What is a bond? There are several business definitions for bond. A bond could be a formal debt instrument issued by a corporation or government and purchased by investors. This is the meaning when we say that a public...
What is a bond? There are several business definitions for bond. A bond could be a formal debt instrument issued by a corporation or government and purchased by investors. This is the meaning when we say that a public...
Which date is used to record a credit card transaction? When a business uses its credit card, the transaction date is the date the credit card is used, not the date that the credit card statement is paid. For example, if...
How do you amortize goodwill? Definition of Amortize Goodwill Prior to 2001, to amortize goodwill meant to consistently and in uniform increments move the reported amount of the intangible asset goodwill from the balance...
Does collecting a customer's accounts receivable affect net income? Definition of Accounts Receivable Accounts receivable is a current asset that results when a company reports revenues from sales of products or the...
What is meant by nonoperating revenues and gains? Nonoperating revenues are the amounts earned by a business which are outside of its main or central operations. Nonoperating revenues are also described as incidental or...
How do you record the sales tax on the purchase of an asset? Accountants define the cost of an asset as all of the costs that are necessary to obtain the asset and to get it ready for use. If your state does not allow an...
What is a/c? Definition of a/c In accounting, a/c is the abbreviation for account. Example of a/c An accountant might leave the following note for a subordinate: “Please review the balance in the a/c Interest...
Is sales tax an expense or a liability? Definition of Sales Tax In the U.S., a sales tax is a state tax (and possibly an additional city and/or county tax) that is paid by the buyer at the time of purchase. The sales tax...
Are sales discounts reported as an expense? Definition of Sales Discounts Sales discounts are also known as cash discounts or early payment discounts. Sales discounts (along with sales returns and allowances) are...
What is the fixed asset turnover ratio? Definition of Fixed Asset Turnover Ratio The fixed asset turnover ratio shows the relationship between a company’s annual net sales and the net amount of its fixed assets. The...
What is a plant asset? What is a Plant Asset A plant asset is an asset with a useful life of more than one year that is used in producing revenues in a business’s operations. Plant assets are also known as fixed...
What is the meaning of pro rata? Pro rata is a Latin term that means in proportion. Pro rata is related to prorate, a term used in cost accounting. To illustrate the term pro rata, let’s assume that a company’s...
What are the effects of overstating inventory? Definition of Overstating Inventory Overstating inventory means that the reported amount for the cost of a company’s inventory is greater than the actual true cost based...
Is the sales tax paid on merchandise that you will resell an expense? I believe that most states have sales tax exemptions for merchandise purchased for resale. Check with your state’s sales tax department to see if...
What is the accounts receivable collection period? Definition of Accounts Receivable Collection Period The accounts receivable collection period is similar to the days sales outstanding or the days sales in accounts...
What is a cash discount? Definition of Cash Discount A cash discount is a deduction allowed by some sellers of goods or by some providers of services to motivate customers to pay within an earlier specified time. The...
What is the entry when a company lends money to an employee? Definition of Employee Loan When a company lends money to one of its employees, the company is reducing its Cash and increasing another asset such as Other...
What is EBITDA? EBITDA is the acronym for earnings before interest, taxes, depreciation and amortization. Take our Financial Ratios Exam. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How...
What is the segregation of duties? Definition of Segregation of Duties The segregation of duties involves dividing a task so that more than one person is involve in the company’s transactions. By segregating duties, it...
What is the gross profit method of inventory? Definition of Gross Profit Method The gross profit method is a technique for estimating the amount of ending inventory. The gross profit method might be used to estimate each...
Where does revenue received in advance go on a balance sheet? Definition of Revenue Received in Advance Under the accrual basis of accounting, revenues received in advance of being earned are reported as a liability. If...
Is an automobile loan payment an expense? Only the interest portion of an automobile loan payment is an expense. The principal portion of the loan payment is a reduction of the loan balance, which is reported as a Note...
What is self-insurance? Self-insurance means no insurance. For example, if a retailer decides to self-insure its buildings, the retailer will not have an insurance policy to pay for losses that may occur to its...
Is it acceptable for companies to use two methods of depreciation? Definition of Depreciation Methods There are various methods of depreciating assets that are used in a business. It is acceptable and common for...
Are retained earnings an asset? Definition of Retained Earnings Usually, retained earnings consists of a corporation’s earnings since the corporation was formed minus the amount that was distributed to the stockholders...
Is the current portion of long term debt adjusted monthly? A monthly adjustment to the current portion of long term debt is necessary when: 1. the company issues monthly balance sheets, and 2. the amount to be paid on a...
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...
How are period costs reported in the financial statements? Under the accrual method of accounting, period costs such as selling, general and administrative expenses are reported on the income statement in the accounting...
What is the return on assets ratio? Definition of Return on Assets Ratio The return on assets ratio, or return on total assets ratio, relates a company’s net income during a specific year, to the company’s average...
What are gross sales? Definition of Gross Sales Gross sales are the amounts a company earned from selling its products. The amounts originate from the company’s sales invoices but the total will be adjusted to the...
Is a prepaid expense recorded initially as an expense? Definition of Prepaid Expense A prepaid expense refers to an amount that a company has paid and a portion or all of it will be an expense in a later accounting...
Is advertising an asset or an expense? Definition of Advertising Expense Advertising is the amount a company incurs to promote its products, brands, and image via television, radio, magazines, Internet, etc. Since the...
Why is depreciation on the income statement different from the depreciation on the balance sheet? Definition of Depreciation Depreciation is the systematic allocation of an asset’s cost to expense over the useful life...
What is a nonprofit organization? A nonprofit organization is an organization without commercial owners and which addresses the needs of society. Nonprofit organizations are also known as not-for-profits, NFP’s or...
What is the entry to remove equipment that is sold before it is fully depreciated? Entries To Record a Sale of Equipment When equipment that is used in a business is disposed of (sold) for cash before it is fully...
Why are wages reported as an expense when the work occurs, but the employees' tax records report them when they are paid? Accrual Method for the Corporation, Cash Method for the Employees The short answer is that the...
If an accrual adjusting entry increases an expense and a liability, how does the balance sheet remain in balance? An expense is a temporary account which reduces owner’s equity or stockholders’ equity. The decrease...
How do you estimate the amount of uncollectible accounts receivable? Definition of Estimating Uncollectible Accounts Receivable When a company sells goods and/or provides services on account (on credit) using the accrual...
If I want a gross margin of 25%, what percent should I mark up my product? Definition of Gross Margin Gross margin as a percentage is the gross profit divided by the selling price. For example, if a product sells for...
What is principles of accounting? Three meanings come to mind when you ask about principles of accounting… Principles of accounting was often the title of the introductory course in accounting. It was also common for...
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