must remit the sales taxes collected within a prescribed time period. The items subject to sales tax will vary from state to state. In some states basic food items might not be taxed, but meals at restaurants will be...
must remit the sales taxes collected within a prescribed time period. The items subject to sales tax will vary from state to state. In some states basic food items might not be taxed, but meals at restaurants will be...
for a customer on December 28 and allows the customer 10 days in which to pay its invoice of $850. On December 28, HRS records the $850 it has earned in the current asset account Accounts Receivable and in the revenue...
financial statements will report: Income tax expense on its income statement for the revenues and expenses appearing on the accounting period’s income statement, and Income taxes payable (a current liability on the...
to the company’s general ledger accounts, since the outstanding checks were recorded when they were issued.) Checks that are outstanding for a long period of time are known as stale checks. In the U.S., outstanding...
of Amortization of Premium on Bonds Payable Assume that a corporation issues bonds payable having a maturity value of $1,000,000 and receives a premium of $60,000. The bonds mature in 20 years and there was no accrued...
, a manufacturer using equipment that is fully depreciated will have lower manufacturing overhead and lower cost of goods sold because the current year’s depreciation for the equipment is $0. Generally, the cost...
What is an asset's useful life? Definition of Asset’s Useful Life An asset’s useful life is the estimated period of time (or total amount of activity) that a long-lived asset will be economically feasible for...
What does amortization mean? Definition of Amortization In general, the word amortization means to systematically reduce a balance over time. In accounting, amortization is conceptually similar to the depreciation of a...
statements for the period ending December 31 must report wages expense of $5,000 and a liability of $5,000 as of December 31. In accounting jargon, the retailer must accrue the expense and liability through an adjusting...
What is a purchase discount? Definition of Purchase Discount A purchase discount is a deduction that a company may receive if the supplier offers it and the company pays the supplier’s invoice within a specified period...
Is it possible to have a balance sheet for a single day? A balance sheet presents the amounts of a company’s assets, liabilities, and owner’s equity as of an instant or moment in time within a day. Usually it is the...
cycle is longer than one year, the length of the operating cycle is used in place of the one-year time period. Examples of Current Assets Assets that are reported as current assets on a company’s balance sheet...
What is the journal entry to record a one-year subscription for a magazine? Ways to Record One-Year Subscriptions Let’s assume that the cost of the one-year subscription for a monthly trade publication is $120. Let’s...
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...
find it advantageous to use the periodic inventory system in its general ledger (instead of the perpetual inventory system) especially when it uses the LIFO cost flow assumption for valuing its inventory and cost of...
or LIFO, but require the same cost flow assumption be used on both the company’s tax return and on the company’s financial statements. With inflation being the norm, profitable companies using LIFO are matching the...
. (The higher cost of goods sold means lower net income and lower taxable income than FIFO.) Another reason for a company to use the LIFO cost flow assumption is to improve the matching of costs with sales. If the...
that can easily be audited. In contrast, the market value is subjective: one person thinks the land is worth $1 million while another thinks it’s worth $1.5 million. Further support for the cost principle is the...
of inventory so that it can meet the fluctuating demand of its customers, avoid disruptions in production, and minimize holding costs. Since the costs of the items purchased or produced are likely to change (especially...
ending inventory and COGS will differ depending on a company’s cost flow assumption. Three examples of cost flow assumptions are: FIFO which assigns the recent unit costs of the purchases to inventory and the oldest...
the costs of products are likely to change during an accounting year (seems there is always some inflation), a company must select a cost flow assumption that will be used consistently. Examples of cost flow assumptions...
income). The order in which the costs are removed from inventory is referred to as the cost flow assumption. It is important to understand that the cost flow does not have to agree with the order in which the goods are...
= the cost of goods sold of $440,000. When there is inflation, the retailer must also elect a cost flow assumption in order to determine the cost of the ending inventory, which of course is a factor in the calculation...
What is the meaning of base year? In accounting, base year may refer to the year in which a U.S. business had adopted the LIFO cost flow assumption for valuing its inventory and its cost of goods sold. Under the...
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...
What are adjusting entries? Definition of Adjusting Entries Adjusting entries are usually made on the last day of an accounting period (year, quarter, month) so that a company’s financial statements comply with the...
What is the difference between the cash basis and the accrual basis of accounting? Definition of the Cash Basis of Accounting Revenues are reported on the income statement in the period in which the cash is received from...
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.
of an Expense Accrual The accrual of an expense or an expense accrual refers to the reporting of an expense and the related liability in an accounting period that is prior to the period when the amount will be paid or...
or accrual adjusting entries are prepared at the end of an accounting period to report amounts that have occurred in the current accounting period but were not yet entered into the general ledger accounts. An example is...
What is DCF? In accounting, DCF refers to discounted cash flows or to the discounted cash flow techniques such as net present value or internal rate of return. DCF is a preferred method for evaluating capital...
A financial statement that reports the current year information contained in the general ledger account Retained Earnings. The statement will include the beginning balance, prior period adjustments, net income for the...
Our Explanation of Income Statement helps you learn the most important features of a corporation's income statement (also known as the statement of operations or profit and loss statement). We provide more understanding...
or the statement of financial condition. 2. The balance sheet heading will specify a Period Of Time Wrong. The balance sheet reflects an instant or a POINT in time. Point In Time Right! The balance sheet is at an...
Our Explanation of Payroll Accounting discusses the taxes and benefits which are withheld from employees' pay as well as the taxes and benefits that are expenses for the employers. Also provided are examples of the...
An expectation that as a task is repeated there will be significant time reductions during the early repetitions. The time savings will dissipate after continuous performance. This is important to consider when setting...
Our Explanation of Accounts Payable provides insights on the bill paying process in a large company. Included are discussions of the three-way match, early payment discounts, end of period accruals, and more.
Featured Review
"I stumbled across the website for AccountingCoach, and I am glad I did. I have always enjoyed bookkeeping, but I have never been formally trained. After receiving and reviewing the material with AccountCoach PRO I can honestly say this is the best product I have every purchased. The lifetime membership is worth the cost. The courses are set up for the beginner to the most advanced and is written in a very clear format. I would recommend AccountingCoach to anyone wanting to learn, or take a refresher course on accounting and bookkeeping." - Jewell B.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: