Our Explanation of Evaluating Business Investments compares four of the techniques for reviewing potential capital expenditures. You will be introduced to accounting rate of return, payback, net present value, and...
Our Explanation of Evaluating Business Investments compares four of the techniques for reviewing potential capital expenditures. You will be introduced to accounting rate of return, payback, net present value, and...
An account used in combination with another account. For example, the account Allowance for Doubtful Accounts is used with Accounts Receivable in order to present the net amount of the accounts receivable. The account...
The direct method could refer to the method of preparing the statement of cash flows. The direct method could also refer to the method of allocating a manufacturing facility’s service departments to its production...
See perpetual system of inventory.
See cash basis of accounting.
A technique using simultaneous equations to allocate a manufacturer’s service departments’ costs to both other service departments and to production departments.
What is the allowance method? Definition of Allowance Method The allowance method usually refers to one of the two ways for reporting bad debts expense that results from a company selling goods or services on credit....
The most common method of preparing the statement of cash flows. Under this method the starting point is the net income reported on the income statement. To learn more, see Explanation of Cash Flow Statement.
A technique used to determine the variable rate (slope of a total cost line) of an independent variable and the fixed amount by using just two points: the highest point and the lowest point. For example, if at the...
What is the net method? Definition of Net Method In accounting, the net method likely refers to the way a company records each vendor’s invoice that offers an early payment discount. Example of Net Method Assume that a...
A method used in allocating the costs of manufacturing service departments (factory administration, maintenance, etc.) directly to the producing departments in the factory. Under this method, no service department cost...
What is the accrual method? Definition of Accrual Method The accrual method of accounting reports revenues on the income statement when they are earned even if the customer will pay 30 days later. The accrual method of...
See accrual basis of accounting.
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
the following information: December 31 (and the year) Depreciation Expense $10,000 (in the debit column) Accumulated Depreciation $10,000 (in the credit column) A short explanation such as “Depreciation for the...
the reasons why a company can have an accounting net loss but have a positive net cash inflow. Example of Net Loss But a Positive Cash Flow A common adjustment to a company’s accrual accounting net income or net loss...
Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
the accrual method of accounting. For instance, the monthly bookkeeping entries for depreciation, property taxes, utilities, fringe benefits and more will need to be estimates. Even the end-of-year financial statements...
Buildings is a noncurrent or long-term asset account which shows the cost of a building (excluding the cost of the land). Buildings will be depreciated over their useful lives by debiting the income statement account...
be reflected in the company’s general ledger accounts: Any unrecorded depreciation up until the time of the sale must be recorded with a debit to Depreciation Expense and a credit to Accumulated Depreciation The...
What are phantom profits? The terms phantom profits or illusory profits are often used in the context of inventory (but can also pertain to depreciation) during periods of rising costs. The amount of phantom or illusory...
by using the straight-line method. 25. When the equipment of a service business (or retailer) is depreciated, the debit will be to Depreciation Expense. Which of the following accounts should be credited? Select......
that benefit from its use. depreciation This is the allocation of a plant asset’s cost to expense over the asset’s useful life. The purpose is to match the asset’s cost to the years that benefit from its use. Mark...
using the indirect method? A Decrease In Inventory Wrong. An Increase In Accounts Payable Wrong. An Increase In Accounts Receivable Right! Depreciation Expense Wrong. 17. Which of the following will appear as a positive...
A long term asset account containing the cost of delivery equipment acquired by a company and used in its business. The account will appear on the balance sheet under the heading of Property, Plant and Equipment. There...
A long-term asset which indicates the cost of the constructed improvements to land, such as driveways, walkways, lighting, and parking lots. Land Improvements will be depreciated over their useful life by debiting the...
Equipment is a noncurrent or long-term asset account which reports the cost of the equipment. Equipment will be depreciated over its useful life by debiting the income statement account Depreciation Expense and crediting...
. However, the cash flows are NOT discounted. 4. A company used the net present value method for evaluating a project. The project requires an immediate cash outlay of $450,000. The company discounted the cash flows by...
If the fully depreciated car continues to be used, there will be no further depreciation. The company cannot depreciate more than the car’s cost. If the fully depreciated car is sold or scrapped, the following...
computed using replacement costs. This smaller amount of costs charged to the income statement means reporting greater profit. The difference in the profit is said to be illusory. In the case of plant assets used during...
of Indirect Costs For example, the depreciation of a company’s manufacturing building is an indirect cost of the following: The manufacturing departments within the building The products that are manufactured in the...
What is the difference between reserve and allowance? More than 60 years ago, accountants in the U.S. used Reserve for Bad Debts as the title of the contra account associated with Accounts Receivable or Loans Receivable....
of property, plant, and equipment. Depreciation of the Building and Equipment is a Fixed Cost The depreciation expense associated with a company’s buildings and machinery is considered to be a fixed cost or a fixed...
How do you calculate an asset's salvage value? Definition of Asset Salvage Value In accounting, an asset’s salvage value is the estimated amount that a company will receive at the end of a plant asset’s useful...
Our Explanation of Financial Statements provides you with the highlights of each of the five external financial statements issued by U.S. corporations. Our insights will give you a good understanding of what the...
). The amount of the capital expenditures (often referred to as capex) is shown in parentheses to indicate it is an outflow of cash or that it has a negative effect on the company’s cash. 3. Which method of...
What does the cost principle mean for a company's income statement? If a company has buildings, equipment and inventory, the cost principle will mean that the amount of depreciation expense and the cost of goods...
of the sale. In order to know the asset’s book value at the time of the sale, the depreciation expense for the asset must be recorded right up to the date that the asset is sold. If the cash received is greater than...
. The equipment’s cost was $100,000 and its accumulated depreciation as of its recent balance sheet date was $40,000. This means that up to the balance sheet date $40,000 of the asset’s cost had been reported as...
that reports the company’s revenues and expenses is the __________. Select... balance sheet income statement statement of cash flows 3. The heading of the balance sheet will indicate which of the following? Select......
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