Accounts written off often refers to the accounts receivable that were deemed to be uncollectible and were removed from a receivable account in the general ledger. For example, a manufacturer may have written off an accounts receivable because a customer filed for bankruptcy and has insufficient assets. In this situation the account balance is written off with 1) a credit to Accounts Receivable, and 2) a debit to Allowance for Doubtful Accounts or Bad Debts Expense.

Banks, credit card companies, hospitals, and other organizations will also remove uncollectible accounts from their receivables and will refer to them as accounts written off.

Learn more about Accounts Receivable and Bad Debts Expense.

Safety stock is an additional quantity of an item held in inventory in order to reduce the risk that the item will be out of stock. Safety stock acts as a buffer in case the sales of an item are greater than planned and/or the supplier is unable to [...] Continue Reading…

Often a loan payment consists of both an interest payment and a payment to reduce the loan’s principal balance. The interest portion is an expense whereas the principal portion is a reduction of a liability such as Loans Payable or Notes Payable.

If a company uses the accrual method of [...] Continue Reading…

In purchasing, lead time is the estimated time between ordering goods and receiving the goods. For instance, if 100 units of Product X are ordered on April 11 and are expected to be received on April 25, the lead time is 14 days.

The estimated lead time is one of [...] Continue Reading…

Capital stock is the combination of a corporation’s common stock and preferred stock (if any).

Common stock is usually the first and only capital stock issued by corporations. However, some corporations will also issue preferred stock.

The amount received by the corporation when it issued shares of its capital stock is [...] Continue Reading…

A common carrier is a business that transports goods for other companies, organizations, or individuals. The common carrier is responsible for any loss associated with the transport of the goods.

Examples of common carriers are trucking companies, railroads, and airlines.

A company can have a profit but not have cash because profit is computed using revenues and expenses, which are different from the company’s cash receipts and cash disbursements. In other words, there is a difference between revenues and receipts. There is also a difference between expenses and expenditures.

To [...] Continue Reading…

It is necessary to allocate a lump sum payment to individual items in order to record a fair portion of the lump sum in each of the proper general ledger accounts.

For instance, let’s assume that a corporation made a lump sum payment of $450,000 in order to acquire a [...] Continue Reading…

A lump sum payment is often associated with a single amount paid to acquire a group of items. For instance, a corporation might pay $50,000 for the inventory and equipment of a small manufacturer that is going out of business. The transaction did not specify any further details. The [...] Continue Reading…

BOM is the acronym for bill of materials. A BOM is a listing of the quantities of each of the materials used in manufacturing a product.

Industrial manufacturers are likely to have an enormous number of BOMs. Each of the BOMs will be a very detailed list of all [...] Continue Reading…