, the U.S. accounting rules require that the cost of the obsolete inventory items be reduced to their net realizable value. Failure to reduce their cost will mean that the following amounts on the company’s financial...
, the U.S. accounting rules require that the cost of the obsolete inventory items be reduced to their net realizable value. Failure to reduce their cost will mean that the following amounts on the company’s financial...
A current asset whose ending balance should report the cost of a merchandiser’s products awaiting to be sold. The inventory of a manufacturer should report the cost of its raw materials, work-in-process, and...
Allowance for Doubtful Accounts is a contra current asset account associated with Accounts Receivable. When the credit balance of the Allowance for Doubtful Accounts is subtracted from the debit balance in Accounts...
Debts is a contra asset account (an asset account with a credit balance). It is used along with the account Accounts Receivable in order for the balance sheet to report the net realizable value of the company’s...
An account with a balance that is the opposite of the normal balance. For example, Accumulated Depreciation is a contra asset account, because its credit balance is contra to the debit balance for an asset account....
be combined, such as raw materials and supplies, or raw materials and work-in-process. In addition, a manufacturer (and others with inventory) should disclose the method for valuing the inventory. This includes whether...
What is net present value? Definition of Net Present Value Net present value is the combination of 1) the present value of cash inflows, and 2) the present value of the cash outflows. To arrive at these present value...
Our Explanation of Evaluating Business Investments compares four of the techniques for reviewing potential capital expenditures. You will be introduced to accounting rate of return, payback, net present value, and...
the future cash flows? Accounting Rate Of Return Wrong. The accounting return uses accounting revenues and expenses (not cash flows) with NO consideration of the time value of money...no discounting. Internal Rate Of...
that consider the time value of money. They are: Net present value Internal rate of return Both of these models are also referred to as discounted cash flow (DCF) models. Discounting Future Cash Flows To recognize the...
What is NPV? Definition of NPV NPV is the acronym for net present value, which can be calculated as follows: The present value of the future cash inflows Minus the cash investment Example of NPV Assume that a company...
How do I calculate IRR and NPV? Definition of IRR The internal rate of return (IRR) method or model determines the interest rate that discounts all cash inflows and cash outflows to a net present value of $0. In other...
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...
that are discounted for the time value of money. The time value of money recognizes that a dollar today is more valuable than a dollar received in the future. Other capital budgeting models use cash flows without...
Why does the internal rate of return equate to a net present value of zero? Internal rate of return and net present value are discounted cash flow techniques. To discount means to remove the interest contained within the...
face value is used to calculate the cash interest payments required during the life of the bond, and it indicates the cash amount that must be paid at the maturity date. Example of Face Value of a Bond Payable Assume...
outflows for each option. Since these cash flows will occur at different times, you must “discount” the future cash flows to a present value. (This is necessary in order to recognize the time value of money.) The...
What is present value? Definition of Present Value In accounting, present value refers to the amount after discounting future cash amounts to the present. The present is depicted on a timeline as the point 0, which is...
not manufacture or sell products, it is unlikely to have inventory and will have only a minimal amount of equipment. Further, it distributes most of its cash for employees' salaries, rent, and dividends. This means...
money to the business, the entry will be to debit Cash and credit a liability account such as Notes Payable. (If Amy invests an asset other than cash, the business will record the cash equivalent or fair market value of...
describes an __________. 3. Methods that compute the present value of future cash flows are referred to as __________ cash flow techniques. 4. Part of the difference between a company’s net income during a specific...
for a total of $2,000 and the stock’s par value is $1 per share, the accounting entry is a debit to Cash for $2,000 and a credit to Common Stock—Par $100, and a credit to Paid-in Capital in Excess of Par for...
is the cash amount plus the note’s present value at time that the asset is purchased. To illustrate this, let’s assume that equipment is purchased by giving $50,000 of cash plus a promissory note of $100,000. If...
How do you calculate the gain or loss when an asset is sold? Definition of Gain or Loss on Sale of an Asset The gain or loss on the sale of an asset used in a business is the difference between 1) the amount of cash that...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
on a project. There are two weaknesses with the payback method: 1) the time value of money is not considered, and 2) the cash flows occurring after the cash is paid back is ignored. Accounting rate of return or return...
in an investment having a net present value of zero. The internal rate of return is one of the tools in capital budgeting that considers both of the following: The time value of money All of the cash payments and cash...
A process which discounts future cash flows to the present in order to reflect the time value of money. Examples of the discounted cash flow model are net present value and internal rate of return.
What is scrap value? Definition of Scrap Value In cost accounting, scrap value refers to a relatively insignificant amount that a manufacturer receives from the sale of production materials that remain after the...
See carrying amount.
See cash surrender value.
. Example of Par Value Let’s assume that a share of common stock has a par value of $0.01 and is sold to an investor for $25. The corporation issuing the stock will debit Cash for $25.00 and will credit Common Stock...
The amount of owner’s equity or stockholders’ equity reported on a company’s balance sheet. This is not an indication of the company’s fair market value.
The discounted value of a series of equal amounts occurring at future points with equal time intervals.
The stated legal amount appearing on bonds.
Stock without a par value.
See present value of an annuity due table, present value of an ordinary annuity table, and present value of 1 table.
A term used to describe the net present value method and the internal rate of return. The model discounts future cash flows back to the present time.
Future amounts that have been discounted to the present.
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