What is a basis point? A basis point is a hundredth (1/100) of a percentage point. Expressed another way, one percentage point is equal to 100 basis points. This means that if an interest rate drops by 1/2 of a...
What is a basis point? A basis point is a hundredth (1/100) of a percentage point. Expressed another way, one percentage point is equal to 100 basis points. This means that if an interest rate drops by 1/2 of a...
See job order cost sheet.
A corporation with a limited number of stockholders and whose stock is usually not publicly traded.
An actual count of the goods owned by the company. The actual counts are then compared to the quantities reported on the detailed inventory records. If a difference exists, the quantity shown on the inventory record...
Statement of Cash Flows. See Explanation of Cash Flow Statement.
Where can I get official information for federal payroll taxes? For official information on federal payroll taxes we recommend the Internal Revenue Service Publication 15 which is known by two names: Circular E and...
The stockholders’ equity account that reports the par or stated value of the issued shares of common stock. If the common stock does not have a par or stated value, this account will report the amount received when...
See separation of duties.
See inventory: work-in-process (WIP).
Payables arising from the purchase of merchandise inventory and outside services. See accounts payable.
A lease that “in substance” is a purchase and financing arrangement. When a lease meets certain criteria, the asset being “rented” is recorded as an asset and a liability is also recorded. A lease...
See cleared.
The par value of common and preferred stock.
See Allowance for Doubtful Accounts.
The fixed manufacturing costs (e.g., property tax, rent, and depreciation on factory) that have been assigned to (absorbed by) the products manufactured via a predetermined rate. Ideally, by the end of the accounting...
The dollar amount associated with the goods in a company’s inventory. Initially the cost per unit is the cost to get the inventory items in place and ready for use. However, under certain circumstances the cost may...
See Explanation of Inventory and Cost of Goods Sold.
The cash amounts received after deducting the related income taxes and also the cash amounts paid after deducting the cash saved when the amounts are income tax deductible.
See natural expense classification.
A loan from a bank or other lender for which the borrower is not required to pledge assets as collateral for the loan.
Under the accrual method of accounting, this account reports the employer’s portion of the health insurance cost incurred by the company during the period indicated in the heading of the income statement, whether...
A technique using simultaneous equations to allocate a manufacturer’s service departments’ costs to both other service departments and to production departments.
A term that describes the steps when processing transactions (analyzing, journalizing, posting, preparing trial balances, adjusting, preparing financial statements) in a manual accounting system. Today many of the steps...
See discounted cash flow model.
The statistic known as the coefficient of correlation. The range of this statistic is -1 to +1. When this statistic is squared the result is the percentage change in the dependent variable y that is explained by the...
See uncleared check.
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...
The one-year period ending at an organization’s typical low point of activity. For example, a school’s natural business year is July 1 through June 30. It is practical to have the accounting and financial...
The underlying true cause of a cost occurring. In other words, the root cause is more than a mere correlation between an event and a cost. There is a real cause and effect relationship.
What is the cost to store inventory? Definition of Cost to Store Inventory The cost to store, hold or carry inventory is the total of the following: Cost of the space used for storing inventory, such as rent, heat,...
Under the accrual basis of accounting, the Interest Revenues account reports the interest earned by a company during the time period indicated in the heading of the income statement. Interest Revenues account includes...
Usually a permanently restricted asset for which the principal portion must be retained indefinitely. The earnings from an endowment fund could be unrestricted or temporarily restricted.
A cost that can be traced to a cost object. For example, the flour used in baking bread is a direct cost of a bakery’s bread. The wages and salaries of the employees working exclusively in a manufacturer’s...
A retirement plan that specifies the amount that a retiree will receive, such as 1% of the person’s recent salary times the years of service. The employer’s obligation is to contribute enough money to meet...
Also referred to as footnotes. These provide additional information pertaining to a company’s operations and financial position and are considered to be an integral part of the financial statements. The notes are...
The result of subtracting total liabilities from total assets. It is also the term used by not-for-profit organizations instead of owner’s equity or stockholders’ equity. To learn more see our Explanation of...
The statements, standards, interpretations and other financial reporting guidelines issued by the Financial Accounting Standards Board. The FASB pronouncements are available at www.FASB.org.
A symbol that indicates the variable cost rate and also the slope of a straight line. For example, in the equation of the straight line, y = a + bx, ‘b’ represents the variable cost rate per unit of...
A common cost. Often refers to the costs prior to the point where several products emerge from a common process.
The current liability account which reports the amount of salaries earned by a company’s employees, but which have not yet been paid by the company.
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