Accounting

[otw_shortcode_dropcap label=”Q:” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] Is prepaid rent an asset? [otw_shortcode_dropcap label=”A:” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] Prepaid rent is  known as a prepaid expense. It represents rent that has been paid in advance. For example, a business may rent an office building for 12-months and pay for the full year of rent in advance upon signing the lease. Prepaid …

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Q: What are liabilities in accounting? A: We likely all are familiar with liabilities in our personal life. Debts such as mortgages or car loans are example of common personal liabilities that individuals routinely pay. However, what are liabilities in terms of accounting. Let’s get into it below. Accounting Liabilities Liabilities in accounting are debts …

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[otw_shortcode_dropcap label=”Q: ” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] What are liquid assets? [otw_shortcode_dropcap label=”A: ” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] Before we get to the list of liquid assets, let us explain what they are in general. Liquid assets are assets that can quickly be converted to cash without a meaningful reduction in the asset’s value upon liquidation. It is important …

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[otw_shortcode_dropcap label=”Q:” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] What is the cash ratio? [otw_shortcode_dropcap label=”A:” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] The cash ratio helps determine a company’s ability to pay its short-term liabilities with its most liquid assets that consist of cash and cash equivalents. I think most readers are clear on the definition of cash. However, cash equivalents probably needs some …

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[otw_shortcode_dropcap label=”Q:” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] What is the acid test ratio? [otw_shortcode_dropcap label=”A:” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] The acid test ratio is also know as the quick ratio. It helps present a picture of a company’s short-term liquidity. Essentially, it determines how well a  company can promptly meet its short-term liabilities with its most liquid assets. You will …

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[otw_shortcode_dropcap label=”Q:” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] What are examples of current assets? [otw_shortcode_dropcap label=”A:” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] Many of us have heard about current assets but are not necessarily clear about what they are when it comes to accounting. Below we will provide a list of current assets and also define these types of assets. What are Current …

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Current Ratio Formula Explained Q: What is the formula for the current ratio? A: The current ratio evaluates if a firm can pay its short-term liabilities with its current assets. To calculate the current ratio you take the current assets divided by the current liabilities. The below formula shows how the current ratio is calculated. …

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Q: Is accounts payable a debit or credit? A:  Accounts payable is a liability because it represents money that is due to be paid by a company. It has a normal balance of a credit. This means that accounts payable increases with a credit and decreases with a debit. In other words, if a company …

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Q: What is the difference between accounts payable and accounts receivable? A: Accounting students or individuals first learning accounting on their own commonly get tripped up by the difference between accounts payable and accounts receivable. Hopefully, the information below can clear up the difference between the two accounts. Let’s dig into the topic. Accounts Payable …

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[otw_shortcode_dropcap label=”Q:” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] Is accounts receivable an asset or a liability? [otw_shortcode_dropcap label=”A:” size=”large” border_color_class=”otw-no-border-color”][/otw_shortcode_dropcap] Accounts receivable is the amount that is due to be paid to a business for a product or service. For example, assume a company called USA Caps makes baseball hats and ships an order to a retail store for …

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