. Example of Correlation Assume that during a 10-year period the number of cars sold in the U.S. moved in the same direction as the country’s rate of inflation. Even with a 10-year correlation between the two sets of...
. Example of Correlation Assume that during a 10-year period the number of cars sold in the U.S. moved in the same direction as the country’s rate of inflation. Even with a 10-year correlation between the two sets of...
flows: cash from operating activities cash dividends paid (part of the cash flows from financing activities) For a U.S. corporation with stock that is publicly traded, it is wise to review the pertinent parts of its...
will be collected Using the account Allowance for Doubtful Accounts is preferred for financial reporting. However, it is generally not allowed for U.S. income tax reporting. You should always consultant with a tax...
and intangible assets acquired, minus 2) the liabilities that were assumed. Goodwill is reported on the balance sheet as a long-term or noncurrent asset. Since 2001, U.S. companies are no longer required to amortize the...
of FIFO over LIFO cost, and LIFO allowance instead of LIFO reserve. Example of LIFO Reserve A U.S. company’s accounting system uses FIFO, but the company wants its financial and income tax reporting to use LIFO due to...
How do I learn of new accounting rules? The U.S. accounting rules issued by the Financial Accounting Standards Board (FASB) can be found on its free website www.fasb.org/st/. There you will find: FASB...
), and 2) financing activities (borrowing and repaying short-term and long-term debt, issuing and buying back shares of stock, paying dividends). Examples of Reporting the Cash from Operating Activities In the U.S., the...
employee’s maximum Social Security tax as well as the employer’s Social Security payroll tax amounts. (The employer must remit to the U.S. government two times the Social Security payroll tax withholdings.) Social...
standards and U.S. income tax regulations. The details for allocating or assigning the manufacturing costs to the products manufactured are contained in the college course known as cost accounting or managerial...
is considered to be nonoperating income or other income. (However, banks and other lenders, whose primary activities involve earning interest, will report their interest earned as part of their operating income.)...
What is contribution margin? Definition of Contribution Margin In accounting, contribution margin is defined as: revenues minus variable expenses. The contribution margin can be expressed as an amount and/or as a...
’ equity, and statement of changes in equity) is one of the five required financial statements issued by a U.S. corporation whose common stock is publicly traded. This financial statement summarizes on one page all of...
What is common stock? Definition of Common Stock Common stock refers to the shares of ownership interest in a U.S. corporation. The owners of the common stock are referred to as common stockholders, common shareholders,...
of common stock that are outstanding during the period of the earnings. If a corporation had preferred stock outstanding, the required preferred stock’s dividend is shown as a deduction before the earnings that are...
&A expenses of $2). Therefore, the contribution margin ratio is 70% (the contribution margin per unit of $14 divided by the selling price of $20). This contribution margin ratio tells us that 70% of the sales...
, they are part of comprehensive income). Net income is also known as net earnings. The details of the net income calculation are reported in the business’s income statement. The net income of a regular U.S....
/ 3 years). This allocation of the phones’ cost to the accounting periods that benefit from the asset’s use follows the accountant’s matching principle. This makes the company’s financial statements more...
because U.S. accounting principles and income tax regulations require manufacturers to follow full absorption costing. This means that the cost of manufactured goods must include the costs of the direct materials,...
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...
compliance with U.S. accounting principles and income tax regulations. Traditionally, the predetermined manufacturing overhead rate was calculated prior to a new year by dividing the budgeted amount of manufacturing...
What is the meaning of base year? In accounting, base year may refer to the year in which a U.S. business had adopted the LIFO cost flow assumption for valuing its inventory and its cost of goods sold. Under the...
of Full Disclosure Principle The disclosures required under this principle can be found in a number of places, such as: The company’s financial statements including the notes to the financial statements and...
for the financial statements. However, the direct write-off method must be used for U.S. income tax reporting. Apparently the Internal Revenue Service does not want a company reducing its taxable income by anticipating...
What is workers' compensation insurance? Workers’ compensation insurance is likely to be an insurance policy obtained by a company to cover the medical costs and lost wages for its employees’ work-related...
and it is often used to compute the net present value of the cash flows in a proposed investment. It is also considered to be the minimum after-tax internal rate of return to be earned on new investments. For a...
accounting year will report the same amount of depreciation. The total amount of depreciation over the years of the asset’s useful life will be the asset’s cost minus any expected or assumed salvage value. In the...
ledger accounts will need to be adjusted with a credit to the Cash account and a debit to an account such as Bank Fees Expense. Therefore, as part of the bank statement reconciliation you need to show the bank service...
What are cost flow assumptions? Definition of Cost Flow Assumptions The term cost flow assumptions refers to the manner in which costs are removed from a company’s inventory and are reported as the cost of goods sold....
by reading our Nonmanufacturing Overhead (Explanation). 1. Selling expenses should be allocated to the cost of goods sold for external financial reporting. True Wrong. False Right! 2. According to U.S. accounting...
assume that a regular U.S. corporation has: A loan with an annual interest rate of 10% An incremental tax rate of 30% (combination of federal and state) If the corporation has a loan of $100,000 with an annual interest...
would realistically receive. It allowed us to “match” the discount to the week of the sale and not mismatch the discount to a later week when the customer remitted the reduced amount. Join PRO to Track Progress Mark...
for the bank’s loan. This lien will require that the lender be paid the amount owed before the real estate can be transferred to another party. The U.S. government may file a lien on a company’s assets until a tax...
with the chairperson of the accounting department at each college that you are considering. Often they have special programs that are designed for a person with your background. Our Accounting Career Center also has...
What is a fiscal year? Definition of Fiscal Year A fiscal year is an accounting year that does not end on December 31. (Accounting years of January 1 through December 31 are known as calendar years.) A fiscal year could...
or covenants regarding interest and principal payments, maintaining certain financial ratios, and more. Failure to meet those conditions can result in severe consequences. In the U.S., a benefit of debt financing is...
to the company’s general ledger accounts, since the outstanding checks were recorded when they were issued.) Checks that are outstanding for a long period of time are known as stale checks. In the U.S., outstanding...
and its cost of goods sold. In the U.S. the common cost flow assumptions are FIFO, LIFO, and average. A company’s cost of inventory is related to the company’s cost of goods sold that is reported on the company’s...
should normally be reported at its net realizable value. (U.S. income tax rules require conformity between tax and financial reporting. As a result, there are complexities involved.) Join PRO to Track Progress Mark the...
Is income tax an expense or liability? Definition of Income Tax In the accounting for a regular U.S. corporation, income tax usually refers to the federal, state, local, and foreign countries’ taxes that are levied...
, the income statements of large U.S. corporations will frequently use the term earnings instead of net income. Definition of Profit The term profit is used in various ways. For example, a company’s sales minus its...
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