What is practical capacity? Definition of Practical Capacity Practical capacity is a manufacturer’s level of output (often expressed in machine hours, barrels, pounds, etc.). Practical capacity is less than its...
What is practical capacity? Definition of Practical Capacity Practical capacity is a manufacturer’s level of output (often expressed in machine hours, barrels, pounds, etc.). Practical capacity is less than its...
Our Explanation of Debits and Credits describes the reasons why various accounts are debited and/or credited. For the examples we provide the logic, use T-accounts for a clearer understanding, and the appropriate general...
could be less than the cost of not filing a customer’s order on time or having to stop its production line. Example of Safety Stock Assume that a company uses the economic order quantity (EOQ) model to determine the...
and equipment. This classification includes land, buildings, machinery, equipment, vehicles, fixtures, etc. that are used in the business. These assets are reported at cost and the contra asset accumulated depreciation...
of production method, let’s assume that a company has a machine with a cost of $500,000 and a useful life that is expected to end after producing 240,000 units of a component part. Further, the machine’s salvage...
method) or Inventory (perpetual method) for the cost of the goods or merchandise received, and 2) credit a current liability account such as Accrued Liabilities. After the financial reporting for the accounting period...
will be disbursed for a specific purpose. For instance, a wealthy grandparent may tell a grandchild that the full cost of getting a college education will be fully paid by the grandparent. Example of Blank Check For an...
: $10,000 of assets = $0 of liabilities + $10,000 of owner’s equity. Next, let’s assume the company purchases equipment at a cost of $3,000 and signs a promise to pay the $3,000 within six months. Now the company’s...
%). It also indicates that a company without sufficient cash to pay within the early payment discount period will experience a huge opportunity cost. Join PRO to Track Progress Mark the Question as Read Must-Watch Video...
record the $9 cash discount with a debit to the account Sales Discounts. The buyer will record the $9 savings as a credit to Purchase Discounts or as a reduction to the cost recorded in inventory. My dentist offers a 5%...
How do you record a payment for insurance? Definition of Payment for Insurance A company’s property insurance, liability insurance, business interruption insurance, etc. often covers a one-year period with the cost...
because U.S. accounting principles and income tax regulations require manufacturers to follow full absorption costing. This means that the cost of manufactured goods must include the costs of the direct materials,...
Treasury stock – total cost Retained earnings Accumulated other comprehensive income or loss Total stockholders’ equity Examples of the Descriptions for the Rows or Lines Appearing on the Statement Some typical...
on the meters’ readings. The retailer receives its first utility bills on January 8th and must remit the amount by February 2. Under the accrual basis of accounting, the retailer’s income statement for the month of...
amount for warehouse rent (and every other expense) for the next budget is $0. Any budgeted expense greater than $0 must be justified. While zero-based budgeting will be more time consuming than focusing on incremental...
at the end of each accounting period. As a result, Accumulated Depreciation is viewed as a permanent account. Example of Depreciation Accounts Assume a company has equipment which is used in its business. The...
contingent liability is the warranty that automakers provide on new cars. Since it is probable (not merely possible) that some vehicles will require work during the warranty period and the automakers can estimate that...
many income statements in the form of depreciation expense and/or as part of a manufacturer’s cost of goods sold. The total capex amount that was spent in a recent accounting period is reported in the statement...
, if a corporation’s incremental federal and state income tax rate is 30%, bond interest payments of $40,000 will reduce the income tax payments by $12,000 (30% of the $40,000 reduction in taxable income). If the bond...
run smoothly with the same amount of monthly fixed costs, which on average are approximately $200,000 per month for the cost of supervisors, rent, depreciation, and other fixed costs. However, if the manufacturer’s...
the adjusting entry will debit Insurance Expense for $400 and will credit Prepaid Insurance for $400 Either method for recording prepaid expenses could be used as long as the asset account balance is equal to the...
Why would a company use double-declining depreciation on its financial statements? Definition of Double-Declining-Balance Depreciation The double-declining-balance method of depreciation is a form of accelerated...
for the cost of $10,000 Credit the asset account Cash for the $4,000 that was paid Credit the liability account Notes Payable for $6,000 The liability account Notes Payable reports the principal amount owed at the...
income statement accounts used in a business include Sales, Sales Returns and Allowances, Service Revenues, Cost of Goods Sold, Salaries Expense, Wages Expense, Fringe Benefits Expense, Rent Expense, Utilities Expense,...
into one total of $3,994 The operating expenses, nonoperating expenses, and losses are combined into one total of $3,764 The company’s gross profit is not shown as a subtotal. However, the gross profit can be...
of goods and/or the providing of services Expenses, which include the cost of goods sold, SG&A expenses, and interest expense Gains and losses, such as the sale of a noncurrent asset for an amount that is...
be: Revenues (sales, service fees) that were earned during the accounting period Expenses (cost of goods sold, salaries, rent, advertising, etc.) that match the revenues being reported or have expired during the...
with the accrual basis of accounting Fixed asset accounting Cost accounting Budgeting and profit planning, and more Common titles for accountants include corporate accountant, chief accountant, controller, assistant...
, the inventory turnover ratio divides a company’s cost of goods sold for a recent year by the company’s average inventory during that year. Perhaps the most frequently used accounting ratio is the current ratio,...
the amount of money currently on hand.) Expense accounts and loss accounts including Cost of Goods Sold, Wages Expense, Rent Expense, Interest Expense, Loss on Disposal of Equipment, Loss from Lawsuit, etc. (The debit...
is Accumulated Depreciation. Let’s assume that a company has property, plant and equipment with a cost of $200,000. The accumulated depreciation associated with these assets is $130,000. Therefore, the total assets...
that was in inventory at a cost of $30,000, the company’s current assets will increase by $20,000. If no other expenses are incurred, working capital will increase by $20,000. If a company borrows $50,000 and agrees...
for $10,000. After recording the depreciation to the date of the sale, the car’s book value is $6,000 (cost of $28,000 minus accumulated depreciation of $22,000). The company will have proceeds of $10,000 and a gain...
Is depreciation a source of funds? Definition of Depreciation Depreciation is the systematic allocation of the cost of a business asset to expense over the useful life of the asset. The accounting for depreciation is a...
the financial statements with the management and owners of the company. The accountant will also be involved in budgeting of operations and capital improvements, cost accounting, reports to government agencies, and...
by the creditors, and the owners are providing 60% of the assets’ cost. Generally, the higher the debt to total assets ratio, the greater the financial leverage and the greater the risk. How To Be Used As with all...
normally has credit balances. If a corporation has purchased its own shares of stock the cost is recorded as a debit in the account Treasury Stock. The debit balance will be reported as a negative amount in the...
electricity to customers for up to one month before it reads the customers’ meters, calculates the bills and records the billings as revenues and accounts receivable. As a result, the electric utility will have up to...
$1,000 bond. An investor will purchase the 5% bond only if the cost is low enough to yield 6% over the remaining life of the bond. In other words, the investor will pay less than the $1,000 so that the effective...
Featured Review
"I have been a bookkeeping professional for 16 years. AccountingCoach PRO has been a tremendous resource for me and my team. The material is well organized for studying, and each module's Certificates of Achievement validate learning. I love the tests and quizzes, which test and validate one's knowledge. The different methods of instruction, like flashcards, video tutorials, and printed materials, appeal to all learning styles. The program has allowed me and my team to expand our understanding of accounting and bookkeeping principles and reporting, and to quickly find information when we need to refresh our training on any specific topic. I highly recommend AccountingCoach’s programs to anyone in the bookkeeping industry, or who owns a bookkeeping business. The entire team can benefit from the program. Thank you, AccountingCoach!" - Sal R.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: