usually accept a fixed cash dividend that will be paid by the corporation before the common stockholders are paid a dividend. In exchange for this preferential treatment of dividends, the preferred stockholders...
usually accept a fixed cash dividend that will be paid by the corporation before the common stockholders are paid a dividend. In exchange for this preferential treatment of dividends, the preferred stockholders...
focus on the incremental costs of carrying or holding inventory. The cost of carrying inventory will vary from company to company. For instance, if a company has a large cash balance with no attractive investment...
prepaid insurance, let’s assume that on November 20 a company pays an insurance premium of $2,400 for insurance protection during the six-month period of December 1 through May 31. On November 20, the payment is...
sheet as part of the current asset cash. (A bank’s balance sheet lists the total amount of its customers’ checking account balances as a current liability.) As part of its internal controls, a company should...
the financial statements the gross wages that were earned by the employees (and incurred by the employer) during the accounting period. [Under the cash basis of accounting, the employer’s financial statements will...
receivable turnover ratio for the past year was 10, the days’ sales in accounts receivable was 36 days (360 days divided by the turnover ratio of 10). Caution The accounts receivable turnover ratio used above was...
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...
from the company’s present cash balance. Also assume that the company’s building materials, labor and overhead will amount to $400,000 during the three months of construction. The capitalized interest is based on...
the positive amount in the Cash account Before issuing the balance sheet, any errors (such as first two items) need to be corrected. The accounts with credit balances such as those in the last 3 items above need to be...
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...
will be recorded by the issuing corporation as a debit to Discount on Bonds Payable, a debit to Cash for $9,800,000, and a credit to Bonds Payable for $10,000,000. Over the life of the bonds, the initial debit balance...
of assets minus $1 million of liabilities). When Company A records the transaction, it will: Debit various asset accounts for $4 million Credit various liability accounts for $1 million Credit Cash for $5 million Debit...
%). It also indicates that a company without sufficient cash to pay within the early payment discount period will experience a huge opportunity cost. Join PRO to Track Progress Mark the Question as Read Must-Watch Video...
that will be turning to cash.) For financial statement purposes the allowance method is the better method since 1) the balance sheet will be reporting a more realistic amount that will be collected from the company’s...
of the amount of the accounts receivable that will be turning to cash, since some customers may not pay the full amount owed to the company. The credit balance in the allowance account is an estimate amount in an...
on the balance sheet are the company’s resources such as cash, accounts receivable, inventory, investments, land, buildings, equipment, some intangible assets . Generally assets are reported at their cost or a lower...
in the checking account If there is an error in the company’s cash records, there will be a related error in another account because of the double-entry system of accounting. If a dishonest person is embezzling money...
has a credit balance of $2,000, the readers of the balance sheet will see that customers owe $40,000 for past purchases but the company does not expect to collect $2,000 of the $40,000. Therefore, the net amount of the...
, the merchant will debit Cash for $105 and will credit Sales for $100 and will credit Sales Tax Payable for $5. Sales Tax Payable is a liability account. When the sales taxes are remitted to the state, the merchant will...
to the expense Purchase Discounts Lost. In our example, if the company pays the invoice in 30 days, it is not entitled to the early payment discount and will therefore have to credit Cash for $1,000. The debit amounts...
as an ordinary annuity or an annuity in arrears. Example of Arrears Assume a corporation has 10,000 shares of 6% $100 cumulative preferred stock. Since the corporation has a limited amount of cash available, the board...
. Each year, this stockholder must receive dividends on the preferred stock of $800 (8% X $100 = $8 per share X 100 shares) before the common stockholders are allowed to receive any cash dividends for the year. Unless...
will be reported by the bank as a current liability, and will be reported as a short-term investment by the depositor (provided the amount is not restricted by the depositor). Example of a Certificate of Deposit James...
from December 1 through May 31. The company recorded the December 1 payment with a debit of $6,000 to Prepaid Insurance and a credit of $6,000 to Cash. On December 31, the account Prepaid Expenses must be adjusted to...
. Example of Par Value Let’s assume that a share of common stock has a par value of $0.01 and is sold to an investor for $25. The corporation issuing the stock will debit Cash for $25.00 and will credit Common Stock...
. The contract to pay these cash amounts to the investors makes bonds a less risky investment than common stock. Less risk for the investor means the investor will earn a smaller return—and the corporation will have a...
What is the cost of sales? Definition of Cost of Sales Cost of sales is often a line shown on a manufacturer’s or retailer’s income statement instead of cost of goods sold. The cost of sales for a manufacturer is the...
= 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 Form 10-K? Definition of Form 10-K Form 10-K is a required annual report filed with the U.S. Securities and Exchange Commission (SEC) by U.S. corporations whose common stock is publicly traded. It is common for a...
Are fixed assets the same as plant assets? Definition of Fixed Assets and Plant Assets My experience indicates that people use the term fixed assets to mean the same as plant assets. As a result, I define both fixed...
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 does it mean to check the extensions and to foot an invoice? To check the extensions on a purchase invoice means to verify that the number of units of each item multiplied by its unit cost agrees with the total...
What is obsolete inventory? Definition of Obsolete Inventory Obsolete inventory refers to products that a company had purchased or produced which cannot be sold. The obsolete items may be the result of one or more of the...
What is periodicity in accounting? Definition of Periodicity Periodicity is an accounting assumption made by accountants so that a company’s complex and ongoing activities can be divided up into annual, quarterly, and...
What is the significance of FOB Shipping Point and FOB Destination? Significance of FOB Shipping Point and FOB Destination The terms FOB shipping point and FOB destination have significance in accounting because they...
What is the difference between a trial balance and a balance sheet? Definition of Trial Balance A trial balance is an internal report that remains in the accounting department. The trial balance lists all of the accounts...
What is the accounting entry when an order is received? There is no accounting entry recorded in a company’s general ledger accounts when an order is received. The reason is that a sale or sales revenues has not yet...
What is a T-account? Definition of T-Account A T-account is a visual aid used to depict a general ledger account. The account title is written above the horizontal part of the “T”. On the left-side of the vertical...
What is Additional Medicare Tax? Definition of Additional Medicare Tax The Additional Medicare Tax is one of the U.S. government’s payroll withholding taxes that is paid solely by employees and the self-employed. In...
What is a bookkeeper? Definition of Bookkeeper A bookkeeper is usually employed by a small to mid-size company (or other organization) to process and record the large volume of transactions involving sales, purchases,...
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