Cash accounting definition

What is Cash Accounting? Cash Accounting is the system of accounting for receipts and payments in cash or through bank accounts – effectively a part of a normal accounting system.

Credit Policy

What are credit policies? – Definition A firm could adopt a very conservative credit policy and extend credit only to customers with excellent credit ratings. Although this type of policy virtually eliminates bad debts or uncollectible accounts, the firm can lose sales and profits by not extending credit to individuals or firms with less-than-perfect credit …

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Current method definition

What is the current method? A method of foreign currency translation under which all balance sheet items can be translated at a current exchange rate at the date of the financial statements; income statement items are translated at the average exchange rate for the period.  

Complex Capital Structure Definition

What is meant by the complex capital structure? A capital structure in which there are certain types of bonds, preferred stock or other securities that are convertible into common shares is called a complex capital structure.

Common Stock Equivalent Definition

What is meant by the common stock equivalent? Common stock equivalent is dilutive security that, because of the terms or circumstances at the time of its issue, is essentially equivalent to common stock, allowing the holder to become a common stockholder at some future date.

Change in accounting method

What is meant by the change in accounting method? A change that occurs when a firm switches from one generally accepted accounting principle or method to another generally accepted principle or method.

Coupon Bonds Definition

How to define “Coupon Bonds”? Coupon bonds are those bonds that are not registered in the name of individual holders, but that are negotiable by whoever holds them.

Compensated Absences Definition

What is meant by the term “Compensated Absences”? A liability that arises as employees working accrue certain fringe benefits that allow them time off with full or partial pay, including such benefits as vacation and sick pay.  

Current Liabilities

Current Liabilities – Definition Current liabilities are those liabilities that will either be paid or require the use of current assets within a year (or within the operating cycle, if longer), or that result in the creation of new current liabilities. Current vs Long-term Liabilities In preparing a balance sheet, liabilities are classified as either …

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Current Assets Definition

What is meant by the term “current assets”? Current assets are the cash or other assets reasonably expected to be realized in cash or sold within the normal operating cycle of a business or within one year (if the operating cycle is longer than one year).

Consistency Definition

What is meant by the term “Consistency”? Consistency is an accounting convention requiring that a firm uses the same accounting procedures and policies from one period to the next.

Conservatism Principle of Accounting

What is meant by the accounting term “Conservatism”? Conservatism is the prudence exercised in financial reporting as a result of the uncertainties surrounding business and economic activities. when faced with accounting alternatives accountants tend to choose those that are least likely to overstate assets or income. Conservatism Principle For historical reasons, an accountant is always …

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Comparability Definition

What is meant by the term “Comparability”? Comparability is the qualitative characteristic of accounting information that presents information in such a way that the users can identify similarities and differences between two sets of economic events. It can be used to evaluate the financial position and performance of one firm over time or to compare …

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Credit definition

How to define the term credit? The term credit may be defined as an entry on the right side of the ledger account representing a decrease in an asset account and an increase in an equity account.

Capital Stock Definition

What is Capital Stock? Capital stock may be defined as a component of stockholders’ equity that represents the amount invested by the owners of the business. A general term for common stock.

Credit Note

Definition If a buyer returns goods to the seller bought on credit, the buyer’s account will be credited by the seller and will be informed by the seller through a note. This note is called “Credit Note“.

Creditors or accounts payable

Definition The persons or company from whom the goods or services are purchased on credit and to whom the amount is payable are called creditors. Creditors are also termed as Accounts Payable. Example John Sold goods to Harry on credit for $500, John is a Creditor of Harry.

Cash Discount

What is Cash Discount? Definition It is a rebate or allowance from the amount due granted by the creditor to the debtor at the time when the debtor makes payment before the due date. Cash discount is offered to encourage the early payment. If payment is due within a specified period of time after the …

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Credit Sales

Definition When goods are sold and cash is not received immediately but postponed to a future date then this is termed as credit sales. Explanation A major portion of wholesale and retail sales in the United States is on credit. As a result, some firms have a substantial portion of their current assets in the …

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Cash Sales

Definition When goods are sold & cash is received at the same time then this type of sales are called cash sales. Example If Mr. B has sold goods on January 1, 2019 and he received cash at the same time then this will be termed as cash sales.

Credit Purchases

Definition If goods are purchased but payment is postponed to a future date then this is called credit purchases. Example: If Mr. A purchases goods worth $3,000 on January 1, 2019 and promises to pay this amount one month later i.e. February 2019 then this will be termed as credit purchases.

Cash Purchases

Definition When goods are purchased for immediate cash payment these are called cash purchases. Example If Mr. A purchased goods worth $2,000 on January 1, 2019 and payment is made by him on the same day then this will be termed as cash purchases.