after cash and cash equivalents, short-term investments, and receivables. If only the sum of the manufacturer’s inventory categories is listed in the current assets section, then the notes to the financial statements...
after cash and cash equivalents, short-term investments, and receivables. If only the sum of the manufacturer’s inventory categories is listed in the current assets section, then the notes to the financial statements...
noncurrent asset section of the corporation’s balance sheet. This section is likely to have the heading Investments. The bond sinking fund is a noncurrent (or long-term) asset even if the fund contains only cash. The...
Fees earned from providing services and the amounts of merchandise sold. Under the accrual basis of accounting, revenues are recorded at the time of delivering the service or the merchandise, even if cash is not received...
What is capital budgeting? Definition of Capital Budgeting Capital budgeting is a process used by companies for evaluating and ranking potential capital expenditures or investments that are significant in amount. A few...
What is the internal rate of return? Definition of Internal Rate of Return The internal rate of return is the interest rate that will discount an investment’s future cash amounts to be equal to cash paid at the...
the classified balance sheet shows the total amount of the company’s current assets and the total amount of its current liabilities. A classified balance sheet is likely used by companies and is organized as follows:...
investments with a maturity date that was 3 months or less at the time of purchase. In other words, there is very little risk of collecting the full amount being reported. Examples of Cash Equivalents Examples of cash...
income. The retailer’s main operations are purchasing and selling merchandise. Investing its idle cash in interest-bearing investments is outside of its main or central operations. Gains often involve the disposal of...
is good or bad, sufficient or insufficient, etc. depends on many factors including the composition of the company’s current assets, the speed at which the company’s sales turn into cash, the credit terms of its...
stops using one of its buildings and puts the building up for sale. In that situation, the journal entry description might be, “To reclassify the X building from property, plant and equipment to long-term...
temporary 31. Which of the following is not an asset account? Select... Goodwill Prepaid Expense Unearned Revenue 32. Which of the following is more likely to appear as the first current liability? Select... Accrued...
Our Explanation of Working Capital and Liquidity provides you with an in-depth look at the components of working capital and the challenges of converting current assets to cash before obligations come due. You will see...
let’s assume that after one year, the land owned by Mary and the land owned by Sue increased in value by 20% and both Mary and Sue sold their land investments at the market values. As a result: Mary’s land will sell...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
How do you calculate the actual or real interest rate on a bond investment? Definition of Actual or Real Interest Rate on a Bond Investment The actual or real interest rate on a bond payable is also known as effective...
) is considered to be a contra account. In addition, the drawing account is a temporary account since its balance is closed to the capital account at the end of each accounting year. Example of the Drawing Account...
is a temporary account that records the proprietor’s draws during the year. At the end of the year, the account’s debit balance will be closed to owner’s capital account A corporation will likely have the...
similar to the sole proprietor’s Drawing account and Capital account which are part of owner’s equity. Both the Dividends account and the Drawing account are temporary balance sheet accounts since they are closed at...
What is the accounting entry to close the sole proprietorship drawing account? Definition of Sole Proprietorship Drawing Account The drawing or withdrawal account for a sole proprietorship is a temporary owner equity’s...
What is a post-closing trial balance? Definition of Post-closing Trial Balance A post-closing trial balance is a trial balance which is prepared after all of the temporary accounts in the general ledger have been closed....
since its debit balance is contrary to the normal credit balance of the owner’s equity or capital account. The title of the account for recording R. Smith’s draws from his or her business is R. Smith, Drawing or R....
to pay at a later date, the company records the sale with a debit to Accounts Receivable and a credit to the revenue account Sales. The Sales account is a temporary account used to keep a tally of the sales made during...
Depreciation Expense is a temporary account. Therefore, at the end of each year, its balance is closed and the account Depreciation Expense will begin the next year with a zero balance. The account Accumulated...
. Therefore, another account will need to be credited. In this case Service Revenues will be credited for $300. Service Revenues is a temporary account that will eventually be closed to the owner’s equity account. Join...
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...
of the owner’s capital account and a drawing account. The drawing account is a temporary account in which the owner’s current year draws or withdrawals are recorded. The sole proprietor withdraws money for personal...
What is the periodic inventory system? Definition of Periodic Inventory System The periodic inventory system does not update the general ledger account Inventory when a company purchases goods to be resold. Rather than...
accounts are also referred to as temporary accounts or nominal accounts because at the end of each accounting year their balances will be closed. This means that the balances in the income statement accounts will be...
of the sale, the company can experience a temporary or even permanent cash flow problem. In order for the company to minimize these potential problems, a company is wise to routinely review an aging of accounts...
. This will get the proper amounts on the company’s income statement and balance sheet. The account Interest Expense will begin January with a zero balance, since expenses are temporary accounts that are closed at the...
Are Connected To illustrate the connection between the balance sheet and income statement, let’s assume that a company’s owner’s equity was $40,000 at the beginning of the year, and it was $65,000 at the end of...
general ledger account. As a result, the nominal accounts are also referred to as temporary accounts. The closing process also means that each nominal account will start the next accounting year with a zero balance....
. In an investment center the manager is responsible for investment decisions as well as costs and revenues. For instance, in a large corporation with many subsidiary companies, the corporation may give authority to the...
operating businesses each of which is responsible for its revenues and expenses. However, investment decisions for the operating businesses remain centralized. That is, the corporation’s executive officers decide...
to be collected within one year of the balance sheet date is reported in the current asset section of the lender’s balance sheet. The remaining principal of the note receivable is reported in the noncurrent asset...
What are net incremental cash flows? Net incremental cash flows are the combination of the cash inflows and the cash outflows occurring in the same time period, and between two alternatives. For example, a company could...
on its investments. The investment interest and dividend amounts earned will be reported on the income statement as other income. To provide more clarity, accountants use the term net income to describe the amount...
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