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Questions & Answers (Q&A)

Q&A Archive (1,083)

What is liquidity?

Liquidity refers to a company's ability to convert its assets to cash in order to pay its liabilities when they are due. Generally, the assets that are expected to turn to cash within one year are reported on the balance sheet in… Read More.

What is annualizing?

Annualizing means taking a partial year amount and converting it to a full year amount. We will use several examples to illustrate how this works. A person having a monthly salary of $4,000 is earning an annualized salary of $48,000 ($4,000 per… Read More.

What are 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 so that a company's financial statements will comply with the accrual method of accounting. Expressed another way, accrual… Read More.

What is the break-even formula?

The formula for determining the break-even point in units of product sold is: total fixed expenses divided by the contribution margin per unit. For example, if a company's total fixed expenses for a year are $300,000 and it has a contribution margin… Read More.

What is an asset account?

In accounting and bookkeeping an asset account is a general ledger record for sorting and storing the debit and credit amounts from a company's transactions. The balance in an asset account will be part of the amounts reported on a company's balance… Read More.

What is the statement of stockholders' equity?

The statement of stockholders' equity (also known as the statement of shareholders' equity, statement of equity, statement of changes in stockholders' equity, statement of changes in shareholders' equity, and statement of changes in equity) is one of the five required financial statements… Read More.

What are the various types of adjusting entries?

Adjusting entries are often categorized into three types: Accruals Deferrals Other Accruals or accrual adjusting entries are prepared at the end of an accounting period to report amounts that have occurred in the current accounting period but were not yet entered into… Read More.

Is depreciation an operating expense?

Depreciation is an operating expense if the asset being depreciated is used in an organization's main operating activities. (Depreciation is a non-operating expense if the asset being depreciated is used in a peripheral or incidental activity of an organization.) Examples of depreciation… Read More.

What is a 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 positions causes a difference (between the recorded amount and the correct amount) that will be evenly… Read More.

Why are wages reported as an expense when the work occurs, but the employees' tax records report them when they are paid?

The short answer is that the corporation's financial statements are prepared using the accrual method of accounting (generally accepted accounting principles), while the payroll records for the government uses the cash method of accounting (IRS rules). To illustrate, let's assume that a… Read More.