What is the difference between biweekly and semimonthly payroll? Definition of Biweekly Payroll Biweekly payroll refers to paydays that occur 26 times per year (52 weeks in a year divided by 2 weeks = 26 times per year)....
What is the difference between biweekly and semimonthly payroll? Definition of Biweekly Payroll Biweekly payroll refers to paydays that occur 26 times per year (52 weeks in a year divided by 2 weeks = 26 times per year)....
What is a temporary account? Definition of Temporary Account A temporary account is a general ledger account that begins each accounting year with a zero balance. Then at the end of the year its account balance is...
Is Accounts Payable a debit or a credit or both? Definition of an Accounts Payable Credit Since Accounts Payable is a liability account, it should have a credit balance. The credit balance indicates the amount that a...
Why is a negative cash balance reported as a liability? The following will illustrate why a negative cash balance is reported as a liability instead of being reported as a negative asset amount. Company X writes checks...
How are the balance sheet and income statement connected? Connection between Balance Sheet and Income Statement The connection between the balance sheet and the income statement results from: The use of double-entry...
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 cash flow statement? Definition of Cash Flow Statement The cash flow statement (officially known as the statement of cash flows) is one of the required financial statements issued by U.S. businesses (and by...
What is the difference between an accrual and a deferral? Definition of an Accrual An accrual pertains to: expenses that should be reported now, but have not yet been recorded or paid, and revenues that should be...
What is a defined benefit pension plan? A defined benefit pension plan is a retirement plan in which the employer commits to paying a specified monthly payment to each eligible employee when he or she retires at a stated...
Where is a contract with a customer reported on the balance sheet? A contract to perform future services for a customer is not reported on the balance sheet of the company that will be providing the services. For...
How do you treat voided checks on the bank reconciliation? Definition of Voided Check on Bank Reconciliation If a check was voided in the current month but was written in the previous month and appeared on the previous...
What does the term organic growth mean? Organic growth often refers to the growth in a company’s sales that did not occur because of an acquisition of another company. Expressed another way, organic growth is...
What is the full disclosure principle? Definition of Full Disclosure Principle The full disclosure principle requires a company to provide the necessary information so that people who are accustomed to reading financial...
What are the various types of adjusting entries? Types of Adjusting Entries Adjusting entries, which are required in order to have a company’s financial statements comply with the accrual method of accounting, are...
What is burn rate? In business, burn rate is usually the monthly amount of cash spent in the early years of a start-up business. Burn rate is an important metric since the new business must spend time and money...
Should an owner's compensation be recorded as an expense or in the Drawing account? If the enterprise is a sole proprietorship, the owner’s compensation should be debited to the Drawing account. If the enterprise is a...
Why will some asset accounts have a credit balance? Definition of Asset Account Balances In accounting, asset accounts normally have debit balances. That is, the general ledger accounts for assets typically have their...
What are wages payable? Definition of Wages Payable Wages payable refers to the wages that a company’s employees have earned, but have not yet been paid. Under the accrual method of accounting, this amount is likely...
What is a post-dated check? Definition of a Post-dated Check A post-dated check (or post-dated cheque) is a check written with a future date. In other words, the date that appears on the check is after the date when the...
Are commissions considered to be revenues or expenses? Definition of Commissions Revenues or Expenses The company or person earning and receiving commissions (such as a percentage of sales) will have commissions revenue....
What is capital stock? Definition of Capital Stock Capital stock refers to the shares of ownership that have been issued by a corporation. The amount received by the corporation when its shares of capital stock were...
When will a transaction affect only one side of the accounting equation? Only one side of the accounting equation will be affected when one asset is used to acquire another asset or to replace another asset, when one...
If a mortgage payment is due by December 31, but the payment is not made until the following month, should the loan payment be accrued at December 31? The interest portion of the mortgage payment should be accrued as of...
What are accruals? Definition of Accruals The accounting and bookkeeping term accruals refers to adjustments that must be made before a company’s financial statements are issued. Accruals involve the following types of...
What is interest payable? Definition of Interest Payable Interest payable is the interest expense that has been incurred (has already occurred) but has not been paid as of the date of the balance sheet. [Interest payable...
What are the reasons for high inventory days? Definition of Inventory Days I assume that inventory days is referring to the days’ sales in inventory. If so, then inventory days is also related to the inventory turnover...
What is the working capital ratio? Definition of Working Capital Ratio The working capital ratio is defined as the amount of a company’s current assets divided by the amount of its current liabilities. Hence, the...
Is the direct method still used in the statement of cash flows? The direct method is one of two methods allowed for preparing the statement of cash flows (or cash flow statement). The direct method is recommended by the...
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...
How do you record the interest that is unpaid on a note payable? Definition of Interest Unpaid on Note Payable Interest that has occurred, but has not been paid as of a balance sheet date, is referred to as accrued...
Is the drawing account a capital account? Definition of Drawing Account A sole proprietorship will have a drawing account in which the owner’s withdrawals or draws of cash or other assets are recorded. The amounts of...
What are some examples of investing activities? Definition of Investing Activities Investing activities often refers to the cash flows from investing activities, which is one of the three main sections of the statement...
If a company earns a profit, which balance sheet items change? Definition of Profit Profit is the result of revenues minus expenses. How Profits Change the Balance Sheet Since all business transactions affect at least...
What does double entry mean? Definition of Double Entry In accounting, double entry means that every transaction will involve at least two accounts. Double entry also requires that one account be debited and the other...
What is the difference between liability and debt? Definition of Liability In accounting and bookkeeping, the term liability refers to a company’s obligation arising from a past transaction. Examples of Liabilities A...
What is an escrow payment? An escrow payment is an amount deposited with another party and it is to be released only for its specified purpose. The following is one example of an escrow payment. A borrower and lender...
What is the difference between stockholder and stakeholder? Definition of Stockholder A stockholder or shareholder is the owner of shares of a corporation’s common or preferred stock. Definition of Stakeholder A...
What is net working capital? Definition of Net Working Capital Net working capital is the amount (as opposed to being a ratio) remaining after subtracting a company’s total amount of current liabilities from its total...
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....
What is the employer's Social Security tax rate for 2022 and 2023? Employer’s Social Security Payroll Tax for 2022 The employer’s Social Security payroll tax rate for 2022 (January 1 through December 31, 2022) is the...
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