I don't understand the conservatism principle. Why do losses get recorded but not gains? Conservatism has to do with uncertainty. When uncertainty exists between two alternatives that appear to be reasonable, the...
I don't understand the conservatism principle. Why do losses get recorded but not gains? Conservatism has to do with uncertainty. When uncertainty exists between two alternatives that appear to be reasonable, the...
What is a condensed income statement? A condensed income statement is one that summarizes much of the income statement detail into a few captions and amounts. For example, a retailer’s condensed income statement will...
What is going concern? Definition of Going Concern The going concern assumption is a basic underlying assumption of accounting. For a company to be a going concern, it must be able to continue operating long enough to...
What is the difference between book depreciation and tax depreciation? Definition of Book Depreciation Book depreciation is the amount recorded in the company’s general ledger accounts and reported on the company’s...
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 cost to store inventory? Definition of Cost to Store Inventory The cost to store, hold or carry inventory is the total of the following: Cost of the space used for storing inventory, such as rent, heat,...
Where is the discount on the purchase of office furniture recorded? Definition of Discount on Purchase of Office Furniture The discount on the purchase of office furniture that will be used by a company (as opposed to...
Is the current portion of long term debt adjusted monthly? A monthly adjustment to the current portion of long term debt is necessary when: 1. the company issues monthly balance sheets, and 2. the amount to be paid on a...
What is not sufficient funds? Definition of Not Sufficient Funds Not sufficient funds or NSF or insufficient funds is a term to describe a check that has been returned by the bank because the balance in the checking...
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 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...
What is the conservatism principle? Definition of Conservatism Principle In accounting, the conservatism principle (or accounting constraint) directs an accountant, who is faced with doubt between two possible...
What is a plant asset? What is a Plant Asset A plant asset is an asset with a useful life of more than one year that is used in producing revenues in a business’s operations. Plant assets are also known as fixed...
Why aren't retained earnings distributed as dividends to the stockholders? Definition of Retained Earnings Retained earnings is one component of the stockholders’ equity section of a corporation’s balance sheet. Some...
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...
What are the stockholders' equity accounts? The stockholders’ equity accounts are balance sheet accounts and a part of the accounting equation Assets = Liabilities + Stockholders’ Equity. In this light you can view...
Does sales commission get reported in the income statement? Definition of Sales Commissions Sales commissions are amounts earned by selling another company’s goods or services and paid by the company whose goods or...
What is a suspense account? Definition of Suspense Account A suspense account is a general ledger account in which amounts are temporarily recorded. The suspense account is used because the appropriate general ledger...
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...
What is a credit? Definition of a Credit In bookkeeping and accounting, a credit likely refers to the amount entered on the right side of a general ledger account or to the right side of a T-account. A credit could also...
What is the double-entry system? Definition of Double-Entry System The double-entry system of accounting or bookkeeping means that for every business transaction, amounts must be recorded in a minimum of two accounts....
What is a controller's cushion? A controller’s cushion or controller’s reserve involves temporarily recording too much expense for an item that the controller calculates. For example, the controller might budget...
What is the accounting cycle? Definition of Accounting Cycle The accounting cycle is often described as a process that includes the following steps: Identifying, collecting and analyzing documents and transactions...
What is the statement of cash flows? Definition of Statement of Cash Flows The statement of cash flows (SCF) is one of the required external financial statements. The SCF is commonly referred to as the cash flow...
What is the difference between loan interest and bank loan repayment? Definition of Loan Interest Loan interest is the expense a borrower incurs for using a lender’s money. Loan interest is also the income earned by a...
Will I be able to pass the CPA Exam after studying the accounting material on AccountingCoach.com? AccountingCoach.com contains introductory accounting material. While you need to master the principles and concepts...
What is meant by owner's draws? Definition of Owner’s Draws Owner’s draws are withdrawals of a sole proprietorship’s cash or other assets made by the owner for the owner’s personal use. The account in which the...
What is a memorandum entry? Definition of Memorandum Entry A memorandum entry is a short message entered into the general journal and also entered into a general ledger account. It is not a complete journal entry because...
At what point are revenues considered to be earned? Revenues, which are derived from an entity’s main activities such as the sale of merchandise or the performance of service, are considered to be earned when the...
What is a compilation? Definition of Compilation A compilation refers to a company’s financial statements that have been prepared or compiled by an outside accountant. A compilation is usually part of an accounting...
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...
What is materiality? Definition of Materiality In accounting, materiality refers to the relative size of an amount. Relatively large amounts are material, while relatively small amounts are not material (or immaterial)....
What is Additional Medicare Tax? Definition of Additional Medicare Tax The Additional Medicare Tax is one of the U.S. government’s payroll withholding taxes that is paid solely by employees and the self-employed. In...
Is there a difference between the accounts Purchases and Inventory? Purchases Account Under the Periodic Inventory System The general ledger account Purchases is used to record the purchases of inventory items under the...
What are the notes to the financial statements? Definition of Notes to Financial Statements The notes to the financial statements are a required, integral part of a company’s external financial statements. They are...
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...
How do I record exterior cement work? Is it an asset or an expense? If the cement work was done to repair or maintain existing cement work, then the expenditure should be recorded as an expense. Even if the cost is very...
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 current ratio? Definition of Current Ratio The current ratio is a financial ratio that shows the proportion of a company’s current assets to its current liabilities. The current ratio is often classified as...
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