initially as an expense or as a...
asset Prepaid Insurance. During the month of January, the company should report $100 of insurance expense. At the end of January, the company’s balance sheet should report Prepaid Insurance of $500 (indicating that...
liability. When a company receives money in advance of earning it, the accounting entry is a debit to the asset Cash for the amount received and a credit to the liability account such as Customer Advances or Unearned...
What to do with the balance in Allowance for Doubtful Accounts? Definition of Allowance for Doubtful Accounts The Allowance for Doubtful Accounts is a contra asset account that is used with the balance in Accounts...
What is the entry when a company lends money to an employee? Definition of Employee Loan When a company lends money to one of its employees, the company is reducing its Cash and increasing another asset such as Other...
is required by SellerCo. Under the accrual basis of accounting, SellerCo will report $5,000 in its income statement accounts Sales and will report $5,000 in its current asset account Accounts Receivable. Assume that on...
, etc. Recording a Bill Payable Under the accrual method of accounting or bookkeeping, a bill payable or unpaid vendor invoice is recorded in Accounts Payable with a credit entry. (The debit will likely be recorded as an...
, plant and equipment for a cash amount that is less than the carrying amount (or book value) of the asset sold. Nonoperating expenses and losses are often reported on the income statement after the subtotal Income from...
of its goods to the buyer and in return has a current asset known as accounts receivable. One consequence is the seller becomes one of the buyer’s unsecured creditors. This means that the seller has the risk of bad...
of the accounting department and are often distributed outside of the company. The balance sheet summarizes and reports the balances from the asset, liability, and stockholders’ equity accounts that are contained in...
statements) at the time that an order is received: The company has not yet earned the revenue The company does not yet have a right to a receivable or other asset The revenues and a receivable will not be earned until...
Depreciation for the car’s accumulated depreciation Credit the asset account containing the car’s cost Credit the account Gain on Sale of Vehicles for the amount necessary to have the total of the debit amounts...
such as gasoline. The delivery surcharges should not be reported as nonoperating revenues or other income. Nonoperating revenues or other income items would be outside the main activities of the retailer and...
What is petty cash? Definition of Petty Cash Petty cash or a petty cash fund is a small amount of money available for paying small expenses without writing a check. Petty Cash is also the title of the general ledger...
Loan Repayment A bank loan repayment is likely referring to the loan principal balance (or part of the principal balance) that the borrower is paying the lender (bank). When the principal payment is made, the...
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