What is the difference between adjusting entries and closing entries? Definition of Adjusting Entries Adjusting entries are made at the end of the accounting period (but prior to preparing the financial statements) in...
What is the difference between adjusting entries and closing entries? Definition of Adjusting Entries Adjusting entries are made at the end of the accounting period (but prior to preparing the financial statements) in...
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 income smoothing? Definition of Income Smoothing Income smoothing involves reducing the fluctuations in a corporation’s earnings. The reductions in fluctuations can result from some legitimate business methods...
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,...
Our Explanation of Adjusting Entries gives you a process and an understanding of how to make the adjusting entries in order to have an accurate balance sheet and income statement. Eight examples including T-accounts for...
What is gross pay? Definition of Gross Pay Gross pay is the amount an employee is paid before the employer withholds FICA (Social Security and Medicare payroll taxes), income taxes (federal, state, local) if applicable,...
How is a short term bank loan recorded? Definition of Short Term Bank Loan When a company borrows money from its bank and agrees to repay the loan amount within a year, the company will record the loan by increasing its...
What is the purpose of control accounts? Definition of Control Account A control account is a general ledger account containing only summary amounts. The details for each control account will be found in a related (but...
What is the self-employed person's FICA tax rate for 2022 and 2023? 2022 FICA Tax Rate for Self-Employed The self-employed person’s FICA tax rate for 2022 (January 1 through December 31, 2022) is 15.3% on the first...
What is net? In accounting, net usually refers to the combination of positive and negative amounts. For example, the amount of net sales is the combination of the amount of gross sales (a positive amount) and some...
What are sales discounts? Definition of Sales Discounts Sales discounts (if offered by sellers) reduce the amounts owed to the sellers of products, when the buyers pay within the stated discount periods. Sales discounts...
What is a transposition error? Definition of Transposition Error A transposition error occurs when an amount is recorded incorrectly as the result of switching the positions of two (or more) digits. The switching of the...
How can I determine the difference in earnings from using LIFO instead of FIFO? The difference in a corporation’s earnings from using LIFO instead of FIFO can be determined by the amounts reported in the balance sheet...
What is Construction Work-in-Progress? Definition of Construction Work-in-Progress Construction Work-in-Progress is a noncurrent asset account in which the costs of constructing long-term, fixed assets are recorded. The...
What is a basis point? A basis point is a hundredth (1/100) of a percentage point. Expressed another way, one percentage point is equal to 100 basis points. This means that if an interest rate drops by 1/2 of a...
What is window dressing? Definition of Window Dressing Window dressing refers to actions taken or not taken prior to issuing financial statements in order to improve the appearance of the financial statements. Example...
What is premium on bonds payable? Definition of Premium on Bonds Payable Premium on bonds payable (or bond premium) occurs when bonds payable are issued for an amount greater than their face or maturity amount. This is...
Why are accruals needed every month? Reasons for Monthly Accruals Accrual adjusting entries are needed monthly only if a company issues monthly financial statements. Two reasons for the monthly accrual adjusting entries...
If a company issues stocks or bonds to pay outstanding debt, should this noncash transaction be included in the cash flow statement? If a company issues stocks or bonds for cash and then pays off the debt, the...
Are undeposited checks reported as cash? Undeposited checks that are not postdated (not dated with a future date) are reported as cash. Accountants define cash as more than just currency and coins. For example,...
Why is an increase in inventory shown as a negative amount in the statement of cash flows? Meaning of a Negative Amount on Statement of Cash Flows A negative amount on the statement of cash flows (SCF) indicates that the...
What is meant by accounts written off? Definition of Accounts Written Off Accounts written off is likely referring to accounts receivable that a company deemed to be uncollectible and were removed from the general ledger...
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 the difference between a bookkeeper and an accountant? Before I provide a distinction, you should be aware that some people use the words interchangeably. Even though I was the accountant, treasurer, and CFO of a...
What is a debenture? A debenture is an unsecured bond. In other words, a debenture is a bond without a lien on specific assets owned by the issuing corporation. Join PRO to Track Progress Mark the Question as Read...
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...
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...
Where do dividends appear on the financial statements? Definition of Dividends Cash dividends are a distribution of a company’s profits. Financial Statements of a Corporation The main financial statements of a...
Which items on a bank reconciliation will require a journal entry? Journal Entries for Bank Reconciliation The items on the bank reconciliation that require a journal entry are the items noted as adjustments to books....
What is an account? Definition of Account In accounting, an account is a record in the general ledger that is used to sort and store transactions. For example, companies will have a Cash account in which to record every...
When do you put parentheses ( ) around a number? Definition of Amounts in Parentheses Parentheses around a number could have a variety of meanings. For example, parentheses could indicate any of the following: A negative...
Where do I record the refund of a registration fee? If the registration fee refers to a fee expense that you had originally paid but the amount is now being refunded to you, I would credit the same expense account that...
What are accrual adjusting entries? Definition of Accrual Adjusting Entries Accrual adjusting entries or simply accruals are one of three types of adjusting entries which are prepared at the end of an accounting period...
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...
What is the difference between an unadjusted trial balance and an adjusted trial balance? Difference between Unadjusted Trial Balance and Adjusted Trial Balance The differences between an unadjusted trial balance and an...
Where is the premium or discount on bonds payable presented on the balance sheet? Definition of Premium or Discount on Bonds Payable The premium or discount on bonds payable is the difference between the amount received...
What accounting entry is made when a company receives an order for its goods or services? Definition of Accounting Entry When an Order is Received At the time when a company receives a customer’s order (without...
What is a customer deposit? Definition of Customer Deposit A customer deposit could be money that a company receives from a customer prior to the company earning it (by providing the customer with goods or services). In...
What are external financial statements? Definition of External Financial Statements External financial statements are those distributed outside of the company’s management. Some of the recipients of the external...
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