A dollar adjusted for inflation. If an asset such as land was purchased for $10,000 many years ago when the consumer price index (CPI) was 100 and today the CPI is 400, today’s constant-dollar amount would be...
A dollar adjusted for inflation. If an asset such as land was purchased for $10,000 many years ago when the consumer price index (CPI) was 100 and today the CPI is 400, today’s constant-dollar amount would be...
supplier is unable to deliver additional units at the expected time. If the company is a manufacturer, a safety stock of materials could minimize the risk of production being disrupted. Of course there are additional...
How can a business increase its cash flow from operations? A business can increase its cash flow from operations (or operating activities) by looking closely at each of its current assets and current liabilities. For...
for the manufacturer’s cash to be used to: pay for the raw materials needed in its products pay for the labor and overhead costs needed to convert the raw materials into products hold the finished products in...
What is the difference between inventory and the cost of goods sold? Definition of Inventory Inventory for a retailer or distributor is the merchandise that was purchased and has not yet been sold to customers. A...
materials to a manufacturer will be exempt if the materials will be used in products that will be manufactured and sold. When the products are sold by the manufacturer to a retailer for resale, the manufacturer will be...
. If the transaction is a direct conversion of debt to equity (shares of stock) or debt to bonds and no cash receipts or cash payments occur, the transaction is to be disclosed as supplementary information. This...
A cost or expense that is not directly traceable to a department, product, activity, customer, etc. As a result indirect costs and expenses are often allocated to the department, product, etc. For example, a...
A technique for allocating costs to a product, service, customer, etc. The premise is that activities cause an organization to incur costs. Once the costs of the activities have been identified and each activity’s...
and in the following sequence: $40, $44, and $46. The corporation ships the oldest item (the one purchased for $40) to a customer at a selling price of $60. However, under the LIFO cost flow assumption the company...
, Products X & Y cause very little overhead cost in relation to the main, complicated, lower volume products.) If management responds to the high allocated overhead costs for Products X & Y by seeking price...
receivable, net realizable value can also be expressed as the debit balance in the asset account Accounts Receivable minus the credit balance in the contra asset account Allowance for Uncollectible Accounts. In the...
. It might be reported as part of Selling Expenses or as part of Selling, General and Administrative (SG&A) Expenses. The depreciation on the trucks used to transport materials or work-in-process between the...
Selling expenses are part of the operating expenses (along with administrative expenses). Selling expenses include sales commissions, advertising, promotional materials distributed, rent of the sales showroom, rent of...
What is the allowance method? Definition of Allowance Method The allowance method usually refers to one of the two ways for reporting bad debts expense that results from a company selling goods or services on credit....
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
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...
by reading our Activity Based Costing (Explanation). 1. Activity based costing is considered to be a traditional costing method. True Wrong. False Right! 2. Under ABC, indirect manufacturing costs are predominantly...
Should a retailer's delivery surcharges be reported as revenues or as other income? I believe that a retailer’s delivery surcharges are a price adjustment and should be reported as operating revenues. The...
costs/expenses Increasing the selling prices without causing a decrease in sales Redesigning products to provide additional features that will allow for price increases and/or a reduction in variable...
. The cost of the marketing services was the cash price of $9,900. It would be wrong to record $10,000 as a debit to Marketing Consulting Expenses and to record a credit of $100 in the account Cash Discounts. The reason...
of purchases and payments. The company may also employ a payroll clerk to process its many employees’ pay and fringe benefits. Perhaps an accounts receivable clerk will be employed to focus solely on the company’s...
sales for a year by the average balance in Accounts Receivable during the year. accounts receivable turnover ratio This ratio is the result of dividing a company’s credit sales for a year by the average balance in...
to describe the amount that it is subtracting from its sales revenue to report the amount of its gross profit or gross margin. Companies that provide services will use the term cost of services or cost of service...
What is the weakness of traditional cost allocations? Traditional cost allocations are often based on volume such as number of products manufactured, number of direct labor hours, number of production machine hours,...
to the manufacturing departments and then the departments’ direct and indirect costs (including the depreciation) are allocated to the products that utilize those departments. Manufacturing overhead in general is...
to Circular E.) Part 1 of the guide is entitled Who Are Employees? and it provides this general rule: “…an individual is an independent contractor if you, the person for whom the services are performed, have the...
for its selling and general administration will be an expense for the period indicated by the meter reading dates. However, the utility bill for the direct and indirect manufacturing operations is part of its...
examples of service departments include: Factory maintenance department Production quality control Factory information technology department Factory cafeteria Purchasing department The various methods (direct, step,...
on the income statement as Bad Debts Expense or Uncollectible Accounts Expense. Examples of Recording Bad Debts There are two methods for recording the bad debts associated with accounts receivable: Direct write-off...
Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
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...
materials, it concludes that LIFO will better indicate the company’s true profit. In the year of the change from FIFO to LIFO (and in years when comparisons are presented), the company must disclose the break in...
that should be minimized. Examples of Setup Costs Setup costs include the following: Costs of changing the tools or dies on the equipment Preparing and moving materials or components to the equipment Testing the initial...
after cash and cash equivalents, short-term investments, and receivables. If only the sum of the manufacturer’s inventory categories is listed in the current assets section, then the notes to the financial statements...
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...
pays for its purchases 90 days after it receives the goods. The corporation does not have sufficient money to purchase the raw materials, pay for the labor, and then wait 90 days to collect the receivable. The...
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