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 sold...
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 sold...
What is the difference between inventory and the cost of goods sold? Definition of Inventory Inventory for a retailer or distributor is the merchandise that was purchased and has not yet been sold to customers. A...
What is the difference between normal costing and standard costing? Definition of Normal Costing Normal costing for manufactured products consists of following: Actual cost of materials Actual cost of direct labor...
What is the difference between public companies and public sector? Definition of Public Companies Public companies are those businesses owned by individuals (and not by a government). Definition of Publicly-Held...
What is the major weakness of the traditional method of allocating factory overhead? Definition of Traditional Method Allocating Factory Overhead The traditional method of allocating factory overhead (manufacturing...
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...
Why do people start their businesses as sole proprietorships? I believe that people start their businesses as a sole proprietorship because a sole proprietorship can be formed easily, quickly, and with little cost....
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 difference between book depreciation and tax depreciation? Definition of Book Depreciation Book depreciation is the amount recorded in the company’s general ledger accounts and reported on the company’s...
What is the face value of a bond payable? Definition of Face Value of a Bond Payable The face value of a bond payable is the amount printed on the bond. The face value is also referred to as the following: Face amount...
How, when and why do you prepare closing entries? Definition of Closing Entries Closing entries transfer the balances from the temporary accounts to a permanent or real account at the end of the accounting year. As a...
What is a non-discount method in capital budgeting? Definition of Non-discount Method of Capital Budgeting A non-discount method of capital budgeting is one that does not consider the time value of money. In other words,...
What are some of the methods for evaluating capital expenditures? Definition of Evaluating Capital Expenditures Capital expenditures involve large amounts of money spent on assets that have a useful life of more than one...
What are the two methods for recording prepaid expenses? Definition of Prepaid Expenses Prepaid expenses refers to payments made in advance and part of the amount will become an expense in a future accounting period. A...
Do corporations issue both common stock and preferred stock? Some corporations issue both common stock and preferred stock. However, most corporations issue only common stock. In other words, it is necessary that a...
Why are bonds payable less costly than common stock? Bonds payable are less costly than common stock because the bonds issued by a corporation contain a formal contract to pay the investor a fixed amount of interest...
Where is interest on a note payable reported on the cash flow statement? Definition of Interest on a Note Payable The interest on a note payable is reported on the income statement as Interest Expense. Usually this means...
How do you report a write-down in inventory? Definition of Write-down in Inventory Under FIFO and average cost methods, when the net realizable value of inventory is less than the cost of the inventory, there needs to be...
Which financial statement tells the value of a business? None of the financial statements will report the value of a business. The main financial statements (balance sheet, income statement, statement of cash flows,...
What is the effective interest rate for a bond? Definition of Effective Interest Rate of a Bond The effective interest rate of a bond is usually the market interest rate and the bond’s yield-to-maturity (as opposed to...
Why isn't a corporation's dividend shown on its income statement? Definition of Dividend A dividend paid by a corporation on its common stock is a distribution of the corporation’s net income (earnings, profits). The...
How do you record a dividend payment to stockholders? Definition of Dividend Payment to Stockholders A dividend payment to stockholders is usually a cash payment which reduces the corporation’s asset cash and the...
What is the difference between gross profit and net profit? Definition of Gross Profit Gross profit is defined as net sales minus the cost of goods sold. Example of Gross Profit Assume that a retailer had gross sales of...
What is the advantage of issuing bonds instead of stock? Definition of Bonds Bonds payable are a form of long-term debt, which include a formal agreement to pay interest semiannually and the principal amount at maturity....
Is the current portion of long term debt adjusted monthly? A monthly adjustment to the current portion of long term debt is necessary when: 1. the company issues monthly balance sheets, and 2. the amount to be paid on a...
What is the entry when a contract is signed? Accounting Entry When Signing a Contract Merely signing a contract does not by itself require a journal entry. In other words, signing a contract for a future transaction does...
What is meant by the full cost of a product? Many (perhaps most) accountants use the term full cost to mean the full manufacturing or production cost of a product. To these accountants this means a product’s cost of...
Is it acceptable for companies to use two methods of depreciation? Definition of Depreciation Methods There are various methods of depreciating assets that are used in a business. It is acceptable and common for...
What is the difference between notes payable and notes receivable? Definition of Notes Payable and Notes Receivable Notes payable and notes receivable are both associated with a written note that promises to repay the...
Can you help me understand the golden rules of accounting? The golden rules of accounting are not presented in any of the U.S. accounting books that I have reviewed. I assume the reason for omitting the golden rules of...
What is the difference between cash flow and free cash flow? Definition of Cash Flow Cash flow refers to the amounts of cash that a company, investment or project generates. The cash that a company generates is different...
Why does LIFO usually produce a lower gross profit than FIFO? Definition of LIFO LIFO (which is the acronym for Last In, First Out) is a cost flow assumption in which the most recent costs of inventory items are the...
What is the meaning of a favorable budget variance? Definition of a Favorable Budget Variance A favorable budget variance means that the actual amount that occurred was better for the company (or organization) than the...
What is the difference between dividends and interest expense? Definition of Dividends Dividends are a distribution of a corporation’s earnings to its stockholders. Dividends are not an expense of the corporation and...
Where are short-term bank loans reported on the statement of cash flows? Definition of Short-Term Bank Loans Short-term bank loans are generally loans that must be repaid within one year of the date of the balance sheet....
What is the stated interest rate of a bond payable? Definition of Stated Interest Rate of a Bond The stated interest rate of a bond payable is the annual interest rate that is printed on the face of the bond and stated...
Should a manufacturer's selling prices be based on costs? A manufacturer’s selling prices should not be based on costs alone. One reason is that the actual cost of each product is not known with precision. At best,...
A non-operating item that results from the sale of a long-term asset for more (gain) or less (loss) than its carrying amount or book value.
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