What does 2/10 mean in accounting? Definition of 2/10 2/10 is part of an early payment discount that allows a customer or client to pay after the sale or service has been provided. This sales discount allows the...
What does 2/10 mean in accounting? Definition of 2/10 2/10 is part of an early payment discount that allows a customer or client to pay after the sale or service has been provided. This sales discount allows the...
What is a checking account? Definition of Checking Account A checking account is a bank account in which a company deposits money and can subsequently withdraw the money by writing a check, using a debit card, arranging...
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,...
What is the direct write-off method? Definition of Direct Write-off Method The direct write-off method is one of the two methods normally associated with reporting accounts receivable and bad debts expense. (The other...
What are the effects of overstating inventory? Definition of Overstating Inventory Overstating inventory means that the reported amount for the cost of a company’s inventory is greater than the actual true cost based...
What is the difference between Present Value (PV) and Net Present Value (NPV)? Definition of Present Value (PV) Present value or PV is the result of discounting one or more future amounts to the present. The greater the...
What are accrued expenses and when are they recorded? Accrued Expenses Accrued expenses are expenses that have occurred but are not yet recorded in the company’s general ledger. This means these expenses will not...
Why is manufacturing overhead allocated to products? Definition of Manufacturing Overhead Allocated to Products Manufacturing overhead refers to the indirect production costs of producing goods, products, component...
How do you calculate the payback period? Definition of Payback Period The payback period is the expected number of years it will take for a company to recoup the cash it invested in a project. Examples of Payback Periods...
Under accrual accounting, how are worker comp premiums handled? Worker comp insurance premiums should be charged to the areas where the related wages and salaries are charged. Let’s assume that the net cost of worker...
What is the net book value of a noncurrent asset? The net book value of a noncurrent asset is the net amount reported on the balance sheet for a long-term asset. To illustrate net book value, let’s assume that several...
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 are payroll taxes? Definition of Payroll Taxes The payroll taxes are the federal, state, and local taxes that pertain to the wages, salaries, commissions, bonuses, etc. of a company’s employees. Some of the...
Could a company's statement of cash flows show a positive net cash flow from operating activities even though it reported a net loss on its income statement? Yes, a company with a net loss on its income statement could...
What is manufacturing overhead and what does it include? Definition of Manufacturing Overhead Manufacturing overhead (also known as factory overhead, factory burden, production overhead) involves a company’s...
Reconciling the Bank Statement When preparing a bank reconciliation, you may find the following tip to be helpful: “Put it where it ain’t.” My now deceased neighbor (Herb) insisted that I share this tip, which he...
What is meant by overabsorbed? Overabsorbed is usually used in the context of a manufacturer’s production overhead costs. Since manufacturing overhead costs are not directly traceable to products, they need to be...
What is the monetary unit assumption? Definition of Monetary Unit Assumption The monetary unit assumption as it applies to a U.S. corporation is that the U.S.dollar (USD) is stable in the long run. That is, the USD does...
What are assets? Definition of Assets In accounting and bookkeeping, a company’s assets can be defined as: Resources or things of value that are owned by a company as the result of company transactions Prepaid expenses...
What is the chart of accounts? Definition of Chart of Accounts The chart of accounts is a listing of the names and account numbers for the general ledger accounts available for recording amounts. However, the chart of...
What is salvage value? Definition of Salvage Value In accounting, salvage value is the amount that is expected to be received at the end of a plant asset‘s useful life. Salvage value is sometimes referred to as...
What is Notes Payable? Definition of Notes Payable In accounting, Notes Payable is a general ledger liability account in which a company records the face amounts of the promissory notes that it has issued. The balance in...
What is the difference between break-even point and payback period? Definition of Break-Even Point The break-even point is the amount of sales required to cover a company’s costs and expenses that are reported on its...
What is common stock outstanding? Definition of Common Stock Outstanding Common stock outstanding is defined as the shares of common stock that have been issued minus any shares of common stock known as treasury stock....
Is depreciation a temporary account? Definition of Depreciation Accounts There are two types of general ledger accounts in which depreciation is recorded: Depreciation Expense which is a temporary account since it is an...
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...
How do you balance a checkbook? Definition of Balance a Checkbook To balance a company checkbook means comparing the amounts on the bank statement (or other bank account detail) to the amount in the company’s...
What is the debt to total assets ratio? Definition of Debt to Total Assets Ratio The debt to total assets ratio is an indicator of a company’s financial leverage. It tells you the percentage of a company’s total...
What is the difference between cost and price? Definition of Cost and Price In accounting, the term cost can mean the cash or cash equivalent amount a company paid to acquire an asset or the amount of an expense it...
What is the difference between cash flow and free cash flow? Definition of Cash Flow Cash flow refers to the amounts of cash that a company, investment or project generates. The cash that a company generates is different...
What is the purpose of the Allowance for Doubtful Accounts? Definition of Allowance for Doubtful Accounts The Allowance for Doubtful Accounts or Allowance for Uncollectible Accounts is a general ledger contra account...
What is the days' sales in accounts receivable ratio? Definition of Days’ Sales in Accounts Receivable The days’ sales in accounts receivable ratio (also known as the average collection period) tells you the number...
How should a mortgage loan payable be reported on a classified balance sheet? Definition of a Mortgage Loan Payable The account Mortgage Loan Payable contains the principal amount owed on a mortgage loan. (Any interest...
What is depreciation expense? Definition of Depreciation Expense Depreciation expense is the appropriate portion of a company’s fixed asset’s cost that is being used up during the accounting period shown in the...
What is insurance expense? Definition of Insurance Expense Under the accrual basis of accounting, insurance expense is the cost of insurance that has been incurred, has expired, or has been used up during the current...
What is the difference between accounts payable and accounts receivable? Definition of Accounts Payable Accounts payable is a current liability account in which a company records the amounts it owes to suppliers or...
Why is prepaid insurance a short term asset? Definition of Prepaid Insurance as a Short-term Asset Prepaid insurance is usually a short term or current asset because insurance premiums are rarely billed for periods...
What is the accrual method? Definition of Accrual Method The accrual method of accounting reports revenues on the income statement when they are earned even if the customer will pay 30 days later. The accrual method of...
What are balance sheet accounts? Definition of Balance Sheet Accounts Balance sheet accounts are one of two types of general ledger accounts. (The other accounts in the general ledger are the income statement accounts.)...
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...
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