companies have multiple inventory turnovers each year, small balances in the variance accounts (for whatever reason) are generally combined with the standard amount of the cost of goods sold. Significant variances which...
companies have multiple inventory turnovers each year, small balances in the variance accounts (for whatever reason) are generally combined with the standard amount of the cost of goods sold. Significant variances which...
Can absorption costing cause an increase in net income? Definition of Absorption Costing Absorption costing is a cost accounting method (required by US GAAP) in which a manufacturer must assign fixed manufacturing...
receivable This procedure sorts the amounts owed to a company by its customers and by the dates when the sales invoices are or were due. Mark as wrong Mark as right average collection period (or) days' sales in...
Our Explanation of Income Statement helps you learn the most important features of a corporation's income statement (also known as the statement of operations or profit and loss statement). We provide more understanding...
information for answering Questions 31 - 35: A manufacturer produces one uniform product. A regression analysis of its mixed costs and units produced revealed the following: 31. The average amount of the fixed costs...
Our Explanation of Income Statement helps you learn the most important features of a corporation's income statement (also known as the statement of operations or profit and loss statement). We provide more understanding...
of the factors used in calculating the reorder point of items carried in inventory. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career...
In the context of inventory, net realizable value or NRV is the expected selling price in the ordinary course of business minus the costs of completion, disposal, and transportation. In the context of accounts receivable...
The amount needed to replace an asset such as inventory, equipment, buildings, etc. If an asset’s replacement cost is greater than the asset’s carrying amount, the cost principle prohibits the use of the...
Terms indicating that the seller will incur the delivery expense to get the goods to the destination. With terms of FOB destination the title to the goods usually passes from the seller to the buyer at the destination....
A formula that calculates the optimum quantity to be purchased (or produced) so as to minimize the combined total cost of carrying inventory and processing additional purchase orders (or production setups). The formula...
A variance arising in a standard costing system that indicates the difference between the actual cost of direct materials and the standard cost of direct materials. Recognizing this variance at the time the direct...
Often a U-shaped arrangement of the various machines involved in manufacturing a product. This layout eliminates the need to move the item being manufactured from one area or department of the factory to another. In...
A government index that tracks the changes in prices in order to measure general inflation. This index can be used by small companies to obtain the benefits of LIFO without tracking individual units in inventory. See the...
Often a 1% or 2% discount that a buyer may deduct from the amount owed to a supplier (if stated on the supplier’s invoice) for paying in 10 days instead of the customary 30 days. The purchase discount is also...
The process of becoming outdated or no longer being economically feasible (often caused by technology advances). For example, personal computers and computer chips from 2010 are obsolete even though they can be operated....
Cash and other resources that are expected to turn to cash or to be used up within one year of the balance sheet date. (If a company’s operating cycle is longer than one year, an item is a current asset if it will...
A method where only the variable manufacturing costs are assigned to inventory and the cost of goods sold. Fixed manufacturing costs are viewed as expenses of the period in which they are incurred. This method is not...
The temporary contra purchases account used in a periodic inventory system which represents the discounts allowed by paying within prescribed credit terms such as 1/10 (1% can be deducted from the amount owed if paid...
A current asset representing the cost of supplies on hand at a point in time. The account is usually listed on the balance sheet after the Inventory account. A related account is Supplies Expense, which appears on the...
Gains result from the sale of an asset (other than inventory). A gain is measured by the proceeds from the sale minus the amount shown on the company’s books. Since the gain is outside of the main activity of a...
Terms indicating that the buyer must pay to get the goods delivered. (The buyer will record freight-in and the seller will not have any delivery expense.) With terms of FOB shipping point the title to the goods usually...
The temporary contra purchases account used in a periodic inventory system which represents the amounts of merchandise that were returned to suppliers and the amounts allowed as deductions by suppliers for goods not...
A reduction of a markup. In the retail method of estimating inventory, it could mean the elimination of part or all of the additional markup. For example, if an item with a cost of $10 would normally be priced at $15,...
In accounting, cost is defined as the cash amount (or the cash equivalent) given up for an asset. Cost includes all costs necessary to get an asset in place and ready for use. For example, the cost of an item in...
The assigning or dividing up of amounts. For example, depreciation is an allocation process because it assigns an asset’s cost to expense in each of the years the asset is expected to be used. There is also an...
A quality of accounting information that facilitates comparing a company’s reporting of one accounting period to another. For example, the reader of a company’s financial statements can assume that the...
This is a non-operating or “other” item resulting from the sale of an asset (other than inventory) for more than the amount shown in the company’s accounting records. The gain is the difference between...
A temporary account used in the periodic inventory system to record the purchases of merchandise for resale. (Purchases of equipment or supplies are not recorded in the purchases account.) This account reports the gross...
the debtor pays the amount owed. A lien on a company’s assets should be disclosed in the company’s notes to the financial statements. Examples of Liens The following are examples of liens: A bank lends a retailer...
to as a variance. If the amount of the variance is not significant, it will usually be assigned to the cost of goods sold. If the variance is significant, it should be prorated to the cost of goods sold, the...
account Inventory. When goods are sold, the retailer moves the cost of those goods from Inventory to the income statement as the Cost of Goods Sold, which is an expense that is being matched with the related sales...
in determining a manufacturer’s cost of goods sold and the cost of its inventory. In traditional cost accounting, the indirect manufacturing costs are allocated to the products manufactured based on direct labor...
discount. (A supplier offering the discount will record the discounts taken by its customers in the account Sales Discounts.) Purchase Discounts is also a general ledger account used by a company purchasing inventory...
What is a purchase return? Definition of Purchase Return A purchase return occurs when a buyer returns merchandise that it had purchased from a supplier. Since the return of purchased merchandise is time consuming and...
of the work-in-process inventory, the finished goods inventory, and the cost of goods sold. Examples of Job Order Costing A few examples of the use of job order costing are: A company that designs and produces...
and salaries are expensed. In the case of a manufacturer, the payroll tax expense will cling to the products along with the gross wages. Therefore, if the goods manufactured are in inventory, the wages and the related...
appearing first followed by the income statement accounts. Examples of General Ledger Accounts Some of the more common balance sheet accounts and how they are further arranged in the general ledger include: asset...
Depreciation However, U.S. companies continue to use the term reserve in regards to the accounting for inventories using the LIFO cost flow method. For example, the company will use a contra inventory account entitled...
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