The last-in, first-out cost flow assumption under the perpetual inventory system. The last (most recent) costs as of the time that goods are sold are the first costs removed from inventory. The oldest costs as of the...
The last-in, first-out cost flow assumption under the perpetual inventory system. The last (most recent) costs as of the time that goods are sold are the first costs removed from inventory. The oldest costs as of the...
An intangible asset reported on the balance sheet at the company’s cost (or lower). Often, successful trade names were developed by companies over many years. As a result the cost of the trade name is minimal, but...
This is a valuation account for the asset Inventory. A credit balance should be reported in this account for the amount that the net realizable value of inventory is less than the cost reported in the Inventory account....
refers to consistency as one of the characteristics or qualities that makes accounting information useful. Example of Consistency Let’s assume that a U.S. corporation uses the FIFO cost flow assumption for valuing its...
borrows the money for the construction from its local bank. The accounting rules state that the interest incurred for self-constructing the building should be added to the cost of the building. (The FASB refers to this...
What is an independent variable? In accounting, an independent variable is ideally a factor that causes a change in the total amount of the dependent variable. In other words, an independent variable should be something...
What is going concern? Definition of Going Concern The going concern assumption is a basic underlying assumption of accounting. For a company to be a going concern, it must be able to continue operating long enough to...
in which the expenses occur. Hence, SG&A expenses are said to be period costs as opposed to being part of a product’s cost. Since SG&A expenses are not a product cost, they are not assigned to the cost of...
in the general ledger account Purchase Discounts.] Example of Discount on Purchase of Office Furniture Assume that a company purchases furniture for the office of a newly appointed executive. The cost of the furniture...
What is carriage outwards? Definition of Carriage Outwards Carriage outwards refers to the transportation costs that a seller must pay when it sells merchandise with the terms FOB Destination. Carriage outwards is also...
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...
of an asset’s cost that has been moved to the income statement in the form of depreciation expense since the asset was acquired. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to...
Why isn't land depreciated? Definition of Land The land that is used in a business (as opposed to land that is an investment, or land that will be sold by a real estate developer) is a tangible asset that is assumed...
marketing consulting services and is billed $10,000 with terms of 1/10, net 30. If the bill is paid within 10 days, the cost is $9,900 ($10,000 minus the 1% discount of $100). This means that Cash should be...
expenses. matching principle This basic accounting principle requires companies to accrue some expenses and to defer some expenses. Mark as wrong Mark as right cost of goods sold (or) cost of sales This is likely to be...
and its Inventory was $100,000. At the end of the year its Accounts Receivable were $86,000 and its Inventory was $110,000. A revenue account that reports the sales of merchandise. Sales are reported in the accounting...
not receive a salary. Rather, any amounts withdrawn from the company for the proprietor's personal use are debited to the proprietor's drawing account. The drawing account is a contra owner's equity...
Our income statement shows wide fluctuations in utilities expense from month to month. I suspect our accounting is not proper. Any suggestions? Under accrual accounting, your income statement should report the amount for...
) as of the final moment of an accounting period in accordance with generally accepted accounting principles (GAAP, US GAAP). GAAP’s historical cost principle means that some noncurrent assets are reported at amounts...
receivable is $92,000. Adjustments to the Allowance account are reported on the income statement as bad debts expense. Now, let’s assume that a company’s inventory has a cost of $15,000. However, at the end of the...
How much do you depreciate an asset and when? Definition of How and When to Depreciate an Asset Depreciation begins when you place an asset in service and it ends when you take an asset out of service or when you have...
the company removed the equipment’s carrying value of $60,000 and received only $32,000 of cash Some accounting textbooks state that the cost of an expenditure that extends the useful life of an asset should be...
What does it mean to recognize an expense? Definition of Recognize an Expense To recognize an expense means to report the proper amount of an expense on the income statement for the appropriate accounting period. When...
amount per unit produced or used. Therefore, the total amount of the variable cost will change proportionately with the change in volume or activity. Learn more about variable costs Join PRO to Track Progress Mark the...
of warranty is referred to as an assurance-type warranty. In accounting jargon, the assurance-type warranty is an example of a contingent that is both probable and can be estimated. Therefore, a company must record in...
Why does a company debit Purchases instead of Inventory? Definition of Purchases and Inventory When a company uses the periodic inventory system the amount of the company’s inventory is determined by a physical count...
during the asset’s construction The interest on the debt related to the asset’s construction Adding the capitalized interest to the asset’s cost instead of reporting it as interest expense of the current...
: The cost of the merchandise that is sold is being matched with the revenues from selling the goods. Selling, general and administrative expenses (SG&A). These costs are reported as operating expenses on the income...
, 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...
Why are some expenses deferred? Definition of Deferred Expenses Under the accrual basis of accounting, an expense is a cost that is used up, has expired, or is directly related to revenues reported on a company’s...
of a decentralized corporation such as related subsidiary corporations, separate divisions of a corporation, or some other subunits. Depending on the production capacity and the demand for each subunit’s goods or...
. The equipment’s cost was $100,000 and its accumulated depreciation as of its recent balance sheet date was $40,000. This means that up to the balance sheet date $40,000 of the asset’s cost had been reported as...
the cost of real estate into the cost of the land and the cost of the buildings. Example of Appraised Value Appraised values are useful because a company’s balance sheet will report its land and buildings at the cost...
by a company’s liabilities will generally have a lower cost than money raised from stockholders’ equity for the following reasons: Some liabilities such as accounts payable have no interest expense associated with...
How do you account for payroll withholdings for health insurance? Definition of Payroll Withholdings for Health Insurance Payroll withholdings for health insurance are the amounts deducted from employees’ pay for their...
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...
. The contract to pay these cash amounts to the investors makes bonds a less risky investment than common stock. Less risk for the investor means the investor will earn a smaller return—and the corporation will have a...
Are repairs to office equipment and factory equipment period costs? Repairs to office equipment are period costs. That is, the cost of the repairs to office equipment will be reported as a selling, general and...
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...
of depreciation, while the “declining balance” refers to the asset’s book value or carrying value at the beginning of the accounting period. Since book value is an asset’s cost minus its accumulated...
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