What is an equivalent unit of production? Definition of Equivalent Unit of Production An equivalent unit of production is an expression of the amount of work done by a manufacturer on units of output that are partially...
What is an equivalent unit of production? Definition of Equivalent Unit of Production An equivalent unit of production is an expression of the amount of work done by a manufacturer on units of output that are partially...
What is the difference between liquidity and liquidation? Definition of Liquidity Liquidity usually refers to a company’s ability to pay its bills when they become due. Liquidity is often evaluated by comparing a...
What is the cost of goods manufactured? Definition of Cost of Goods Manufactured The cost of goods manufactured is a calculation of the production costs of the goods that were completed during an accounting period. In...
What is the difference between equity financing and debt financing? Definition of Equity Financing Equity financing involves increasing the owner’s equity of a sole proprietorship or increasing the stockholders’...
What is the gross profit method? Gross Profit Method Definition The gross profit method is a technique used to estimate the amount of ending inventory. The technique could be used for monthly financial statements when a...
What are accrued liabilities? Definition of Accrued Liabilities Accrued liabilities are usually expenses that have been incurred by a company as of the end of an accounting period, but the amounts have not yet been paid...
How do you determine whether a person is an independent contractor or an employee? To assist you in determining whether someone is an independent contractor or an employee, you should refer to the Internal Revenue...
What is illusory profit? Illusory profit, also called phantom profit, is the difference between 1) the profit reported using historical costs required by US GAAP, and 2) the profit computed using replacement costs....
How do I determine the cost of missing inventory? Definition of Determining the Cost of Missing Inventory The approximate cost of missing inventory is the difference between 1) the cost of the inventory items that are...
What is the annual wage limit? Definition of Annual Wage Limit Annual wage limit is a payroll accounting term that is associated with the Social Security payroll tax. (The annual wage limit is also known as the annual...
What is NIFO? NIFO is the acronym for next-in, first-out. NIFO is a cost flow assumption, just as FIFO and LIFO are cost flow assumptions. However, NIFO is not acceptable for financial reporting since it calls for a...
What is the difference between stockholder and shareholder? Definition of Stockholder and Shareholder The term stockholder or shareholder typically describes an investor who own shares of a corporation’s common stock....
What is a favorable variance? Definition of a Variance In accounting the term variance usually refers to the difference between an actual amount and a planned or budgeted amount. For example, if a company’s budget for...
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...
What is COS? Definition of COS In accounting, the acronym COS could indicate either cost of sales or cost of services. The income statement of a manufacturer or a retailer might use the term cost of sales or it might use...
How do I record exterior cement work? Is it an asset or an expense? If the cement work was done to repair or maintain existing cement work, then the expenditure should be recorded as an expense. Even if the cost is very...
What is a contingent liability? Definition of Contingent Liability A contingent liability is a potential liability that may or may not become an actual liability. Whether the contingent liability becomes an actual...
What is the profit margin (after tax) ratio? Definition of Profit Margin Ratio The after tax profit margin ratio expresses the company’s net income or earnings as a percent of the company’s net sales. In other words,...
How do you calculate an asset's salvage value? Definition of Asset Salvage Value In accounting, an asset’s salvage value is the estimated amount that a company will receive at the end of a plant asset’s useful life....
See net operating income (NOI).
Also referred to as a sunk cost. A past cost is not relevant to a decision.
A word to describe whether a company is able to earn more revenues than expenses.
A dollar adjusted for inflation. If an asset such as land was purchased for $10,000 many years ago when the consumer price index (CPI) was 100 and today the CPI is 400, today’s constant-dollar amount would be...
Using debt (such as loans and bonds) to acquire more assets than would be possible by using only owners’ funds. Also referred to as trading on equity.
See bond sinking fund.
See accrued payroll.
See activity-based costing.
The direct method could refer to the method of preparing the statement of cash flows. The direct method could also refer to the method of allocating a manufacturing facility’s service departments to its production...
The allocation to expense of the cost of an intangible asset such as a patent or goodwill.
Someone who performs a task for a company, but is not an employee. The IRS has criteria to assist in distinguishing between an independent contractor and an employee.
The cost associated with setting up a piece of production equipment. This would include the cost of the setup mechanic, the cost of scheduling, record keeping, moving the starting material, and testing the first few...
An allocation based on some proportions. For example, a corporation’s taxable income that was earned in many of the U.S. states might be allocated or apportioned to the states in which the corporation has conducted...
What is salvage value? Definition of Salvage Value In accounting, salvage value is the amount that is expected to be received at the end of a plant asset‘s useful life. Salvage value is sometimes referred to as...
Merchandise that is not owned by the party in possession of the goods. For example, a craftsperson might have produced 100 ornate wood items. In order to sell the items, the person asks a local merchant to take five of...
The depreciation computed for financial reporting purposes—as opposed to income tax depreciation. To learn more, see Explanation of Depreciation.
The amount paid or contributed by stockholders in exchange for shares of a corporation’s stock.
Classifying expenses according to the type of work such as selling, administration, general, and financing.
Part of stockholders’ equity representing the fair market value of an asset at the time it was received as a gift. For example, a corporation may be given a large tract of land from a community if the corporation...
A department that is directly involved in manufacturing products. Examples are the machining, finishing, and assembling departments.
See Statement of Financial Accounting Standards.
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