What is process costing? Definition of Process Costing Process costing is a term used in cost accounting to describe one method for collecting and assigning manufacturing costs to the units produced. A processing cost...
What is process costing? Definition of Process Costing Process costing is a term used in cost accounting to describe one method for collecting and assigning manufacturing costs to the units produced. A processing cost...
What is the difference between a cost center and a profit center? Definition of Cost Center A cost center is a subunit of a company that is responsible only for its costs. A few examples of cost centers are: Production...
What is a flexible budget? Definition of a Flexible Budget A flexible budget is a budget that adjusts or flexes with changes in volume or activity. The flexible budget is more sophisticated and useful than a static...
Why is inventory turnover important? Definition of Inventory Turnover A company’s inventory turnover is often expressed as the company’s cost of goods sold for a year divided by the average cost of inventory during...
In adjusting entries, how do I know which T-accounts to use? We illustrate the common adjusting entries with the use of T-accounts in the Explanation of the Topic Adjusting Entries available for your reading at no...
What causes a variation in profit margin and turnover ratios between industries? Mega grocery stores, discount stores, and warehouse clubs often have small profit margins but have high turnover ratios. The small profit...
What is the traditional method used in cost accounting? Definition of Traditional Method in Cost Accounting The traditional method of cost accounting refers to the allocation of manufacturing overhead costs to the...
What are out-of-pocket costs? Out-of-pocket costs are those costs or expenses that require a cash payment in the current period or during a project. For example, the wages of the person setting up a machine for a new...
How do you calculate the average balance in accounts receivable? The average will be more representative if you include additional balances in the computation. For example, if you compute the average balance for the year...
What is an incremental cost? Definition of Incremental Cost An incremental cost is the difference in total costs as the result of a change in some activity. Incremental costs are also referred to as the differential...
What is a cost variance? Definition of Cost Variance Generally a cost variance is the difference between the actual amount of a cost and its budgeted or planned amount. For example, if a company had actual repairs...
Why do manufacturers use standard costs? One reason for a manufacturer to use standard costs is to plan carefully what its costs will be for the upcoming budgeting year and to then compare the actual costs with those...
What is elastic demand? Definition of Elastic Demand Elastic demand is the situation in which demand for a product or service is sensitive to price changes. Elastic demand is a major concern for a manufacturer that...
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,...
What is the cost of goods sold? Definition of Cost of Goods Sold The cost of goods sold is the cost of the products that a retailer, distributor, or manufacturer has sold. The cost of goods sold is reported on the income...
Can a cost be both a direct cost and an indirect cost? A cost can be both a direct cost and an indirect cost. One of many examples is the cost of a supervisor in a department within a factory. Let’s assume that Sam...
Our Explanation of Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
Our Explanation of Adjusting Entries gives you a process and an understanding of how to make the adjusting entries in order to have an accurate balance sheet and income statement. Eight examples including T-accounts for...
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 Nonmanufacturing Overhead provides examples of a manufacturer's expenses which are not considered to be costs of a product for financial reporting. However, they are operating expenses that will have...
Bank Reconciliation Bank Reconciliation The bank reconciliation is also known as the bank statement reconciliation or the bank rec. In accounting, a corporation’s checking account is considered to be part of its cash...
Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
Our Explanation of Accounts Payable provides insights on the bill paying process in a large company. Included are discussions of the three-way match, early payment discounts, end of period accruals, and more.
Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
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...
See units of production method of depreciation.
The number of shares of stock that a corporation may issue. The amount is specified in the corporation’s articles of incorporation.
Used to calculate the earnings per share of common stock: Earnings available for common stock divided by the weighted-average number of shares of common stock outstanding. The weighted-average number of shares is needed...
The balance of the owner’s capital account excluding the current year’s net income and current year’s draws by the owner.
The method of accounting for treasury stock whereby the cost of the stock that is repurchased by the issuing corporation is recorded and is reported in the contra stockholders’ equity account Treasury Stock.
Cost of goods sold is usually the largest expense on the income statement of a company selling products or goods. Cost of Goods Sold is a general ledger account under the perpetual inventory system. Under the periodic...
A method for estimating the inventory of a retailer. This method requires that the retail amounts and the related cost amounts are available for beginning inventory and purchases. An illustration of this technique is...
The inventory system where purchases are debited to the inventory account and the inventory account is credited at the time of each sale for the cost of the goods sold. Hence, the balance in the inventory account is...
A document filed when a corporation is formed. Among other things, it lists the number of shares of stock that the corporation is authorized to issue.
Individuals elected by the common stockholders of a corporation to represent the stockholders and to establish the policies of the corporation. The board of directors appoints the officers of the corporation and declares...
For a merchandiser this is the cost of merchandise purchased after deducting purchase returns, purchase allowances, and purchase discounts but after adding freight-in.
Obligations not reported as liabilities on the balance sheet.
Earnings are said to be of a high quality if the accounting policies are conservative. One indication is that the cash flows from operating activities shown on the statement of cash flows consistently exceed the amount...
See cost of goods sold.
The title of the official pronouncement of the Financial Accounting Standards Board which establishes a new accounting standard.
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