the goods on the truck belong to the buyer, the buyer should pay the shipping costs. These shipping costs will be an additional cost of the goods purchased. Example of FOB Destination Now assume that a seller quoted...
the goods on the truck belong to the buyer, the buyer should pay the shipping costs. These shipping costs will be an additional cost of the goods purchased. Example of FOB Destination Now assume that a seller quoted...
What are the accounting principles, assumptions, and concepts? Definition of Accounting Principles, Assumptions, and Concepts The basic underlying accounting principles, assumptions, and concepts include the following:...
is calculated by dividing a company’s cost of goods sold during a year by the average inventory during the same year. Accounts receivable turnover ratio. This ratio is computed by dividing the credit sales during a...
. For example, a small retailer can compare her cost of goods sold (perhaps 78%) to a much larger retailer’s cost of goods sold (perhaps 80%). Similarly, one company’s inventory might be 33% (of total assets) while a...
What is the difference between revenues and receipts? Definition of Revenues A company’s revenues are amounts it has earned as the result of business activities such as selling merchandise or performing services. Under...
How does the accounting equation stay in balance when the monthly rent is paid? How a Rent Payment Affects the Accounting Equation A company’s payment of each month’s rent reduces the company’s asset Cash. This is...
and other adjusting entries Providing financial reports Today bookkeeping is done with the use of computer software. For example, QuickBooks (from Intuit) is a low-cost bookkeeping and accounting software package that...
What are interim financial statements? Definition of Interim Financial Statements Interim financial statements report amounts for time intervals that are shorter than a company’s annual financial statements. The...
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....
Is there a difference between an expense and an expenditure? Definition of Expense An expense is reported on the income statement in the period in which the cost matches the related sales, has expired, was used up, or...
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...
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...
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...
Accumulated Depreciation (instead of crediting the asset account which has the asset’s original cost), it allows for the balance sheet to report or disclose the following: The original cost of the asset being...
How can working capital be improved? Definition of Working Capital Working capital is defined as the amount by which a company’s current assets exceed its current liabilities. How Working Capital Can be Improved Some...
Why is Interest Expense Included in the Operating Activities Section of the Cash Flow Statement? Definition of Interest Expense Interest expense is the cost of borrowing money. Under the accrual method of accounting,...
Why do we charge depreciation? Definition of Depreciation Accountants charge (to expense) Have a significant cost Will be useful for more than a year Will not be useful indefinitely Since the asset land is assumed to be...
, Statement of Cash Flows. You can read Statement No. 95 at no cost at www.FASB.org/st. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping...
for the company’s: Financial statements General ledger Cost accounting Payroll Accounts payable Accounts receivable Budgeting Special analyses as well as other duties At larger companies the controller may be assisted...
What is the working capital turnover ratio? Definition of Working Capital Turnover Ratio The working capital turnover ratio is also referred to as net sales to working capital. It indicates a company’s effectiveness in...
that was in inventory at a cost of $30,000, the company’s current assets will increase by $20,000. If no other expenses are incurred, working capital will increase by $20,000. If a company borrows $50,000 and agrees...
What entry is made when selling a fixed asset? Defining the Entries When Selling a Fixed Asset When a fixed asset or plant asset is sold, there are several things that must take place: The fixed asset’s depreciation...
How can I learn bookkeeping? You can learn bookkeeping at no cost on our website AccountingCoach.com. We recently expanded our Explanation of Bookkeeping, and we have many other topics that are relevant including debits...
What is IFRS? IFRS is the acronym for International Financial Reporting Standards. IFRS is used throughout the world except in the United States where U.S. GAAP (generally accepted accounting principles) is followed....
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...
expense. The term gross profit means sales minus the cost of goods sold. Knowing that people might use terms differently, you may need to ask the person a question to clarify their intended meaning. Join PRO to Track...
account with the title Inventory Change or with the title (Increase) Decrease in Inventory. This account is presented as an adjustment to purchases in determining the company’s cost of goods sold. Example of Inventory...
What is the meaning of debit? Definition of Debit The term debit is similar to the term used in Italy more than 500 years ago when the double entry accounting system was documented. What you need to know today is that...
, the property, plant and equipment are reported at cost minus the accumulated depreciation (except land). If these assets have increased in value, the fair value is not reported because of the cost principle. Also,...
Why isn't the direct write off method of uncollectible accounts receivable the preferred method? Definition of Direct Write Off Method Under the direct write off method of accounting for credit losses pertaining to...
What are the ways to value inventory? Definition of Valuing Inventory Generally, the financial statements of a U.S. company must report its inventory at its historical cost (not at its selling prices). Inventories are to...
What is the acid test ratio? Definition of Acid Test Ratio The acid test ratio, which is also known as the quick ratio, compares the total of a company’s cash, temporary marketable securities, and accounts receivable...
Why does commitment and contingencies appear on the balance sheet without an amount? Definition of Commitments and Contingencies Commitments and contingencies is a balance sheet line with no amount reported. The line...
How do you calculate accrued vacation pay? Definition of Accrued Vacation Pay Accrued vacation pay is the amount of vacation pay that a company’s employees have earned, but the company has not yet paid. Example of...
What is retained earnings? Definition of Retained Earnings Retained earnings is the cumulative amount of earnings since the corporation was formed minus the cumulative amount of dividends that were declared. Retained...
What is a capital expenditure versus a revenue expenditure? Definition of Capital Expenditure A capital expenditure is an amount spent to acquire or significantly improve the capacity or capabilities of a long-term asset...
With regard to depreciation, what does the term mid-month convention mean? Definition of Mid-Month Convention In depreciation, the mid-month convention means that an asset placed into service anytime during a given...
What is the FISH inventory method? FISH is the acronym for first-in, still-here. FISH is an attempt to bring humor to the fact that some items have been sitting in inventory for years. Unlike FIFO and LIFO, which are...
main operating activities involve the buying and selling of merchandise or goods. Therefore, the retailer’s income statement will report the following operating expenses: Cost of goods sold. These costs are reported...
will be: Assets = Liabilities + Net Assets. The statement of financial position must reflect the basic accounting principles and guidelines such as the cost, matching, and full disclosure principle to name a few....
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