What does the direct labor efficiency variance tell us? This variance tells us how efficient the direct labor was in making the actual output that was produced by the direct labor. The direct labor efficiency variance...
What does the direct labor efficiency variance tell us? This variance tells us how efficient the direct labor was in making the actual output that was produced by the direct labor. The direct labor efficiency variance...
What would cause a decrease in accumulated depreciation? Definition of Accumulated Depreciation Accumulated depreciation is the cumulative amount of depreciation taken since a depreciable asset was put into service. The...
What is the difference between dividends and interest expense? Definition of Dividends Dividends are a distribution of a corporation’s earnings to its stockholders. Dividends are not an expense of the corporation and...
What is the materials usage variance? Definition of Materials Usage Variance The materials usage variance or materials quantity variance is associated with a standard costing system. This variance results when the actual...
How do I calculate the amount of sales tax that is included in total receipts? Sales Tax Calculation To calculate the sales tax that is included in a company’s receipts, divide the total amount received (for the items...
What is a fixed expense? Definition of Fixed Expense A fixed expense is an expense whose total amount does not change when there is an increase in an activity such as sales or production. The words within a relevant or...
What should be the entry when goods are purchased at a discount? Definition of Goods Purchased at a Discount There are two common types of discounts for companies buying goods to resell: Trade discount Early payment...
What is inventory valuation? Definition of Inventory Valuation In the U.S., inventory valuation is the dollar amount associated with the items remaining in a company’s inventory. Generally speaking, the amount is the...
What is the difference between FIFO and LIFO? Difference Between FIFO and LIFO The difference between FIFO and LIFO will exist only if the unit costs of a company’s products are increasing or decreasing. U.S. companies...
What is a non-discount method in capital budgeting? Definition of Non-discount Method of Capital Budgeting A non-discount method of capital budgeting is one that does not consider the time value of money. In other words,...
What does it mean to amortize a loan? Definition of Amortize a Loan To amortize a loan usually means establishing a series of equal monthly payments that will provide the lender with: An interest payment based on the...
Why does commitment and contingencies appear on the balance sheet without an amount? Definition of Commitments and Contingencies Commitments and contingencies is a balance sheet line with no amount reported. The line...
What is the employer's Social Security tax rate for 2022 and 2023? Employer’s Social Security Payroll Tax for 2022 The employer’s Social Security payroll tax rate for 2022 (January 1 through December 31, 2022) is the...
What causes a reduction in Accumulated Depreciation? Definition of Accumulated Depreciation Accumulated Depreciation is a general ledger contra asset account associated with a company’s property, plant and equipment....
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 are gains? Definition of Gains In financial accounting, gains often pertain to some of a company’s transactions which occur outside of the company’s main business activities. Transactions which are outside of a...
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...
Are the goods purchased by a retailer an expense or an asset? Definition of Goods Purchased by a Retailer The goods purchased by a retailer are the products or merchandise that it buys and plans to resell. The goods that...
Why do you separate current liabilities from long-term liabilities? Definition of Current Liabilities and Long-term Liabilities Generally, current liabilities are a company’s obligations that are due within one year of...
How do you calculate opportunity costs? Definition of Opportunity Costs Opportunity costs are the profits a company (or person) missed, or the contribution margin that was missed. Opportunity cost might be thought of as...
What is the tax advantage when bonds are issued instead of stock? Definition of Bonds and Stock In this context, bonds refers to bonds payable, a form of long-term debt that typically promises to pay interest every six...
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,...
Is the sale of a plant asset recorded in the sales account? Definition of Sale of a Plant Asset The sale of a plant asset is often the disposal of a company’s equipment (or other asset) that had been used in the...
What is a limitation of the inventory turnover ratio? Definition of Inventory Turnover Ratio The inventory turnover ratio is often calculated by dividing a company’s cost of goods sold for a recent year by the average...
What is the annual wage limit? Definition of Annual Wage Limit Annual wage limit is a payroll accounting term that is associated with the Social Security payroll tax. (The annual wage limit is also known as the annual...
What is an imprest system of petty cash? Definition of Petty Cash Petty cash refers to a small amount of currency and coins that a company uses to pay small amounts without writing a check. The amount of petty cash (also...
Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
What is a fixed cost? Definition of Fixed Cost A fixed cost is one that does not change in total within a reasonable range of activity. Since the fixed cost remains constant in total, the fixed cost per unit of activity...
Are direct costs fixed and indirect costs variable? Direct Costs vs. Indirect Costs The terms direct costs and indirect costs could be referring to a product, a department, a machine, geographic market, etc. (which are...
What is income smoothing? Definition of Income Smoothing Income smoothing involves reducing the fluctuations in a corporation’s earnings. The reductions in fluctuations can result from some legitimate business methods...
What is meant by events after the balance sheet date? Definition of Events After Balance Sheet Date Events after the balance sheet date are significant financial events that occur after the date of the balance sheet but...
Why does an inventory error affect two periods? Definition of Inventory Error An inventory error could be the result of any of the following: Omitting some items when physically counting inventory Double counting some...
Weekly Income Statement When I became a director of a meatpacking company, I was concerned about the thin profit margins, the corporation’s lack of working capital, and my inexperience in the industry. The company...
What are the limitations of the balance sheet? Definition of Balance Sheet The balance sheet is one of the main required financial statements. It is also known as the statement of financial position. The balance sheet...
Why can a retailer record its purchase of merchandise as a debit to purchases within the cost of goods sold, instead of the asset inventory? Before we explain why companies will record the purchases of merchandise in the...
What is the matching principle? Definition of Matching Principle The matching principle is one of the basic underlying guidelines in accounting. The matching principle directs a company to report an expense on its income...
Why is there a difference in the amounts for Bad Debts Expense and Allowance for Doubtful Accounts? Amount Reported as Bad Debts Expense The amount reported in the income statement account Bad Debts Expense pertains to...
What is the self-employed person's FICA tax rate for 2022 and 2023? 2022 FICA Tax Rate for Self-Employed The self-employed person’s FICA tax rate for 2022 (January 1 through December 31, 2022) is 15.3% on the first...
What is the gross profit method of inventory? Definition of Gross Profit Method The gross profit method is a technique for estimating the amount of ending inventory. The gross profit method might be used to estimate each...
What do overabsorbed and underabsorbed mean? Definition of Overabsorbed and Underabsorbed In cost accounting, overabsorbed and underabsorbed pertain to a manufacturer’s manufacturing overhead costs. The manufacturing...
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