of the accounting year. To overcome this shortcoming, the denominator needs to be representative of all of the moments during the year. When the inventory amount on last year’s balance sheet and the amount on this...
of the accounting year. To overcome this shortcoming, the denominator needs to be representative of all of the moments during the year. When the inventory amount on last year’s balance sheet and the amount on this...
Calculation Assume that a company’s beginning inventory was $100 and its ending inventory was $110, which is an increase of 10. Let’s assume that a company purchased $1,000 of goods during the accounting period. A...
, portfolio managers, etc. to make informed decisions, it is necessary to have financial statements that are consistent and which can be compared to the financial statements of other corporations. This is more likely to...
balance in a contra asset account will violate the cost principle.) Examples of Contra Asset Accounts The most common contra asset account is Accumulated Depreciation. Accumulated Depreciation is associated with...
that common rules be followed. In the U.S., the common rules are known as generally accepted accounting principles (GAAP), which are established by the Financial Accounting Standards Board (FASB) and the Securities and...
What is a learning curve? Definition of Learning Curve A common learning curve shows that the cumulative average time to complete a manual task (in which learning is involved) will decrease 20% whenever the cumulative...
referred to as a __________–__________ cost. 5. The additional quantity of inventory held by a company so that it will not run out of stock when there is an unexpected increase in demand for its product is known as...
Our Explanation of Financial Statements provides you with the highlights of each of the five external financial statements issued by U.S. corporations. Our insights will give you a good understanding of what the...
A common fringe benefit given to employees during a period in which they do not have to work. If an employee earns one week of paid vacation to be taken after working one full year, the employer should recognize this...
Temporary differences between the reporting of a revenue or expense for financial statements (books) and the reporting of the item for income tax purposes. For example, it is common for companies to depreciate equipment...
Isn't all overhead fixed? Not all overhead is fixed. Some manufacturing overhead costs, which are also referred to as indirect factory costs, are variable. A common example of a variable overhead cost is the...
The ABC inventory system is different from activity-based costing. The ABC inventory system is used in order to focus on the most important items in inventory. Usually a relatively few items will account for a very...
It is common for a small quantity to account for most of the value. Examples: 20% of the people may have 80% of the wealth; 20% of the members do 80% of the work; 20% of the items in inventory account for 80% of the...
. A deferred credit is reported as a liability on the balance sheet. Depending on the specifics, the deferred credit might be a current liability or a noncurrent liability. In the past, it was common to see a noncurrent...
Should a company focus on cash flows or accounting profits when making a capital expenditure decision? Using the incremental cash flows and discounting them to reflect the time value of money is the preferred method. The...
+ Revenues – Expenses – Dividends – Treasury Stock. The expanded accounting equation allows you to see separately (1) the impact on equity from net income (increased by revenues, decreased by expenses), and (2)...
What are consolidated statements of operations? Consolidated statements of operations is the heading appearing on the financial statement also referred to as the income statement. In a small survey of 14 U.S....
during the period of the net income. Example of Return on Stockholders’ Equity Assume that a corporation without preferred stock had net income after tax of $100,000 for its most recent year. The corporation’s...
or in the corporation’s notes to the financial statements. For U.S. corporations whose stock is publicly-traded, you will find the statement of cash flows included in its Form 10-K, which is the annual report to the...
arrangement that assures that the long-term debt will be replaced with new long-term debt or with capital stock. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting...
and Accumulated Depreciation) Expense accounts (other than a contra expense account) Contra revenue accounts (such as Sales Discounts, Sales Returns and Allowances) Owner’s Drawing account Treasury Stock account Join...
will have the accounts arranged in the same order as the general ledger. A common order for a business corporation is: Account Numbers It is common for the first digit of each account number to indicate the type of...
Our Explanation of Nonprofit Accounting includes a chart that contrasts the financial statements of a nonprofit (or not-for-profit) organization with those of a for-profit business corporation. There are many examples to...
Our Explanation of Inventory and Cost of Goods Sold will take your understanding to a new level. You will see how the income statement and balance sheet amounts are affected by the various inventory systems and cost flow...
Our Explanation of Accounting Principles provides you with clear and concise descriptions of the basic underlying guidelines of accounting. You will see how the accounting principles affect the balance sheet and income...
Our Explanation of Financial Statements provides you with the highlights of each of the five external financial statements issued by U.S. corporations. Our insights will give you a good understanding of what the...
treasury stock. stockholders' equity This is the difference between the amount of a corporation’s assets and liabilities. It consists of paid-in capital plus retained earnings minus treasury stock. Mark as wrong...
up within one year are reported on a company’s balance sheet as a current asset. As the amount expires, the current asset is reduced and the amount of the reduction is reported as an expense on the income statement....
What is an outside accountant? A company’s outside accountant is an accountant who is not an employee of the company. An outside accountant could be a sole practitioner or a member of a firm that provides accounting...
of its current liabilities in the calculation of the company’s quick ratio. Examples of Quick Assets Common examples of quick assets include: Cash and cash equivalents Temporary marketable securities Accounts...
). Examples of Nonoperating Expenses and Losses A common example on a nonoperating expense is the interest expense incurred by a retailer or manufacturer. The retailer’s main operations are purchasing and selling...
Is the cost of land, buildings, and machinery a fixed cost? Land, Buildings and Machinery are Fixed Assets It is common for people to refer to land, buildings, and machinery as fixed assets. They are also referred to as...
assets in order to determine a company’s working capital. (Dividing current assets by the current liabilities is the company’s current ratio.) Examples of Current Liabilities The following are common examples of...
amount not expected to be collected within one year is a noncurrent or long term asset. It is common for the loan to an employee to specify an interest rate and a schedule of payments. Entry to Record a Loan to Employee...
divisions reported operating income of $1 million and it had $10 million of operating assets, its ROI was 10%. In recent times, it’s common to see ROI being used in the context of internet marketing and/or the...
service department is responsible for its costs. Hence, the service departments are separate cost centers. The costs incurred by the service departments are considered to be indirect manufacturing costs that ultimately...
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