Our Explanation of Inventory and Cost of Goods Sold will take your understanding to a new level. You will see how the income statement and balance sheet amounts are affected by the various inventory systems and cost flow...
Our Explanation of Inventory and Cost of Goods Sold will take your understanding to a new level. You will see how the income statement and balance sheet amounts are affected by the various inventory systems and cost flow...
. 3. The interest removed from the payments in an ordinary annuity when calculating the present value is also referred to as __________ discount. 4. In the calculation of present values, the payment amounts that are...
removed from a future value when discounting it to the present value is __________ interest. 4. In the calculation of present values, the future amounts that are discounted are not accrual accounting amounts; rather...
. If the asset Inventory is too big, another part of the accounting equation is improper. In this case assets were overstated, and owner's (stockholders') equity is overstated as a result of the current...
and transferred to the owner’s capital account, thereby increasing owner’s equity. (At a corporation, the credit balances in the revenue accounts will be closed and transferred to Retained Earnings, which is a...
appearing first followed by the income statement accounts. Examples of General Ledger Accounts Some of the more common balance sheet accounts and how they are further arranged in the general ledger include: asset...
is the sum of the following: the days’ sales in inventory (365 days/inventory turnover ratio), plus the average collection period (365 days/accounts receivable turnover ratio) The operating cycle has...
asset. The deferred expenses that will not become expenses within one year of the date of the balance sheet will be reported in the long-term asset section of the balance sheet under the classification of other assets....
include the company’s employees (who are owed wages and bonuses), governments (who are owed taxes), and customers (who made deposits or other prepayments). Some creditors are referred to as secured creditors because...
sheet account that is reported under the heading of Property, Plant and Equipment. The asset’s cost (except for the cost of land) will then be allocated to depreciation expense over the useful life of the asset. The...
balances. Since expenses reduce owner’s equity, Advertising Expense must be debited for $500. Therefore, double entry requires that another account must be credited for $500. Since cash was used, the account Cash will...
. Therefore, to reduce the credit balance, the expense accounts will require debit entries. Example of Rent Expense as a Debit If a company pays $800 for the current month’s rent, the company’s assets and its...
as an asset and expensed later. To defer the cost to the balance sheet is to capitalize the costs. Examples of Costs Being Expensed Costs are reported as expenses in the accounting period when they are used up, have...
accounting year will report the same amount of depreciation. The total amount of depreciation over the years of the asset’s useful life will be the asset’s cost minus any expected or assumed salvage value. In the...
What is an impairment? Definition of Impairment The term impairment is associated with an asset currently having a market value that is less than the asset’s book value . A test is done to determine whether the...
Why does our company's balance sheet report its land at cost when it is so much more valuable? Accountants are guided by the cost principle. This requires accountants to report assets at their cost when...
report a corporation’s assets as dollar amounts (rather than reporting details of all of the assets). If an asset cannot be expressed as a dollar amount, it cannot be entered in a general ledger account. For example,...
and matching principle. Book value of an asset is: the asset’s cost minus the asset’s accumulated depreciation. Book value of the liability Bonds Payable is the combination of the following: Maturity or par value of...
expense over the years of the asset’s useful life.) Example of Revenue Expenditure Let’s assume that a company made a capital expenditure of $100,000 to install a high efficiency machine. The new machine requires...
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.
Our Explanation of Nonmanufacturing Overhead provides examples of a manufacturer's expenses which are not considered to be costs of a product for financial reporting. However, they are operating expenses that will have...
Our Explanation of Manufacturing Overhead gives you examples of what is included in manufacturing overhead. You will learn that these are indirect product costs and therefore are allocated to the products in order to...
or the left side of a T-account. Example of Dr. Typically, the general ledger accounts for assets and expenses will have debit (dr.) balances and the balances in the asset accounts will be increased with debit amounts....
The costs incurred to bring an asset back to an earlier condition or to keep the asset operating at its present condition (as opposed to improving the asset). For example, if a company truck is damaged, the cost to...
What is depreciation? Definition of Depreciation In accounting, depreciation is the assigning or allocating of the cost of a plant asset (other than land) to expense in the accounting periods that are within the...
by the earnings per share of common stock. A fast growing corporation often has a low dividend payout ratio in order to retain and reinvest its earnings in additional income producing assets. Join PRO to Track Progress...
The allocation of the cost of a plant asset to expense in an accelerated manner. This means that the amount of depreciation in the earlier years of an asset’s life is greater than the straight-line amount, but will...
credit analysis. Financial analysis would also include calculations such as return on equity, return on assets, price earnings ratios, dividend yield, comparisons with industry averages, trend analysis, and so on....
Accounting estimates include the estimated salvage value and the estimated useful life of depreciable assets, estimated percentage of bad debts expense, estimated percentage of units to be repaired or replaced during a...
Financial statements that reflect the total economic entity. For example, on a consolidated income statement a corporation having several subsidiaries would report the total of all of its companies’ sales that were...
is associated with Accounts Receivable and the Allowance for Doubtful Accounts. 3. Depreciation Expense is associated with the contra-asset account __________ Depreciation. 4. Insurance Expense is associated with the...
is that the last or more recent cost is closer to the replacement cost. A similar situation occurs with depreciation. Under GAAP the amount of depreciation expense reported in the financial statements is based on the...
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...
Our Explanation of Present Value of a Single Amount discusses the time value of money and the need to discount future amounts to the time of an investment or other transaction. The present value of 1 table is used to...
Our Explanation of Bonds Payable covers the recording of bonds, the accrual of interest expense, and the amortization of the discount and premium on bonds payable. You gain an understanding on why the market value of...
to be part of the cost of items purchased, since an asset’s cost is defined as all costs that are necessary to get the asset in place and ready for use. Join PRO to Track Progress Mark the Question as Read Must-Watch...
Is it possible for owner's equity to be a negative amount? Definition of Negative Owner’s Equity Negative owner’s equity means the amount of a sole proprietorship’s liabilities exceeds the amount of its...
, seasonal variations will be included. Using only the end of year point for two years is generally not indicative of the inventory levels in the months throughout the year. The 13-point average is also useful for...
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