If the discount is taken, it should be considered a reduction in the asset cost. In a deferred payment situation, there is an implicit (or explicit) interest cost involved, and the accountant should be careful not to include this amount in the cost of the asset. (e) Lump sum or basket purchase—sometimes a group of assets are acquired for a single lump sum. (d) Deferred payments—assets should be recorded at the present value of the consideration exchanged between contracting parties...

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Increases in current assets indicate a decrease in cash, because either (1) cash was paid to generate another current asset, such as inventory, or (2) revenue was accrued, but not yet collected, such as accounts receivable. In the first scenario, the use of cash to increase the current assets is not reflected in the net income reported on the income statement. In the second scenario, revenue is included in the net income on the income statement, but the cash has...

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Below is a portion of Exxon Mobil Corporation's (XOM) balance sheet as of September 30, 2018. Metro Corporation collected a total of $5,000 on account from clients who owned money for services previously billed. LO 3.1Also known as the historical cost principle, ________ states that everything the company owns or controls (assets) must which of the statements correctly represents the accounting equation be recorded at their value at the date of acquisition. Debits are cash flowing into the business, while credits are...

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When shares of stocks and bonds were printed on paper, their par values were printed on the faces of the shares. If market interest rates fall to 3%, the value of the bond will rise and trade above par since the 4% coupon rate is more attractive than 3%. The market price per share, on the other hand, refers to the per share value or worth at which a company’s stock is actually traded in the secondary market. Par value...

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It is helpful for comparing one company to another in the same line of business. In some cases, it can also provide a more accurate view of a business's value. There are two ways to calculate EBIT, either “revenue – costs of goods sold (COGS) – operating expenses” or “net income + interest + taxes." Earnings before interest and taxes (EBIT) indicate a company's profitability.EBITDA gained notoriety during the dotcom bubble, when some companies used it to exaggerate their financial...

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This part of the entry must be posted to both the general ledger accounts receivable and to Corona’s account in the subsidiary accounts receivable ledger. However, some firms show this item as a deduction from gross sales in arriving at net sales. The credit part of the entry is to an account called Allowance for Uncollectible Accounts. An estimate is required because it is impossible to know with certainty which accounts outstanding at the end of the year will become...

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Temporary accounts are used to record accounting activity during a specific period. All revenue and expense accounts must end with a zero balance because they are reported in defined periods and are not carried over into the future. For example, $100 in revenue this year does not count as $100 of revenue for next year, even if the company retained the https://simple-accounting.org/ funds for use in the next 12 months. Permanent accounts are accounts that show the long-standing financial position...

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Depreciation refers to the decrease in the monetary value of physical assets over a period due to wear and tear, regular use, and obsolescence. It is an accounting standard that allocates some portion of the asset cost to the profit and loss (P&L) statement during a financial year over the asset's useful life. A loan doesn't deteriorate in value or become worn down over use like physical assets do. Loans are also amortized because the original asset value holds little...

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As noted above, you can find information about assets, liabilities, and shareholder equity on a company's balance sheet. This means that the balance sheet should always balance, hence the name. If they don't balance, there may be some problems, including incorrect or misplaced data, inventory or exchange rate errors, or miscalculations. Fixed assets are shown in the balance sheet at historical cost less depreciation up to date. Depreciation affects the carrying value of an asset on the balance sheet. These limitations can significantly impact the...

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With that $300 in the books, you will need to be sure to update your business’s accounting data. Remember, this sale will first need to be recorded as a debit entry in the cash account. The $300 will need to be entered into the left side of the assets chart. The sales part of your accounting will be listed under “revenue” as a credited amount of $300, thus balancing everything out in your books. When a company provides a service,...

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