What are the typical items reported as current liabilities? Definition of Current Liabilities Current liabilities (also known as short-term liabilities) for most companies are the obligations that must be paid within one...
What are the typical items reported as current liabilities? Definition of Current Liabilities Current liabilities (also known as short-term liabilities) for most companies are the obligations that must be paid within one...
What is the difference between an invoice and a statement? Definition of an Invoice An invoice received from a supplier shows the items purchased, the cost per unit, the total cost or extension of each item, the total of...
What are the reasons for high inventory days? Definition of Inventory Days I assume that inventory days is referring to the days’ sales in inventory. If so, then inventory days is also related to the inventory turnover...
What is the difference between the cash basis and the accrual basis of accounting? Definition of the Cash Basis of Accounting Revenues are reported on the income statement in the period in which the cash is received from...
What is included in cash and cash equivalents? Examples of Cash In accounting, a company’s cash includes the following: currency and coins checks received from customers but not yet deposited checking accounts petty...
Are repairs to office equipment an expense? Repairing and maintaining office equipment is an immediate expense. This is true even if the repair cost is a very large amount. If a large expenditure is made to improve...
What is a petty cash voucher? Definition of Petty Cash Voucher A petty cash voucher is usually a small form that is used to document a disbursement (payment) from a petty cash fund. Petty cash vouchers are also referred...
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 columnar? Prior to electronic worksheets, accountants had several pads of paper with a varying number of columns (and rows) preprinted on them. The pads of paper were labeled as columnar pads. The preprinted...
details. The $50,000 is a lump sum payment. Sometimes the term lump sum payment merely indicates a single payment. For example, the maturity value of a bond might be referred to as a lump sum payment in order to...
What is a valuation account? Definition of Valuation Account In accounting, a valuation account is usually a balance sheet account that is used in combination with another balance sheet account in order to report the...
What are the elements of financial statements? Definition of Elements of Financial Statements The elements of financial statements are the classes of items contained in the financial statements. Examples of Elements of...
Why are some plastic cards called debit cards? I assume the name debit card relates to the reduction in the cardholder’s checking account balance at the time that the card is used. The checking account balances of a...
What is a sale on credit? Definition of Sale on Credit A sale on credit is revenue earned by a company when it sells goods and allows the buyer to pay at a later date. This is also referred to as a sale on account....
that a company has steady demand of 12,000 units per year for one of its products. The company purchases the product from its supplier at a cost of $100 each. The company’s incremental cost to process an order is $144...
How do you record the interest that is unpaid on a note payable? Definition of Interest Unpaid on Note Payable Interest that has occurred, but has not been paid as of a balance sheet date, is referred to as accrued...
Withholdings for Health Insurance Assume that the cost of a company’s health insurance plan is $300 per biweekly pay period and that the employee is responsible for paying 25% of the cost through payroll withholding....
What is leverage? Definition of Leverage In accounting and finance, leverage is the use of a significant amount of debt to purchase an asset, operate a company, acquire another company, etc. Since the cost of debt is...
a company’s costs, assisting in financial decisions, profit planning, calculating break-even points, capital budgeting, and calculating the costs of existing products in order to value the company’s inventory and to...
How does inflation affect the cost of goods sold? Inflation and the Cost of Goods Sold Generally speaking, a company selling goods during periods of inflation will see an increase in its cost of goods sold. When and by...
What is an expense? Definition of Expense Under the accrual method of accounting, an expense is a cost that is reported on the income statement for the period in which: The cost best matches the related revenues The cost...
What is long-term debt? Definition of Long-term Debt In accounting, long-term debt generally refers to a company’s loans and other liabilities that will not become due within one year of the balance sheet date. (The...
What is the accrual method? Definition of Accrual Method The accrual method of accounting reports revenues on the income statement when they are earned even if the customer will pay 30 days later. The accrual method of...
What is the meaning of debtor? Definition of Debtor A debtor is a person, company, or other entity that owes money. In other words, the debtor has a debt or legal obligation to pay the amount owed. Example of Debtor If...
What is the distinction between debtor and creditor? Definition of Debtor A debtor is a person or enterprise that owes money to another party. The party to whom the money is owed might be a supplier, bank, or other...
, some fixed costs could be eliminated. Here’s an illustration. A company manufactures products in its 100,000 square foot plant. The company’s depreciation on the plant is $1,000,000 per year. The capacity of the...
What is credit analysis and financial analysis? Credit analysis is associated with the decision to grant credit to a customer. It is also part of a bank’s lending procedures for making a loan and monitoring the...
What is a plant-wide overhead rate? Definition of Plant-wide Overhead Rate A plant-wide overhead rate is often a single rate per hour or a percentage of some cost that is used to allocate or assign a company’s...
What is DCF? In accounting, DCF refers to discounted cash flows or to the discounted cash flow techniques such as net present value or internal rate of return. DCF is a preferred method for evaluating capital...
of manufacturing overhead. JKL allocates the manufacturing overhead based on the normal and expected number of production machine hours which are 20,000 for the new year. Therefore, the JKL’s predetermined...
What is benchmarking? Benchmarking is a process for improving some activity within an organization. We will illustrate benchmarking with the following example. Company Q has identified one of its activities that needs...
What is the major weakness of the traditional method of allocating factory overhead? Definition of Traditional Method Allocating Factory Overhead The traditional method of allocating factory overhead (manufacturing...
In standard costing, how is the purchase price variance reclassified to arrive at actual cost? Definition of Purchase Price Variance In standard costing, the purchase price variance is the difference between the actual...
What is setup cost? Definition of Setup Cost In manufacturing, setup cost is the cost incurred to get equipment ready to process a different batch of goods. Hence, setup cost is regarded as a batch-level cost in activity...
What is the 13-point average for inventory? The 13-point average for inventory for the calendar year 2023 would be the sum of the following: (the inventory amount at December 31, 2022 plus the 12 end-of-the-month amounts...
What is the break-even formula? Break-even Point in Units of Product The formula for determining the break-even point in units of product sold is: total fixed expenses divided by the contribution margin per unit. For...
subsidiary companies. A benefit of decentralization is having the decision makers closer to the markets to make better and faster decisions. Another benefit of decentralization is having more individuals share the work...
What does an unfavorable volume variance indicate? An unfavorable volume variance indicates that the amount of fixed manufacturing overhead costs applied (or assigned) to the manufacturer’s output was less than the...
What is a budget? A budget is a financial plan for future activities. The budgets used in business often include a sales or revenues budget detailed by products or services, production budgets, budgets for each...
changed by $2,000 ($18,000 vs. $16,000) when the number of MHs changed by 20,000 (120,000 vs. 100,000). In other words, the variable cost rate was $0.10 per machine hour ($2,000/20,000 MHs). Continuing with this...
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