How should an interest only loan be recorded? Defintion of an Interest Only Loan An interest only loan specifies that only interest payments are required during the life of the loan. No principal payment is required...
How should an interest only loan be recorded? Defintion of an Interest Only Loan An interest only loan specifies that only interest payments are required during the life of the loan. No principal payment is required...
What does the term arrears mean in accounting? Definition of Arrears In accounting, the term arrears will be used in the following situations: If a corporation does not declare and pay the dividend on its cumulative...
What does NOI stand for? NOI is the acronym for net operating income. Net operating income is also referred to as income from operations. NOI excludes discontinued operations, extraordinary items, and nonoperating (or...
When does a negative cash balance appear on the balance sheet? Definition of Negative Cash Balance A negative cash balance results when the cash account in a company’s general ledger has a credit balance. The credit or...
What is the difference between fixed assets and noncurrent assets? Fixed Assets are Part of Noncurrent Assets Fixed assets are one of several categories of noncurrent assets. Fixed assets are usually reported on the...
What is the difference between the direct method and the indirect method for the statement of cash flows? Main Difference between Direct and Indirect Method of SCF The main difference between the direct method and the...
What is an outstanding deposit? Definition of Outstanding Deposit An outstanding deposit refers to a company’s receipts (cash, checks from customers, etc.) which have been recorded in the company’s general ledger...
What are byproducts? Byproducts, or by-products, are products with relatively little value that emerge from a common process along with the main products. The main products have significant value and are referred to as...
What is the purpose of the cash flow statement? Definition of Cash Flow Statement The cash flow statement or statement of cash flows or SCF identifies a company’s major cash inflows and outflows that occurred the same...
What is meant by nonoperating expenses and losses? Definition of Nonoperating Expenses and Losses Nonoperating expenses are business expenses that are outside of a company’s main or central operations. (Some describe...
Are dividend payments shown as an expense on the income statement? Definition of Dividend Payments The cash dividends paid to stockholders are a distribution of the corporation’s earnings. Dividends are not an expense...
What is a liquidity ratio? Definition of Liquidity Ratio A liquidity ratio is a financial ratio that indicates whether a company’s current assets will be sufficient to meet the company’s obligations when they become...
What is the transaction approach and balance sheet approach to measuring net income? The transaction approach to measuring net income is the traditional bookkeeping and accounting method. That is, individual transactions...
Is the reversal of a previous year's accrued expense permanent? Definition of Reversal of Accrued Expense An accrued expense typically requires an accrual adjusting entry recorded at the end of an accounting year (or any...
What is the earnings per share (EPS) ratio? Definition of Earnings per Share The earnings per share ratio, or simply earnings per share, or EPS, is a corporation’s 1) net income (or earnings) after tax that is...
In accounting, what is the meaning of cr.? In accounting, cr. is the abbreviation for credit. In accounting and in bookkeeping, credit or cr. indicates an entry on the right side of a general ledger account. Credit...
What is recorded in the Wages and Salaries Expense account? Definition of Wages and Salaries Expense The account Wages and Salaries Expense (or separate accounts such as Wages Expense or Salaries Expense) are used to...
What are net assets? Definition of Net Assets Net assets is defined as total assets minus total liabilities. Examples of Net Assets In a sole proprietorship the amount of net assets is reported as owner’s equity. In a...
Where can I find an illustration of a common size balance sheet? You will find an illustration of a common size balance sheet under AccountingCoach.com’s Explanation of Financial Ratios. The common size balance sheet...
What are gross wages? Definition of Gross Wages Gross wages are the amounts earned by employees before the payroll withholding taxes and other deductions are subtracted. Sometimes gross wages is used to describe the...
What is stock? Definition of Stock In business there are at least common meanings for the term stock: Some people use the word stock to mean inventory. In other words, they mean the goods (products, component parts,...
Is a money market account a current asset or a fixed asset? A money market account is a current asset unless it is restricted for a long-term purpose. The amount of an unrestricted money market account will likely be...
Why is the P&L profit entered on the credit side of the balance sheet? Profit’s Effect on the Balance Sheet The profit or net income belongs to the owner of a sole proprietorship or to the stockholders of a...
If a customer pays for the same invoice twice, should the customer be informed? I say yes. If you become aware of the double payment when posting the customer’s second remittance, I would double check your records...
What is the difference between a note payable and a bond payable? Definition of Note Payable and Bond Payable For accounting purposes, a note payable and a bond payable have the following similarities: Formal written...
What are some examples of financing activities on the cash flow statement? Definition of Financing Activities Financing activities reported on the statement of cash flows (SCF) involve changes to the long-term...
What are the journal entries for a stock split? Definition of a Stock Split A stock split usually increases the number of shares of a corporation’s common stock with the intention of reducing the market price of each...
What is a bank reconciliation? What is a Bank Reconciliation A bank reconciliation is a process performed by a company to ensure that its records (check register, general ledger account, balance sheet, etc.) are correct....
The balance sheet and income statement are connected. Definition of Balance Sheet and Income Statement The balance sheet reflects the accounting equation: Assets = Liabilities + Owner’s (Stockholders’) Equity When a...
How do you write off a bad account? Definition of the Write-off of a Bad Account The write-off of a bad account usually refers to eliminating an account receivable due to the customer’s inability to pay the amount...
Where are short-term bank loans reported on the statement of cash flows? Definition of Short-Term Bank Loans Short-term bank loans are generally loans that must be repaid within one year of the date of the balance sheet....
What if a company's Allowance for Doubtful Accounts is understated? Definition of Allowance for Doubtful Accounts The Allowance for Doubtful Accounts is a contra asset account. The Allowance account’s credit balance is...
Can I capitalize this year's R&D? Generally, R&D costs cannot be capitalized for U.S. financial statements according to the Statement of Financial Accounting Standards No. 2, Accounting for Research and Development...
Accounts Receivable and Bad Debts Expense Accounts Receivable Accounts receivable refers to a company’s unsecured claim for money it is owed by a customer or client for goods and/or services the company had provided on...
Capital Budgeting(Quick Test) Download PDF After you have answered all 25 questions, click "Grade This Quick Test" at the bottom of the page to view your grade and receive feedback on your answers. Note: Some of the...
Accounting Basics(Quick Test #1) Download PDF After you have answered all 30 questions, click "Grade This Quick Test" at the bottom of the page to view your grade and receive feedback on your answers. Note: Some of the...
Debits and Credits(Quick Test #3) Download PDF After you have answered all 40 questions, click "Grade This Quick Test" at the bottom of the page to view your grade and receive feedback on your answers. Note: Some of the...
Our Explanation of Chart of Accounts shows how a typical chart of accounts is organized and examples of possible account numbering. It concludes with a quick review of debits and credits.
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.
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...
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