Sales returns: Gross Profit, Refund Liability, Inventory Estimated Returns

To understand sales returns and the unique accounts that are used for them (Refund liability and Inventory estimated returns), let’s start by reviewing the journal entry for the sale of goods. It raises gross profit (in green) by taking this form: A/R (or cash) $Retail Sales revenue $Retail COGS $Cost Inventory $Cost Now let’s look […]

Earnings per share: numerator and denominator summary table

Below is a table I made to summarize what happens to the numerator and denominator for EPS calculations for each kind of relevant transaction. I can see this being helpful for CPA exam preparation, as well as for students of Intermediate Accounting. I include information regarding: Net income Preferred stock dividends: cumulative and noncumulative, convertible […]

Debits and credits: different parts of speech

How about some light-hearted fare today? The words “debits” and “credits” can be used in many different parts of speech. Here is a table I created with examples using “debit.” Part of Speech Example Noun (subject) The debit raised the balance in the cash account. Noun (object) The liability account needs more debits. Noun (object […]

Revenue Recognition: When Progress Billings is more than Construction in Progress

One of the ways that I like to supplement the Spiceland Intermediate Accounting textbook is to create financial statements from the journal entries in the lessons. Generally, the textbook shows the journal entry that is used for the transaction, but it sometimes does not show what happens to the balance sheet after the journal entry […]

Realized and unrealized gains and losses on the income statement vs OCI statement

Here is a table I made to show students where realized and unrealized gains and losses are reported. This table could be used when teaching the following chapters in the Spiceland Intermediate Accounting textbook (10th edition): Chapter 4: the Income Statement, Comprehensive Income, and the Statement of Cash Flows Chapter 12: Investments Chapter 17: Pensions […]

Debits and credits: first thing you need to know

In the world of financial accounting, one bookkeeping transaction has two effects. We call these two effects “debits and credits.” This is the first thing all accounting students need to understand about them. Let us consider a few analogies to better understand this fundamental idea. Accounting term Debit Credit Analogy: coin Heads Tails Analogy: Newton’s […]

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