Usually a change in the estimated useful life of an asset or a change in the estimated salvage value. The change usually causes a change in the depreciation expense for the current year and subsequent years. The...
Usually a change in the estimated useful life of an asset or a change in the estimated salvage value. The change usually causes a change in the depreciation expense for the current year and subsequent years. The...
The number of shares of stock that a corporation may issue. The amount is specified in the corporation’s articles of incorporation.
The amount by which total costs will change when an activity is increased by one unit. In the equation of the line, y = a + bx, the variable cost rate is represented by ‘b’ and the units of activity are...
Federal government securities with a fixed interest rate and maturing in 10 years or less.
See direct materials inventory.
The term that refers to the stock of a corporation which is traded on the stock exchanges (as opposed to stock that is privately held among a few individuals).
The reduction or removal of an asset amount. For example, an account receivable will be removed or written off if the customer is not able to pay the amount owed to the company.
A variance arising in a standard costing system that indicates the difference between the standard amount of fixed manufacturing overhead for the good units produced (standard hours times standard rate) and the budgeted...
Usually referred to as the SEC. The U.S. government agency which has regulatory power over the U.S. stock exchanges and the reporting requirements of the corporations whose stock is traded on those stock exchanges. The...
The total annual return on a bond investment if held to maturity. For example, if a bond is purchased at less than its maturity value, the yield to maturity includes the annual interest plus the gain as the bond...
A budget that flexes with volume. Under a flexible budget the budgeted amount of manufacturing overhead will increase if the company produces more units than planned. The flexible budget will decrease if the company...
The difference between assets and liabilities, such as stockholders’ equity, owner’s equity, or a nonprofit organization’s net assets. Also used to indicate an owner’s interest in a personal...
A percentage of an hourly wage rate (or salary) that represents the employer’s additional costs of employee benefits such as paid vacation days, paid sick days, insurance (health, dental, life, worker...
The result of subtracting operating expenses from gross profit. Income from operations is the amount before non-operating items (such as gains and losses on the sale of assets, interest revenue, and interest expense).
A term often used when referring to production workers and other workers who are paid with an hourly pay rate. These workers’ compensation is referred to as “wages” (as opposed to salaries).
In financial accounting this term often refers to the accounting guidelines or principles of conservatism and materiality.
See paid-in capital in excess of par value – common stock.
A cost flow assumption where the first (oldest) costs are assumed to flow out first. This means the latest (recent) costs remain on hand. To learn more, see Explanation of Inventory and Cost of Goods Sold.
The allocation of manufacturing overhead (indirect manufacturing costs) to products on the basis of a volume metric such as direct labor hours or production machine hours. As manufacturing becomes more sophisticated the...
The type of stock that is present at every corporation. (Some corporations have preferred stock in addition to their common stock.) Shares of common stock provide evidence of ownership in a corporation. Holders of common...
An organization without owners and with the main purpose of providing services needed by society. After application and approval by the U.S. Internal Revenue Service, a nonprofit organization may be granted tax exempt...
In manufacturing, the product cost includes direct materials, direct labor, and manufacturing overhead. A retailer’s product cost is the net cost from suppliers plus costs to get the product in place and ready for...
What is an ordinary annuity? Definition of Ordinary Annuity In accounting, an ordinary annuity refers to a series of identical cash amounts with each amount occurring at the end of equal time intervals. Another term for...
A document that discloses important information on bonds or preferred stock. Included in the indenture would be the call price, the actions that can occur if the company fails to pay the interest or dividend, etc.
A revenue account that reports the sales of merchandise. Sales are reported in the accounting period in which title to the merchandise was transferred from the seller to the buyer.
A Latin term that means in proportion. See prorate.
A journal entry made on the first day of a new accounting period to undo the accrual type adjusting entries made prior to the preparation of the financial statements dated one day earlier. Reversing entries allow for an...
A form of business entity having partners. (Consult with an attorney about this form of entity versus alternatives.)
A budget that does not flex for changes in volume or activity.
The most common method of preparing the statement of cash flows. Under this method the starting point is the net income reported on the income statement. To learn more, see Explanation of Cash Flow Statement.
The gross amount of purchases minus the amount of purchase returns, purchase allowances, and purchase discounts.
Why do companies use cost flow assumptions to cost their inventories? Cost flow assumptions are necessary because of inflation and the changing costs experienced by companies. If costs were completely stable, it...
An asset account used to record a loan to another party that has real estate as collateral.
Raw materials that are a traceable component of a manufactured product. For example, the direct material of a baseball bat is the wood. Flour, sugar, and vegetable oil are direct materials of a company that manufactures...
A bill issued by a seller of merchandise or by the provider of services. The seller refers to the invoice as a sales invoice and the buyer refers to the same invoice as a vendor invoice.
An amount remaining after another amount is subtracted. In the accounting equation, owner’s equity is the residual of assets minus liabilities.
Also known as the acid test ratio. This ratio compares the amount of cash + marketable securities + accounts receivable to the amount of current liabilities. To learn more, see Explanation of Financial Ratios.
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