What is the proper accounting for supplies?
If the dollar amount of supplies is significant, the amount of unused supplies as of the balance sheet
date should be reported in the asset account Supplies or Supplies on Hand. The supplies that have been
What is the purpose of the Allowance for Doubtful Accounts?
The Allowance for Doubtful Accounts is used when Bad Debt Expense is recorded prior to knowing the
specific accounts receivable that will be uncollectible. For example, a company might have 500
What is a provision for discounts allowable?
The provision for discounts allowable is likely to be a balance sheet account that serves to reduce the
asset account Accounts Receivable. The provision account's counter part (remember double entry
Why are the amounts on the financial statements rounded to thousands or millions?
Amounts on financial statements are often rounded in order to emphasize the important digits. As a
result of rounding, the financial statements are more attractive in appear
What is the gross profit method?
The gross profit method is a technique used to estimate the amount of ending inventory. The technique
could be used for monthly financial statements when a physical inventory is not feasible. (However, it is
Why does our company's balance sheet report its land at cost when it is so much more valuable?
Accountants are guided by the cost principle. This requires accountants to report assets at their cost
when acquirednot their replacement cost or market value.
What is the 13 point average for inventory?
The 13 point average for inventory for the calendar year 2012 would be the sum of the inventory amount
at December 31, 2011 plus the 12 end-of-the-month amounts in 2012 divided by 13.
The reason for using these
What are mixed costs?
The term mixed costs often refers to the behavior of costs and expenses. Mixed costs consist of a fixed
component and a variable component. The annual expense of operating an automobile is a mixed cost.
Some of the expenses are fixed
What are phantom profits?
The terms phantom profits or illusory profits are often used in the context of inventory (but can also
pertain to depreciation) during periods of rising costs. The amount of phantom or illusory profit is the
difference between th
What does crossfoot mean?
Accountants use the word foot to mean adding a column of numbers. To crossfoot means to verify that
the sum of the totals in various columns also agrees to a grand total.
For example, assume you have a table of numbers that shows
What is the difference between Social Security and Medicare taxes?
The Social Security tax is 6.2% and is based on each employee's wages (including salaries, bonuses,
commissions, etc.) up to the first $94,200 of annual wages in the year 2006. (The base a
What are adjusting entries?
Adjusting entries are usually made on the last day of an accounting period (year, quarter, month) so that
the financial statements reflect the revenues that have been earned and the expenses that were
incurred during the accoun
What is the carrying amount?
The term carrying amount is often used in place of book value. The carrying amount refers to the
amounts that the company has on its books for an asset or a liability. For example, the carrying amount
of a company's truck is t
What is a deposit in transit?
A deposit in transit is cash (currency, coins, checks, electronic transfers) that a company has received and
is rightfully reported as Cash on its balance sheet, but does not appear on the bank statement until a
Why not use Sales in the Inventory Turnover Ratio?
The short answer is: Because Inventory is at cost. Inventory is not on the company's books at selling
The Inventory Turnover Ratio is Cost of Goods Sold divided by average Inventory. Let's illustr
What is a contra revenue account?
A contra revenue account might be described as a revenue account that is expected to have a debit
balance instead of the usual credit balance. (Its balance is contrary toor opposite ofthe usual credit
balance for a revenu
What does amortization mean?
In accounting we use the word amortization to mean the systematic allocation of a balance sheet item to
expense (or revenue) on the income statement. Conceptually, amortization is similar to depreciation and
depletion. An exam
Is there a difference between work-in-process and work-in-progress?
It depends on the user of the terms. I use the term "work-in-process" to mean a manufacturer's
inventory that is not yet completed. I think of work-in-process as the goods that are on the
What is a T-account?
A T-account is a visual aid used to depict an account in a general ledger. Above the top portion of the T
would be the account title. On the left-side of the base of the T would be any debit amounts; on the
right-side would be the cre
What is the accounting journal entry for depreciation?
The journal entry for depreciation contains a debit to the income statement account Depreciation
Expense and a credit to the balance sheet account Accumulated Depreciation.
The purpose of the journal
Is sales tax an expense or a liability?
If a company sells $100,000 of product that is subject to a state sales tax of 7%, the company will collect
$107,000. It will record sales of merchandise of $100,000 and will record a liability for sales tax of
What is a service department?
A service department is usually associated with a manufacturer. A service department is part of the
factory operations, but does not produce the factory's output. Rather, it provides services to the
factory's production depar
Where do you account for payroll taxes on the income statement?
The only payroll taxes that will appear on the income statement are the ones that the employers must
pay: the employers' matching portion of the Social Security and Medicare taxes (FICA) and
What is the Allowance for Doubtful Accounts?
The allowance for doubtful accounts is a balance sheet account that reduces the reported amount of
accounts receivable. (A change to the balance in the allowance for doubtful accounts also affects bad
What is a bank reconciliation?
A bank reconciliation is a process performed by a company to ensure that the company's records (check
register, general ledger account, balance sheet, etc.) are correct and that the bank's records are also
What are some examples of financing activities?
Financing activities involve long-term liabilities, stockholders' equity (or owner's equity) , and changes to
short-term borrowings. Financing activities are reported in its own section of the financial stat
What is the difference between a general ledger and a general journal?
Journals are referred to as books of original entry. Accounting entries are recorded in a journal in order
by date. A company might use special journals (sales, purchases, cash disburs
What journal entries are prepared in a bank reconciliation?
Journal entries are required for the items listed as adjustments to the balance per books on the bank
reconciliation. These adjustments involve items that appear on the bank statement that were n
What causes a recovery of the loss associated with inventory at the lower of cost or market?
When inventory is valued at the lower of cost or market, and the market is less than cost, a loss is
recorded. (Market is the replacement cost constrained by the
What are some examples of financing activities on the cash flow statement?
Financing activities reported on the statement of cash flows (SCF) involve changes to the long-term
liabilities, stockholders' equity (sections of the balance sheet), and short-ter
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