Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
to prepare its external financial statements. Example of Materials Usage Variance Even though a company uses a standard cost system in its accounting, the company’s external financial statements must comply with the...
information on customers’ and potential customers’ credit ratings. 8. An arrangement with a bank for a company’s credit customers to remit amounts directly to the bank is known as a __________ account. 9. Trade...
Should inventories be reported at their cost or at their selling prices? Definition of Inventory Cost Inventories are reported at cost, not at selling prices. A retailer’s inventory cost is the cost to purchase the...
amounts withheld from employees’, the employer must match the FICA taxes withheld from employees. In other words, the employer will have an additional expense equal to the total of the FICA taxes withheld from its...
What is a noncash expense? Definition of a Noncash Expense A noncash expense is an expense that is reported on the income statement of the current accounting period, but the related cash payment took place in another...
Why is the distinction between product costs and period costs important? The distinction between product costs and period costs is important to: Properly measure a company’s net income during the time specified on its...
How do I calculate the after-tax cost of debt? Definition of After-Tax Cost of Debt The after-tax cost of debt is the interest paid on the debt minus the income tax savings as the result of deducting the interest expense...
Why are some expenses deferred? Definition of Deferred Expenses Under the accrual basis of accounting, an expense is a cost that is used up, has expired, or is directly related to revenues reported on a company’s...
What is the difference between revenues and earnings? Definition of Revenues and Earnings Revenues are the amounts earned from providing goods or services to customers during the period shown in the heading of the income...
for the company’s: Financial statements General ledger Cost accounting Payroll Accounts payable Accounts receivable Budgeting Special analyses as well as other duties At larger companies the controller may be assisted...
What is the difference between stockholder and stakeholder? Definition of Stockholder A stockholder or shareholder is the owner of shares of a corporation’s common or preferred stock. Definition of Stakeholder A...
as a long-term asset. Noncurrent assets are reported under the following balance sheet headings: Investments (long-term) Property, plant and equipment Intangible assets Other assets Examples of Noncurrent Assets...
dishonest people working together to admit to each other that they are dishonest and then plan and carry out the crime. Example of Separation of Duties A bank requires that its night depository safe be opened twice a...
rates, while other products require very few operations in the high cost department. There may also be products which require many hours of processing, but they occur in low cost departments. For instance, the...
What are conversion costs? Definition of Conversion Costs Conversion costs is a term used in cost accounting that represents the combination of direct labor costs and manufacturing overhead costs. In other words,...
that the common costs or indirect costs that require allocation are not caused by volume. In other words, traditional cost allocations are often based on something other than the root causes of the costs. It is possible...
of the quantities of every material used in the various steps of manufacturing each product or component part. Example of BOM Assume that a small company manufactures gourmet pies. There will be a bill of materials...
ratios: Debt to equity Debt to total assets In these ratios, debt includes the company’s current and noncurrent liabilities such as: Bonds payable Bank loans Other loans Accounts payable Other amounts owed In a...
resources. The segregation of duties (or separation of duties) is part of a company’s internal controls for safeguarding its assets. Example of Segregation of Duties An example of the segregation of duties is 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...
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...
Our Explanation of Stockholders' Equity covers the unique terminology for a corporation's paid-in capital, retained earnings, treasury stock, and accumulated other comprehensive income. Included are cash dividends, stock...
Break-even Point Break-even Point The break-even point is the level of sales that result in a business having a net income of zero. In other words, its revenues will be exactly equal to its expenses. The break-even point...
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...
Our Explanation of Manufacturing Overhead gives you examples of what is included in manufacturing overhead. You will learn that these are indirect product costs and therefore are allocated to the products in order to...
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 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...
Where does the interest paid on bank loans get reported on the statement of cash flows. Definition of Interest on Bank Loans The interest on bank loans is usually an expense of the accounting period in which the interest...
What is the difference between the cash basis and the accrual basis of accounting? Definition of the Cash Basis of Accounting Revenues are reported on the income statement in the period in which the cash is received from...
Depreciation Methods Three examples of accelerated depreciation methods include the following: Double-declining-balance method (or 200% declining-balance method) 150%-declining-balance method Sum-of-the-years’-digits...
What is the return on stockholders' equity (after tax) ratio? Definition of Return on Stockholders’ Equity The financial ratio return on stockholders’ equity (or return on equity) is calculated by dividing a...
containing each account’s unadjusted balance, Adjustments containing any adjusting entries, Adjusted Trial Balance containing the combination of the unadjusted balance and any adjustments, Income Statement containing...
What is ROI? Definition of ROI ROI is the acronym for return on investment. Traditionally, ROI related 1) the income statement profit to the 2) the balance sheet investment. A drawback of ROI is that the accounting...
Why is Interest Expense Included in the Operating Activities Section of the Cash Flow Statement? Definition of Interest Expense Interest expense is the cost of borrowing money. Under the accrual method of accounting,...
The owner’s equity account that contains the amount invested in the sole proprietorship by Mary Smith plus the net income since the company began minus the draws made by Mary Smith since the company began. The...
The owner’s equity account that contains the amount invested in the sole proprietorship by Matt Jones plus the net income since the company began minus the draws made by Matt Jones since the company began. The...
The allocation of the cost of a plant asset to expense in an accelerated manner. This means that the amount of depreciation in the earlier years of an asset’s life is greater than the straight-line amount, but will...
This is an owner’s equity account. The balance in this account reflects the owner’s investment in this sole proprietorship plus the net income and minus the owner’s draws since the company began. (The...
The owner’s equity account that contains the amount invested in the sole proprietorship by R. Smith plus the net income since the company began minus the draws made by R. Smith since the company began. The current...
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