An amount that should be charged to the current accounting period as an expense.
An amount that should be charged to the current accounting period as an expense.
Is rent expense a period cost or a product cost? Definition of Rent Expense Rent expense is often a monthly amount paid by a company for use of a building. Typically, the rent is due on the first day of every month that...
to the income statement and become part of that period’s SG&A expenses. Interest expense is also a period cost unless it is determined to be a necessary cost of a self-constructed, long-lived asset. Join PRO to...
Is the depreciation of delivery trucks a period cost or is it manufacturing overhead? The depreciation on the trucks used to deliver products to customers is a period cost. The depreciation on delivery trucks will be...
Why is the distinction between product costs and period costs important? The distinction between product costs and period costs is important to: Properly measure a company’s net income during the time specified on its...
to the products or to the cost of inventory. The period costs are usually associated with the selling function of the business or its general administration. The period costs are reported as expenses in the accounting...
Are repairs to office equipment and factory equipment period costs? Repairs to office equipment are period costs. That is, the cost of the repairs to office equipment will be reported as a selling, general and...
manufactured during the accounting period minus the cost of finished goods in ending inventory. The cost of sales for a retailer is the cost of merchandise in its beginning inventory plus the net cost of merchandise...
cost. The cost of workers’ compensation insurance for the office staff will be a period cost and will be expensed immediately as part of SG&A. The cost of workers’ compensation insurance varies by the type of...
What is the cost of goods sold? Definition of Cost of Goods Sold The cost of goods sold is the cost of the products that a retailer, distributor, or manufacturer has sold. The cost of goods sold is reported on the income...
The principle that requires a company to match expenses with related revenues in order to report a company’s profitability during a specified time interval. Ideally, the matching is based on a cause and effect...
and related fringe benefits) is part of the cost of the asset (and not an immediate expense of the accounting period). The total cost of the asset, including installation costs, will become an expense when the asset...
earnings and stockholders’ equity will be too high Since the overstated amount of inventory at the end of one accounting period becomes the beginning inventory of the following period, the following period’s cost of...
of warranty is referred to as an assurance-type warranty. In accounting jargon, the assurance-type warranty is an example of a contingent that is both probable and can be estimated. Therefore, a company must record in...
be: Revenues (sales, service fees) that were earned during the accounting period Expenses (cost of goods sold, salaries, rent, advertising, etc.) that match the revenues being reported or have expired during the...
To assign or allocate on a logical basis. For example, the materials price variance in a standard costing system is prorated to the following categories: materials inventory, work-in-process inventory, finished goods...
A predetermined dollar amount that a pound of material or an hour of labor should cost during an accounting period.
A predetermined dollar amount that one unit of a finished product should cost during an accounting period.
What is a deferred cost? Definition of Deferred Cost A deferred cost is a cost that is already recorded in a company’s accounts, but at least some of the cost should not be expensed until a future accounting period....
of vendor invoices, receiving reports, etc. Accounting for goods in transit, goods on consignment, etc. The cost of each item in inventory is based on the actual costs of the items purchased or produced by the company...
What is the cost of goods manufactured? Definition of Cost of Goods Manufactured The cost of goods manufactured is a calculation of the production costs of the goods that were completed during an accounting period. In...
A quality of accounting information that facilitates comparing a company’s reporting of one accounting period to another. For example, the reader of a company’s financial statements can assume that the...
per unit. If there are 80 units in inventory at the end of the accounting period, the cost of the ending inventory and the cost of goods sold (using the periodic inventory system) are as follows: Amount from the income...
Goodwill is a long-term (or noncurrent) asset categorized as an intangible asset. Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the...
How do you record a payment for insurance? Definition of Payment for Insurance A company’s property insurance, liability insurance, business interruption insurance, etc. often covers a one-year period with the cost...
What are out-of-pocket costs? Out-of-pocket costs are those costs or expenses that require a cash payment in the current period or during a project. For example, the wages of the person setting up a machine for a new...
sales revenues (quantity and prices) to cover both the product costs of the units sold and the other expenses of the accounting period. Example of Product Cost per Unit The product cost per unit is used for valuing a...
that best matches the descriptions listed as items 6 - 16: Each principle or term can be used several times. conservatism cost economic entity full disclosure going concern industry practices matching materiality...
Is there a difference between an expense and an expenditure? Definition of Expense An expense is reported on the income statement in the period in which the cost matches the related sales, has expired, was used up, or...
be reviewed annually to see if there is an impairment, and potentially record an impairment loss. Private companies may opt to amortize goodwill generally over a 10-year period and thereby minimize the cost and...
of processes. When there is a series of processes, each process is likely to occur in a separate production department or cost center. Common examples of production departments include: casting molding forming cutting...
What is an expense? Definition of Expense Under the accrual method of accounting, an expense is a cost that is reported on the income statement for the period in which: The cost best matches the related revenues The cost...
of the year. Accumulated Depreciation is a matching principle. In each accounting period, part of the cost of certain assets (equipment, building, vehicle, etc.) will be moved from the balance sheet to depreciation...
.) This rent does not get assigned or allocated to the units produced. Instead, the entire rent of the nonmanufacturing facilities is immediately expensed in the accounting period when the building is rented. Example of...
Our Explanation of Inventory and Cost of Goods Sold will take your understanding to a new level. You will see how the income statement and balance sheet amounts are affected by the various inventory systems and cost flow...
The average time for a company’s accounts receivable to be collected. See days sales in accounts receivable.
The most common example is the correction of an error from a prior year. When such a correction is made, it is reported in the current period’s statement of retained earnings rather than in the current...
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