How do I calculate the after-tax cost of debt? Definition of After-Tax Cost of Debt The after-tax cost of debt is the interest paid on the debt minus the income tax savings as the result of deducting the interest expense...
How do I calculate the after-tax cost of debt? Definition of After-Tax Cost of Debt The after-tax cost of debt is the interest paid on the debt minus the income tax savings as the result of deducting the interest expense...
How do you determine the fixed portion of overhead cost? I suggest that the first step in determining the fixed portion of a mixed cost (a cost that is partially fixed and partially variable) is to graph the data. Label...
How can a manufacturer determine the precise cost of its products? A manufacturer may never be able to determine the precise cost of its individual products. The reason is that most of the manufacturing costs (other than...
Is the rental cost of a building considered overhead? Definition of Rent as Overhead The rental cost of a building used in manufacturing is part of manufacturing overhead. Manufacturing overhead is assigned or allocated...
Financial Statements Video Training Part 2 Balance sheet: accounts receivable, estimated allowance for doubtful accounts, inventory cost flows (FIFO & LIFO) Must-Watch Video Learn How to Advance Your Accounting and...
Is the installation labor for a new asset expensed or included in the cost of the asset? Accounting for Labor to Install Asset The definition of an asset’s cost is all costs that are necessary to get an asset in place...
Why does our company's balance sheet report its land at cost when it is so much more valuable? Accountants are guided by the cost principle. This requires accountants to report assets at their cost when acquired—not...
How do you compute a selling price if you know the cost and the required gross margin? Definition of Selling Price A selling price is the amount that a customer will pay to buy a product. If a retailer wants to earn a...
Why is a product that sells for $50 reported in inventory at its cost of $40? Generally, items in inventory are valued at their cost—not their selling prices—because of the cost principle. Another reason for not...
What does it mean to amortize the premium, discount, and issue costs on bonds payable? Definition of Amortize Premium, Discount, and Issue Costs With regards to bonds payable, the term amortize means to systematically...
What is the advantage of using historical cost on the balance sheet for property, plant and equipment? Definition of Historical Cost Historical cost is the original cost of an asset including all the necessary costs to...
Why can a retailer record its purchase of merchandise as a debit to purchases within the cost of goods sold, instead of the asset inventory? Before we explain why companies will record the purchases of merchandise in the...
What is practical capacity? Definition of Practical Capacity Practical capacity is a manufacturer’s level of output (often expressed in machine hours, barrels, pounds, etc.). Practical capacity is less than its...
What is boilerplate? In business, boilerplate is a term to describe the standard wording that is contained in warranties and other documents. Generally, the information that is boilerplate is not subject to change....
What is an outlier? In cost accounting, an outlier could be a cost or its related level of activity that is out of line with other observations. An outlier can be detected by plotting each observation’s cost and...
What is purchase discounts lost? Definition of Purchase Discounts Lost The account Purchase Discounts Lost is a general ledger account used by a company that records vendors’ invoices using the net method. A debit...
Are dividend payments shown as an expense on the income statement? Definition of Dividend Payments The cash dividends paid to stockholders are a distribution of the corporation’s earnings. Dividends are not an expense...
What is the accounting treatment for an asset that is fully depreciated, but continues to be used in a business? An asset that is fully depreciated and continues to be used in the business will be reported on the balance...
Can I capitalize this year's R&D? Generally, R&D costs cannot be capitalized for U.S. financial statements according to the Statement of Financial Accounting Standards No. 2, Accounting for Research and Development...
What is the definition of net sales? Definition of Net Sales Net sales is a company’s gross sales of products minus any sales discounts and sales returns and allowances. When a company makes a sale, the general ledger...
How do you calculate the break-even point in terms of sales? Definition of Break-even Point in Sales Dollars The break-even point in sales dollars can be calculated by dividing a company’s total fixed expenses by the...
What are wages payable? Definition of Wages Payable Wages payable refers to the wages that a company’s employees have earned, but have not yet been paid. Under the accrual method of accounting, this amount is likely...
What is a noncash expense? Definition of a Noncash Expense A noncash expense is an expense that is reported on the income statement of the current accounting period, but the related cash payment took place in another...
What is a deferral? Definition of Deferral A deferral often refers to an amount that was paid or received, but the amount cannot be reported on the current income statement since it will be an expense or revenue of a...
Is there a difference between work-in-process and work-in-progress? It depends on the user of the terms. Definition of Work-in-Process I use the term “work-in-process” to mean a manufacturer’s inventory that is not...
How does revenue affect the balance sheet? Effect of Revenue on the Balance Sheet Generally, when a corporation earns revenue there is an increase in current assets (cash or accounts receivable) and an increase in the...
Which financial statement shows a corporation's worth? Not one of the financial statements will show a corporation’s worth. The balance sheet, income statement, statement of cash flows, and stockholders’ equity...
What is the normal balance of the direct materials variance accounts? I don’t believe there is a normal balance. If a company pays exactly the standard cost of its direct materials, there will be no balance in the...
In accounting, what is the meaning of dr.? Definition of Dr. In accounting, dr. is the abbreviation for the Italian term used more than 500 years ago to indicate today’s term debit. In accounting and bookkeeping, debit...
What is separation of duties? What is Separation of Duties The separation of duties is one of various internal control techniques for safeguarding a company’s assets. By separating employee’s duties, the likelihood...
What is NPV? Definition of NPV NPV is the acronym for net present value, which can be calculated as follows: The present value of the future cash inflows Minus the cash investment Example of NPV Assume that a company...
Under accrual accounting, how are worker comp premiums handled? Worker comp insurance premiums should be charged to the areas where the related wages and salaries are charged. Let’s assume that the net cost of worker...
What are some examples of financing activities on the cash flow statement? Definition of Financing Activities Financing activities reported on the statement of cash flows (SCF) involve changes to the long-term...
What is the debt ratio? Definition of Debt Ratio The debt ratio is also known as the debt to asset ratio or the total debt to total assets ratio. Hence, the formula for the debt ratio is: total liabilities divided by...
Is it possible for owner's equity to be a negative amount? Definition of Negative Owner’s Equity Negative owner’s equity means the amount of a sole proprietorship’s liabilities exceeds the amount of its assets....
What is the meaning of fixed overhead absorbed? Definition of Fixed Overhead Absorbed Fixed overhead absorbed refers to a manufacturer’s fixed indirect manufacturing/production costs. Since these costs are indirect,...
How is the material usage variance account reported on the financial statements? Definition of Materials Usage Variance The materials usage variance (in a standard costing system) results from using more or less than the...
What is manufacturing overhead and what does it include? Definition of Manufacturing Overhead Manufacturing overhead (also known as factory overhead, factory burden, production overhead) involves a company’s...
What is the death spiral? Definition of Death Spiral In cost accounting and managerial accounting, the term death spiral refers to the repeated elimination of a manufacturer’s products which will result in spreading...
What is a variable expense? Definition of Variable Expense An expense is variable when its total amount changes in proportion to the change in sales, production, or some other activity. In other words, a variable expense...
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