What is the rule of 72? The rule of 72 is a simple formula that tells you the approximate amount of time or interest rate needed for an amount to double. The formula is Years X Rate per year = 72. Here’s how it works....
What is the rule of 72? The rule of 72 is a simple formula that tells you the approximate amount of time or interest rate needed for an amount to double. The formula is Years X Rate per year = 72. Here’s how it works....
government agency within specified periods of time. Examples of Payroll Taxes Withheld from Employees and Matched by Employer Examples of payroll taxes that are paid by both the employee and the employer include the...
What are interim financial statements? Definition of Interim Financial Statements Interim financial statements report amounts for time intervals that are shorter than a company’s annual financial statements. The...
What type of account is the Dividends account? Definition of Dividends Account When a corporation declares a cash dividend, the amount declared will reduce the amount of the corporation’s retained earnings. Instead of...
is an average from a previous time. It is important to realize that a financial ratio will likely vary between industries. Hence, a company’s ratios should be compared to its own past financial ratios and to the...
are the future costs and the opportunity costs (neither of which are not in the general ledger and are probably unknown at the time a decision must be made). Join PRO to Track Progress Mark the Question as Read...
statements that it has dividends in arrears. Dividends in arrears (and their current dividend) must be paid to the preferred stockholders before the common stockholders can be paid a dividend. When an annuity consists...
at the time of the previous physical inventory. Let’s assume this occurred on the prior December 31. Determine the cost of all the goods that were purchased since December 31. Combine Step 1 and Step 2 to arrive at...
first year the company had $65,000 of profit, but may end the year with $0 cash. Other examples where cash is paid out, but the profits are not reduced at the time of the payment, include prepayments of insurance...
cleared the bank by June 30. Similarly, some money received by the company on June 30 may not have been deposited in time for the amount to appear on the June bank statement.) Definition of Book Balance The term book...
will be due five years later. In addition to the one-time loan costs of $120,000 the company will also have the cost of the borrowed money which is $360,000 ($4 million X 9%) of interest each year for five years. It...
on a project after taking into consideration the time value of money and the periods when the various cash amounts flow in and out. If you use present value tables to calculate the internal rate of return, it will...
the following adjusting entry: A debit to Bad Debt Expense that will cause the income statement to report the estimated $10,000 loss closer to the time of the credit sales A credit to Allowance for Doubtful Accounts...
) Example of Dividing the Cost of Real Estate Assume that a company purchases real estate (which includes land and a building) at a cost of $220,000. The appraisal at the time of the purchase indicates that the land has...
by customer and then by time since the sales invoice was issued. Generally, the older the unpaid sales invoice, the greater the likelihood of not collecting the full amount. Since the aging of accounts receivable is a...
the company lists its cash inflows and cash outflows resulting from the disposal or acquisition of the company’s long-term assets that took place during the time indicated in the heading of the statement. Examples of...
allows a client to pay for a service one year after the service is completed, the amount received is assumed to consist of two parts: Interest for waiting one year to be paid The present value of the services provided...
the amounts established at the time that the static budget was prepared and approved.) For costs that vary with volume or activity, the flexible budget will flex because the budget will include a variable rate per unit...
is the result of discounting all of the cash inflows and outflows and then combining all of their present values. This means that the original outflow (often the investment made at the present time) is a deduction from...
, let’s assume that a new company has only one asset, Cash of $10,000, and its owner’s equity is $10,000. The company then pays $500 for advertising that occurs at the time of payment. The company must reduce its...
What is EOQ? Definition of EOQ EOQ is the acronym for economic order quantity. The economic order quantity is the optimum quantity of an item to be purchased at one time in order to minimize the combined annual costs of...
at the time the computer is shipped, the company will have very little in accounts receivable and will enjoy great cash flow. Another computer company might sell only through retailers. This company will have to...
to be $800,000 for the new year. The company produces similar products and it expects to use 20,000 machine hours. Based on this information, the company’s plant-wide overhead rate will be $40 per machine hour. If...
amount) discounted by the market interest rate at the time of the bond sale. Example of a Bond Premium A person would buy a bond at a premium (pay more than its maturity value) because the bond’s stated interest rate...
for the $5,000 down payment received Credit the current liability Customer Deposits for $5,000 At the time TOPCO completes the special machine and receives the balance of $20,000, TOPCO will record the following entry:...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
. Operating Cycle If a company sells goods (products, component parts, etc.) its operating cycle is the time it takes for a company’s money to purchase the inventory items and for the money from their sale to return to...
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...
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...
What is the difference between revenues and earnings? Definition of Revenues and Earnings Revenues are the amounts earned from providing goods or services to customers during the period shown in the heading of the income...
and general management, are expenses of the accounting period and are not applied or assigned to products.) Actual overhead are the manufacturing costs other than direct materials and direct labor. Since the overhead...
What are goods in transit? Definition of Goods in Transit Goods in transit refers to inventory items and other products that have been shipped by a seller, but have not yet reached the purchaser. When goods are in...
What is a natural business year? Definition of Natural Business Year A natural business year is the period of 12 consecutive months (or 52-53 consecutive weeks) ending at a low point of the organization’s activities...
What is the difference between adjusting entries and correcting entries? Definition of Adjusting Entries Generally, adjusting entries are required at the end of every accounting period so that a company’s financial...
What are the two methods for recording prepaid expenses? Definition of Prepaid Expenses Prepaid expenses refers to payments made in advance and part of the amount will become an expense in a future accounting period. A...
between the amount of assets and liabilities as of the final instant of the accounting period. In the U.S., the amounts are based on generally accepted accounting principles (GAAP). Example of Main Difference Between...
that are not reported on the corporation’s income statement. Treasury stock. This is a reduction of stockholders’ equity for the amount the corporation paid to purchase but not retire its own shares of capital...
The sole proprietorship of J. Lee will include the following capital accounts: J. Lee, Capital, which is increased by J. Lee’s investment into the business plus each accounting period’s net income, and which is...
What is a balance sheet and why is it prepared? Definition of Balance Sheet The balance sheet is prepared in order to report an organization’s financial position at the end of an accounting period, such as midnight on...
and the associated adjusting entries will result in a more complete and accurate reporting of a company’s assets, liabilities, equity, and a more accurate reporting of its revenues, expenses, and earnings during each...
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