What is cost incurred? Definition of Cost Incurred A cost incurred is a cost that a company (or other organization) becomes liable for. Example of Cost Incurred Assume that a retailer begins operations on December 1 and...
What is cost incurred? Definition of Cost Incurred A cost incurred is a cost that a company (or other organization) becomes liable for. Example of Cost Incurred Assume that a retailer begins operations on December 1 and...
Are estimates allowed in bookkeeping? While bookkeeping involves mostly precise amounts from sales and purchase invoices, cash receipts and checks written, etc. there are situations when estimates need to be entered....
What is an invoice? Definition of Invoice An invoice is a dated bill prepared by the seller of goods sold (or services provided) which includes brief descriptions of the items, quantities of items and their unit prices,...
A stockholders’ equity account with a credit balance. The credit balance results when a corporation sells some of its treasury stock for an amount that exceeds the corporation’s cost of the treasury stock...
What is comprehensive income? Definition of Comprehensive Income Comprehensive income for a corporation is the combination of the following amounts which occurred during a specified period of time such as a year,...
A measurement of net income arrived at by comparing the amount of total equity at the end of a period to the amount of total equity at the beginning of the period. For example, if Al Capone had $5 million of equity at...
What is accrued income? Definition of Accrued Income Accrued income is an amount that: A company has earned The company has a right to receive The collection is probable Has not yet been recorded in the general ledger...
A company’s net income from the start of the current accounting year until a specified date. For example, the year-to-date net income at May 31, 2024 for a calendar year company is the net income from January 1,...
What are income statement accounts? Definition of Income Statement Accounts Income statement accounts are one of two types of general ledger accounts. (The other accounts in the general ledger are the balance sheet...
A corporation’s net income after income taxes minus the dividends pertinent to the preferred shares of stock (if any).
To enter an amount on the right side of an account. Normal entries to revenue accounts are credits. Liabilities normally have credit balances. To learn more about debits and credits, see our Debits and Credits Outline.
What is an intangible asset? Definition of Intangible Asset An intangible asset is an asset that you cannot touch, since it lacks physical substance. Accountants record intangible assets at their cost when they are...
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...
What is the income summary account? Definition of Income Summary Account The Income Summary account is a temporary account used with closing entries in a manual accounting system. (Computerized accounting systems may...
What is the times interest earned ratio? Definition of Times Interest Earned Ratio The times interest earned ratio is an indicator of a corporation’s ability to meet the interest payments on its debt. The times...
This is a national organization of certified public accountants. For more information go to www.aicpa.org.
What is the interest coverage ratio? Definition of Interest Coverage Ratio The interest coverage ratio is a financial ratio used as an indicator of a company’s ability to pay the interest on its debt. (The required...
Why use normal costing instead of actual costing? Definition of Normal Costing For a manufacturer, normal costing means assigning the following costs to the actual goods produced each month: Actual direct materials...
Is contribution margin the same as operating income? Definition of Contribution Margin Contribution margin is defined as revenues minus the variable costs and variable expenses. Example of Contribution Margin Assume that...
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...
What is accumulated other comprehensive income? Definition of Accumulated Other Comprehensive Income Accumulated other comprehensive income is a separate line within the stockholders’ equity section of the balance...
What is the effective interest rate? Definition of Effective Interest Rate The effective interest rate is the true rate of interest earned. It can also mean the market interest rate, the yield to maturity, the discount...
What is a comparative income statement? A comparative income statement will consist of two or three columns of amounts appearing to the right of the account titles or descriptions. For example, the income statement for...
Are direct costs fixed and indirect costs variable? Direct Costs vs. Indirect Costs The terms direct costs and indirect costs could be referring to a product, a department, a machine, geographic market, etc. (which are...
Is depreciation a direct or indirect cost? Definition of Depreciation Depreciation is defined as the systematic expensing of the cost of an asset such as equipment, building, vehicle, etc. over the useful life of the...
What is an implicit interest rate? Definition of Implicit Interest Rate An implicit interest rate is one that is not stated explicitly. Example of Implicit Interest Rate Assume that I lend you $4,623 and you agree to...
What is a deposit in transit? Definition of Deposit in Transit A company’s deposit in transit is the currency and customers’ checks that have been received and are rightfully reported as cash on the date received,...
Why would Prepaid Insurance have a credit balance? Definition of Prepaid Insurance Generally, Prepaid Insurance is a current asset account that has a debit balance. The debit balance indicates the amount that remains...
U.S. social security system.
Are insurance premiums a fixed cost? The cost of the insurance premiums for a company’s property insurance is likely to be a fixed cost. The cost of worker compensation insurance is likely to be a variable cost....
What causes a reduction in Accumulated Depreciation? Definition of Accumulated Depreciation Accumulated Depreciation is a general ledger contra asset account associated with a company’s property, plant and equipment....
What increases a break-even point? Definition of Break-even Point The break-even point is the volume of sales in units or in dollars that is equal to a company’s total expenses (including the cost of goods sold). In...
In bookkeeping, why are revenues credits? In bookkeeping, revenues are credits because revenues cause owner’s equity or stockholders’ equity to increase. Recall that the accounting equation, Assets = Liabilities +...
Is income tax an expense or liability? Definition of Income Tax In the accounting for a regular U.S. corporation, income tax usually refers to the federal, state, local, and foreign countries’ taxes that are levied...
How is a voucher used in accounts payable? Definition of Voucher A voucher is often a prenumbered form used in the accounts payable department to standardize and enhance a company’s internal control over payments to...
Featured Review
"AccountingCoach PRO is an exceptional service. It not only provides all the essential material to succeed in learning accounting and finance, but also explains all the relevant details that make the difference when you need to understand the complexity of accounting systems. As a communication trainer and business coach, I had to pick up the language of accounting in no time in order to communicate more effectively with my clients. This website's benefits have exceeded my expectations. Many thanks for your great support." - Theirry F.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: