Financial Accounting
Accelerated Depreciation Methods - AnswersDepreciation
methods that recognize more depreciation expense in the early
years and less in the later years. Double-declining balance is an
example of an accelerated depreciation method.
Accounting Equation - AnswersAssets = Liabilities + Owners'
Equity. This equation is fundamental and must always be true in
double entry accounting.
Accounting Period - AnswersThe period of time for which the
financial results are reported; typically either a month or a quarter
or a year.
Accounts Payable - AnswersLiability account used to show the
obligation to pay suppliers who have provided goods or services
on credit terms.
Accounts Payable Turnover - AnswersAccounts Payable
Turnover is a ratio that is used to measure how efficiently a
business is paying its vendors. It is calculated by dividing the
credit purchases for the period by the average accounts payable
balance for the period. In the absence of credit purchases
information, we may use cost of goods sold as a substitute. The
ratio represents how many times the accounts payable turned
over during the period. For most ratios in this course, we use
averages when calculating ratios with balance sheet numbers, but
this is not necessary and some may choose to use beginning or
ending balances.
Accounts Receivable - AnswersAsset account used to show the
claim to receive cash at some future date for goods or services
that have been supplied to a customer on credit terms.
,Accounts Receivable Turnover - AnswersAccounts Receivable
Turnover is a ratio that is used to measure how efficiently a
business is collecting receivables from its customers. It is
calculated by dividing the credit sales for the period by the
average accounts receivable balance for the period. In the
absence of credit sales information, we may use total sales as a
substitute. The ratio represents how many times the accounts
receivable turned over during the period. For most ratios in this
course, we use averages when calculating ratios with balance
sheet numbers, but this is not necessary and some may choose
to use beginning or ending balances.
Accrual - AnswersA revenue amount that is recorded after the
revenue is earned but before the payment is received or an
expense amount that is recorded after it has been incurred but
before the payment has been made. In either case, for an accrual
the exchange of cash is expected at some future point after the
initial revenue or expense is recognized.
Accrual Accounting Method - AnswersThis is the accounting
method taught in this course, followed by most companies, and
required under US GAAP and IFRS. The method follows the
revenue recognition principle, which says that revenue should be
recognized in the period in which it is earned and realizable, not
necessarily when the cash is received and the matching principle
which says that expenses should be recognized in the period in
which the related revenue is recognized rather than when the
related cash is paid.
Accrued Expenses - AnswersLiability account used to record
amounts at the end of an accounting period to recognize
expenses that were incurred in the period but for which no invoice
has yet been received nor payment has yet been made.
Examples are salaries/wages payable, accrued rent expense,
,accrued legal fees. When the accrual is made, the debit is to the
appropriate expense account (payroll expense, rent expense,
legal expense) and the credit is to the accrued expense account,
which is a liability because it represents an obligation which will
need to be paid in the future. Remember accrued expenses are
NOT expenses.
Accrued Liability - AnswersLiability accounts that record expenses
that have been recognized on the income statement but have not
yet been paid. Similar to accrued expenses.
Accrued Payroll - AnswersAn accrued expense recorded at the
end of a financial period for amounts of payroll that have been
worked but not yet paid. It is a common type of accrued expense.
See also Salaries/Wages Payable.
Accrued Revenue - AnswersAn asset account that records
revenue that has been earned and recognized on the income
statement but not yet paid for by the customer. At the time of the
accrual, we debit the receivable account and credit the
appropriate accrued revenue account. When the cash transfer
ultimately occurs, we debit the cash account and credit the
receivable account.
Accumulated Depreciation - AnswersA contra asset account that
includes the cumulative total of all depreciation expenses
recorded to date for specific assets. The credit balance in this
account offsets the debit balance in the asset account which
shows the original value of the asset. When the original asset
value is netted against the accumulated depreciation for the asset
you arrive at the net book value of the asset.
Accumulated other comprehensive income - AnswersAn equity
account that consists of cumulative unrealized gains or losses on
line items classified under other comprehensive income. It
, includes items such as unrealized gains or losses on investments
available for sale, foreign currency gains or losses, and pension
plan gains or losses.
Adjusting (Journal) Entries - AnswersEntries made to adjust the
balances of asset and liability accounts to reflect changes in their
values due to the passage of time or another implicit transaction.
Allowance for Doubtful Accounts - AnswersA contra asset
account that nets against Accounts Receivable. It is generally set
up as an estimate of accounts that will ultimately prove to be
uncollectible. It is then reduced when accounts are written off. It
may be adjusted at period end to reflect any updated estimates.
May also be referred to as Reserve for Bad Debts.
Amortization - AnswersThe method for recognizing the expense
of long-lived intangible assets such as patents, copyrights, and
brands, over the life of the assets. Amortization is usually
calculated similar to straight-line depreciation. Some companies
use an accumulated amortization account, while other companies
may directly reduce the value of the associated asset.
Annuity - AnswersAn investment where the purchaser receives
the right to receive a fixed amount each year for a lifetime or for a
certain number of years.
Asset - AnswersA resource that is owned or controlled by a
business and is expected to provide some future economic
benefit to the business. Examples include cash, inventory, and
equipment. The business expects that its assets will help to
produce cash inflow in the future.
Asset Turnover - AnswersAsset Turnover is calculated by dividing
the total sales for the period by the average total assets. This
calculation is used as a measure of efficiency in the DuPont
Accelerated Depreciation Methods - AnswersDepreciation
methods that recognize more depreciation expense in the early
years and less in the later years. Double-declining balance is an
example of an accelerated depreciation method.
Accounting Equation - AnswersAssets = Liabilities + Owners'
Equity. This equation is fundamental and must always be true in
double entry accounting.
Accounting Period - AnswersThe period of time for which the
financial results are reported; typically either a month or a quarter
or a year.
Accounts Payable - AnswersLiability account used to show the
obligation to pay suppliers who have provided goods or services
on credit terms.
Accounts Payable Turnover - AnswersAccounts Payable
Turnover is a ratio that is used to measure how efficiently a
business is paying its vendors. It is calculated by dividing the
credit purchases for the period by the average accounts payable
balance for the period. In the absence of credit purchases
information, we may use cost of goods sold as a substitute. The
ratio represents how many times the accounts payable turned
over during the period. For most ratios in this course, we use
averages when calculating ratios with balance sheet numbers, but
this is not necessary and some may choose to use beginning or
ending balances.
Accounts Receivable - AnswersAsset account used to show the
claim to receive cash at some future date for goods or services
that have been supplied to a customer on credit terms.
,Accounts Receivable Turnover - AnswersAccounts Receivable
Turnover is a ratio that is used to measure how efficiently a
business is collecting receivables from its customers. It is
calculated by dividing the credit sales for the period by the
average accounts receivable balance for the period. In the
absence of credit sales information, we may use total sales as a
substitute. The ratio represents how many times the accounts
receivable turned over during the period. For most ratios in this
course, we use averages when calculating ratios with balance
sheet numbers, but this is not necessary and some may choose
to use beginning or ending balances.
Accrual - AnswersA revenue amount that is recorded after the
revenue is earned but before the payment is received or an
expense amount that is recorded after it has been incurred but
before the payment has been made. In either case, for an accrual
the exchange of cash is expected at some future point after the
initial revenue or expense is recognized.
Accrual Accounting Method - AnswersThis is the accounting
method taught in this course, followed by most companies, and
required under US GAAP and IFRS. The method follows the
revenue recognition principle, which says that revenue should be
recognized in the period in which it is earned and realizable, not
necessarily when the cash is received and the matching principle
which says that expenses should be recognized in the period in
which the related revenue is recognized rather than when the
related cash is paid.
Accrued Expenses - AnswersLiability account used to record
amounts at the end of an accounting period to recognize
expenses that were incurred in the period but for which no invoice
has yet been received nor payment has yet been made.
Examples are salaries/wages payable, accrued rent expense,
,accrued legal fees. When the accrual is made, the debit is to the
appropriate expense account (payroll expense, rent expense,
legal expense) and the credit is to the accrued expense account,
which is a liability because it represents an obligation which will
need to be paid in the future. Remember accrued expenses are
NOT expenses.
Accrued Liability - AnswersLiability accounts that record expenses
that have been recognized on the income statement but have not
yet been paid. Similar to accrued expenses.
Accrued Payroll - AnswersAn accrued expense recorded at the
end of a financial period for amounts of payroll that have been
worked but not yet paid. It is a common type of accrued expense.
See also Salaries/Wages Payable.
Accrued Revenue - AnswersAn asset account that records
revenue that has been earned and recognized on the income
statement but not yet paid for by the customer. At the time of the
accrual, we debit the receivable account and credit the
appropriate accrued revenue account. When the cash transfer
ultimately occurs, we debit the cash account and credit the
receivable account.
Accumulated Depreciation - AnswersA contra asset account that
includes the cumulative total of all depreciation expenses
recorded to date for specific assets. The credit balance in this
account offsets the debit balance in the asset account which
shows the original value of the asset. When the original asset
value is netted against the accumulated depreciation for the asset
you arrive at the net book value of the asset.
Accumulated other comprehensive income - AnswersAn equity
account that consists of cumulative unrealized gains or losses on
line items classified under other comprehensive income. It
, includes items such as unrealized gains or losses on investments
available for sale, foreign currency gains or losses, and pension
plan gains or losses.
Adjusting (Journal) Entries - AnswersEntries made to adjust the
balances of asset and liability accounts to reflect changes in their
values due to the passage of time or another implicit transaction.
Allowance for Doubtful Accounts - AnswersA contra asset
account that nets against Accounts Receivable. It is generally set
up as an estimate of accounts that will ultimately prove to be
uncollectible. It is then reduced when accounts are written off. It
may be adjusted at period end to reflect any updated estimates.
May also be referred to as Reserve for Bad Debts.
Amortization - AnswersThe method for recognizing the expense
of long-lived intangible assets such as patents, copyrights, and
brands, over the life of the assets. Amortization is usually
calculated similar to straight-line depreciation. Some companies
use an accumulated amortization account, while other companies
may directly reduce the value of the associated asset.
Annuity - AnswersAn investment where the purchaser receives
the right to receive a fixed amount each year for a lifetime or for a
certain number of years.
Asset - AnswersA resource that is owned or controlled by a
business and is expected to provide some future economic
benefit to the business. Examples include cash, inventory, and
equipment. The business expects that its assets will help to
produce cash inflow in the future.
Asset Turnover - AnswersAsset Turnover is calculated by dividing
the total sales for the period by the average total assets. This
calculation is used as a measure of efficiency in the DuPont
