income statement. Since the costs of products may be higher when they are reordered/purchased, the order in which their costs are removed from inventory will have an impact on the inventory valuation and the amount...
income statement. Since the costs of products may be higher when they are reordered/purchased, the order in which their costs are removed from inventory will have an impact on the inventory valuation and the amount...
of the revenues will be available (after the variable expenses are covered) for the fixed expenses and net income. The contribution margin amount or ratio (ratio) can be presented for: The company as a whole A product...
are not allocated to the products, the company must have its selling prices and sales revenues sufficiently large to cover both the product costs and the period expenses to have a positive amount of net income. Join PRO...
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...
that has a specified dividend rate and the owners generally do not participate in the growth of the corporation is __________ stock. 9. When a corporation declares a cash dividend, it credits the current liability...
Our Explanation of Working Capital and Liquidity provides you with an in-depth look at the components of working capital and the challenges of converting current assets to cash before obligations come due. You will see...
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...
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
. This will get the proper amounts on the company’s income statement and balance sheet. The account Interest Expense will begin January with a zero balance, since expenses are temporary accounts that are closed at the...
How do you calculate the payroll accrual? Definition of Payroll Accrual The payroll accrual is the amounts a company owes for work done by employees, but the amounts have not yet been recorded in the company’s general...
account and a liability for the money received in advance of doing the work. (The contract without the money is a commitment, but is not recorded in the accounts as a liability.) Example of a Down Payment on a Contract...
Subscription Expense and will credit Cash (or Accounts Payable). If the amount of the subscription is significant, the company should debit the cost of the subscription to the current asset account Prepaid Expenses and...
(and the related depreciation expense) are associated with constructed assets such as buildings, machinery, office equipment, furniture, fixtures, vehicles, etc. Accumulated Depreciation is also the title of the contra...
What is the double-entry system? Definition of Double-Entry System The double-entry system of accounting or bookkeeping means that for every business transaction, amounts must be recorded in a minimum of two accounts....
What is the difference between liability and debt? Definition of Liability In accounting and bookkeeping, the term liability refers to a company’s obligation arising from a past transaction. Examples of Liabilities A...
not yet been recorded in the company’s general ledger accounts. For example, the bank statement may reveal that a bank service charge was withdrawn from the account on the last day of the month. Join PRO to Track...
What is accrued payroll? Definition of Accrued Payroll Accrued payroll includes wages, salaries, commissions, bonuses, and other payroll related expenses that have been earned by a company’s employees, but have not yet...
. The amount of the insurance premiums that remain prepaid at the end of each accounting period are reported in the current asset account, Prepaid Insurance. The balance in this account will be combined with the balances...
is required, the company borrowing the money will record and report the amount owed as Notes Payable. If the creditor is a vendor or supplier that did not require the company to sign a promissory note, the amount owed...
account entitled Petty Cash must be opened. (This will be an additional cash account that can be listed separately on the company’s balance sheet or its balance could be included with the balances in the other cash...
Inventory is dormant and contains only the cost of the prior year’s ending inventory. With the periodic inventory system, the costs of additional purchases of goods are debited to the temporary account Purchases....
will be closed at the end of each year. However, the account’s debit balance is closed directly to the owner’s capital account. (The owner’s draws are not reported as an expense on the company’s income...
spent to acquire or improve a company’s fixed assets. The capital expenditures increase the respective asset accounts which are reported in the noncurrent asset section of the balance sheet entitled property, plant...
(noncurrent) liability account Bonds Payable will be credited with the face value of the bond. Cash will be debited for the cash received, and any difference will be recorded in one or two of the following bond-related...
What is book value? Definition of Book Value In accounting, book value refers to the amounts contained in the company’s general ledger accounts (or books). It is important to realize that the book value is not the same...
. The logic is that the company likely issued the checks to reduce its accounts payable. Since the issued checks will not be paid by the company’s bank, the company still has the liability. A negative cash balance in...
of the production equipment Salaries and benefits for production supervisors These actual costs will be recorded in general ledger accounts as the costs are incurred. Definition of Applied Overhead Applied overhead is...
What is the difference between periodic and perpetual inventory systems? Periodic Inventory System In a periodic system the account Inventory: Has only the ending balance from the previous accounting year Excludes the...
. Any insurance premium costs that have not expired as of the balance sheet date should be reported as a current asset such as Prepaid Insurance. The costs that have expired should be reported in income statement...
How do you record an asset that was partially financed? Example of Recording an Asset that was Partially Financed Assume that your company purchased a car for $10,000 by paying cash of $4,000 and signing a promissory...
, and the bank credits its liability account Customer Deposit Accounts. The liability is appropriate since the bank has the obligation to return the customer’s money on demand). The bank’s liability is reduced when...
in the company’s general ledger account Materials Purchase Price Variance. The company’s general ledger accounts for inventories (raw materials, work-in-process inventory, finished goods) and the cost of goods sold...
amount to $100 (the amount shown in the Petty Cash account). The petty cash vouchers provide the documentation for the $80 check request. In the process Mary discovers that the vouchers add up to only $79. Mary will...
Bonds Payable and the related accounts Discount on Bonds Payable, Premium on Bonds Payable, and Unamortized Bond Issue Costs. book value of bonds payable (or) carrying value of bonds payable The combination of the...
. In essence, the cost of goods sold is being matched with the revenues from the goods sold, thereby achieving the matching principle of accounting. When the cost of goods sold is subtracted from net sales, the result is...
proprietor working in her own business. For example, Jane works as a sole proprietor and her business reported a net income of $30,000 for the year. Since a sole proprietor does not receive a salary or wages, there is...
flows so that the present value of those cash flows is equal to the cash outlay for the project. Net present value discounts the project’s future cash flows by a predetermined rate, such as the rate needed or the...
recent costs remain in inventory. Definition of Gross Profit Net sales – Cost of goods sold = gross profit? Difference between LIFO and FIFO If there were no changes in the cost of inventory items (purchased or...
flow assumption from FIFO to the LIFO because they were experiencing rising costs. By flowing the recent higher costs into the cost of goods sold on the income statement and tax return (and keeping the older lower costs...
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