This phrase has two connotations. One is the cost of holding inventory. In this case the carrying cost is the cost of capital tied up in inventory, the cost of storage, insurance, and obsolescence. Often this is...
This phrase has two connotations. One is the cost of holding inventory. In this case the carrying cost is the cost of capital tied up in inventory, the cost of storage, insurance, and obsolescence. Often this is...
Our Explanation of Adjusting Entries gives you a process and an understanding of how to make the adjusting entries in order to have an accurate balance sheet and income statement. Eight examples including T-accounts for...
to have a negative effect on Cash. It is assumed that Cash was used or decreased. 31. For a recent year a corporation's financial statements reported the following: Based on the above information, what amount will...
is required by U.S. accounting and income tax rules for valuing a manufacturer’s inventories and its cost of goods sold. It is important to remember that while the fixed overhead is assigned to products on the basis...
statement. (The cost of goods sold is likely the largest operating expense and it is being matched to the related sales revenue to arrive at a company’s gross profit.) The cost of the items that are not yet sold are...
years all expressed in easier to absorb amounts. Example of Trend Analysis Assume you want to see the trend of a service company’s revenues, net income, and number of clients during the years 2017 through 2023. With...
To visualize the behavior of a mixed cost, it is helpful to graph at least 8 observations. Each observation’s total cost (y) is aligned with the y-axis and is also aligned with the volume amounts indicated on the...
is that the last or more recent cost is closer to the replacement cost. A similar situation occurs with depreciation. Under GAAP the amount of depreciation expense reported in the financial statements is based on the...
: With periodic LIFO, the latest costs are assumed to be removed from inventory at the end of the accounting year With perpetual LIFO the latest costs are removed from inventory at the time of each sale. Example of...
What is the gross profit method of inventory? Definition of Gross Profit Method The gross profit method is a technique for estimating the amount of ending inventory. The gross profit method might be used to estimate each...
Service Revenues for $60. At the end of April, the balance sheet will report the company’s remaining liability of $240. The income statement for April will report the $60 that was earned. The $60 entry is referred to...
receivable is $92,000. Adjustments to the Allowance account are reported on the income statement as bad debts expense. Now, let’s assume that a company’s inventory has a cost of $15,000. However, at the end of the...
capital expenditure projects are required and may not increase a company’s profits…think OSHA or environmental mandates Some of projects will provide cost savings through faster operations or reductions in manual...
Our Explanation of Improving Profits will assist you in focusing on the costs and revenues that are relevant (and ignoring those which are not relevant) for improving profits and eliminating losses. Examples of the...
order costing is a system used to collect and assign manufacturing costs to units that vary from one another.) Example of Process Costing Let’s assume that a company manufactures large quantities of an identical...
What is an overdraft? Definition of Overdraft An overdraft (also known as a bank overdraft) generally means that the amount of a company’s checks being presented at the bank for payment exceeded the amount on deposit....
for a new production run Unique inspections required by a customer Special handling, changes to original production orders, etc. The more diverse a company’s products and/or their customer requirements, the...
Why is depreciation on the income statement different from the depreciation on the balance sheet? Definition of Depreciation Depreciation is the systematic allocation of an asset’s cost to expense over the useful life...
Our Explanation of Present Value of a Single Amount discusses the time value of money and the need to discount future amounts to the time of an investment or other transaction. The present value of 1 table is used to...
Our Explanation of Standard Costing uses an easy-to-relate to example for illustrating a manufacturer's standard costs and variances. Also provided is a chart which indicates each variance, what it tells you, and where...
Our Explanation of Present Value of an Ordinary Annuity uses the appropriate present value factors for discounting a stream of equal cash amounts occurring at equal time intervals. An important feature is the use of loan...
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 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...
What are credit terms? Definition of Credit Terms Credit terms indicate when payment is due for a company’s sales invoice (which the customer will refer to as a purchase invoice). The credit terms also indicate whether...
In what order are liabilities listed in the chart of accounts? Order for Listing Liabilities It is logical for a company’s liabilities to be organized in the chart of accounts in the same way as they are presented on...
What is a toxic asset? I would define a toxic asset as an investment whose value has dropped significantly and there is no market in which to sell the asset. To illustrate, let’s assume that at the peak of the real...
How do we deal with a negative contribution margin ratio when calculating our break-even point? Definition of Negative Contribution Margin A negative contribution margin ratio indicates that a company’s variable costs...
of purchases and payments. The company may also employ a payroll clerk to process its many employees’ pay and fringe benefits. Perhaps an accounts receivable clerk will be employed to focus solely on the company’s...
What is a long-term liability? Definition of Long-term Liability A long-term liability is an obligation resulting from a previous event that is not due within one year of the date of the balance sheet (or not due within...
months A magazine publisher receiving money from a subscriber for magazines for the following year A website design company receiving a client’s down payment for future work A law firm receiving a retainer fee from a...
of December, then the interest portion should be accrued as of December 31. To illustrate, let’s assume that the amount of the mortgage loan payment due on January 1 is $1,000 and it consists of $300 of interest from...
What is managerial accounting? Definition of Managerial Accounting Managerial accounting is also known as management accounting and it includes many of the topics that are included in cost accounting. Some of the...
the liability account Security Deposits Returnable. Let’s use an example. Monica pays the landlord $500 as a security deposit as required by the lease for the apartment she is renting. If she causes no damage, she has...
taxes that are not withheld from employees are expenses of the employer and are liabilities until the amounts are remitted. Examples include the employer’s portion of the FICA tax and unemployment taxes. Join PRO to...
will be reported as an expense. Example of a Cost A company’s property insurance bill for the next six months of insurance shows a cost of $6,000. Initially the cost of $6,000 is reported as the current asset Prepaid...
, the expense will be recorded as part of the entry. When the company pays the invoice, the balance in Accounts Payable is reduced and the balance in the company’s Cash account is reduced. The payment does not affect...
Is a utility bill an expense? The utility bill for a retailer or for a service company is an expense. Under the accrual basis of accounting, the utility bill is an expense for the period indicated by the meter reading...
Why doesn't AccountingCoach.com classify the financial ratios? We avoided classifying the financial ratios because a financial ratio may overlap several classifications, and there are several different titles for...
are recorded in a contra revenue account such as Sales Discounts. Hence, its debit balance will be one of the deductions from sales (gross sales) in order to report the amount of net sales. Example of Sales Discounts To...
. There will be no depreciation expense recorded after the asset is fully depreciated. No entry is required until the asset is disposed of through retirement, sale, salvage, etc. To illustrate this, let’s assume that a...
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