. Example 1 If Jay Corporation borrows $10,000 from its bank, Jay Corporation’s asset Cash increases by $10,000 and its liability Loans Payable increases by $10,000. Thus, the accounting equation remains in balance....
. Example 1 If Jay Corporation borrows $10,000 from its bank, Jay Corporation’s asset Cash increases by $10,000 and its liability Loans Payable increases by $10,000. Thus, the accounting equation remains in balance....
is also known as the times interest earned ratio. The interest coverage ratio is computed by dividing 1) a corporation’s annual income before interest and income tax expenses, by 2) its annual interest expense. A...
What is the break-even point? Definition of Break-even Point In accounting, the break-even point refers to the revenues necessary to cover a company’s total amount of fixed and variable expenses during a specified...
What is marginal cost? Definition of Marginal Cost Marginal cost is a manufacturer’s cost to produce one more unit of product. In other words, marginal cost is the change in total costs when one additional unit is...
What are indirect manufacturing costs? Definition of Indirect Manufacturing Costs Indirect manufacturing costs are a manufacturer’s production costs other than direct materials and direct labor. Indirect manufacturing...
What is simple linear regression analysis? What is Simple Linear Regression Analysis Simple linear regression analysis is a statistical tool for quantifying the relationship between one independent variable (hence...
Is the rental cost of a building considered overhead? Definition of Rent as Overhead The rental cost of a building used in manufacturing is part of manufacturing overhead. Manufacturing overhead is assigned or allocated...
What are the advantages of departmentalizing manufacturing overhead costs? The departmentalizing of manufacturing overhead costs allows for better planning and control if the head of each department is held responsible...
What are production costs? Definition of Production Costs In managerial accounting and cost accounting, production costs are the costs that occur in the manufacturing facilities. Production costs are also referred to as...
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...
What are pro forma financial statements? Definition of Pro Forma Financial Statement A pro forma financial statement is one based on certain assumptions and projections (as opposed to the typical financial statement...
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...
Is rent expense a period cost or a product cost? Definition of Rent Expense Rent expense is often a monthly amount paid by a company for use of a building. Typically, the rent is due on the first day of every month that...
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...
are in the range of 1,000 to 2,999 the monthly cost jumps to $50. If the visits are 3,000 to 9,999 the cost will be $200 per month. For monthly visits of 10,000 to 24,999 the cost is $300, and so on. As the data...
Why is manufacturing overhead allocated to products? Definition of Manufacturing Overhead Allocated to Products Manufacturing overhead refers to the indirect production costs of producing goods, products, component...
What is a service department? Definition of Service Department A service department is usually associated with a manufacturer’s production departments. However, a service department does not produce any of the...
What is the difference between prime costs and conversion costs? Cost Categories of a Manufactured Product Prime costs and conversion costs pertain to the three cost categories of a manufactured product: Direct materials...
How can a manufacturer determine the precise cost of its products? A manufacturer may never be able to determine the precise cost of its individual products. The reason is that most of the manufacturing costs (other than...
What is the difference between normal costing and standard costing? Definition of Normal Costing Normal costing for manufactured products consists of following: Actual cost of materials Actual cost of direct labor...
What causes an unfavorable fixed overhead budget variance? An unfavorable fixed overhead budget variance results when the actual amount spent on fixed manufacturing overhead costs exceeds the budgeted amount. The fixed...
How do you calculate Return on Capital Employed (ROCE)? Return on capital employed is used as a measurement of the performance of a division of a company. It assumes that the division is not responsible for its financing...
How do we deal with a negative contribution margin ratio when calculating our break-even point? Definition of Negative Contribution Margin A negative contribution margin ratio indicates that a company’s variable costs...
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...
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...
of the page. NOTE: Cash flow statement, statement of cash flows, and SCF are used interchangeably. If not indicated, you should assume that the indirect method is being used. 1. Which of the following methods of...
life of the cell phones could be 10 years). Also assume that the company has purchased 100 smart phones at a total cost of $120,000. The company also estimates that the phones will have no salvage value at the end of...
costs of a retailer and the product costs of a manufacturer are also referred to as inventoriable costs, since the product costs are used to value their goods in inventory. When the goods are sold, the product costs...
What is the meaning of base year? In accounting, base year may refer to the year in which a U.S. business had adopted the LIFO cost flow assumption for valuing its inventory and its cost of goods sold. Under the...
Depreciation) The amount that has not yet been depreciated (the book value of the asset) Example of Accumulated Depreciation Let’s assume that at the beginning of the current year a company’s asset account Equipment...
is associated with the Accounts Receivable There are also situations where an unwanted credit balance appears and will need attention. Here are a few examples: An error caused by posting an amount to an incorrect...
of its 300,000 shares of common stock that is held by its stockholders. The market value of the 10,000 shares is $40 per share. The corporation’s entry to record the purchase of these shares of stock is: Debit...
of a contra asset account is Accumulated Depreciation. For instance, if a company has a plant asset such as Equipment with a debit balance of $92,000 and the account Accumulated Depreciation has a credit balance of...
, if gross sales are 990 and sales returns are 10, sales allowances are 5, and sales discounts 20, the net sales are 955 (990 minus 35). Here are some additional examples of net: net realizable value. The amount to be...
Long-term assets include the following: Long-term investments. These include some investments in stocks and bonds of other corporations, a company’s bond sinking fund, the cash surrender value of life insurance...
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...
by a patent and trademark, and the demand for the product is high, customers may accept a selling price that is unusually high. In other words, the value of the product is much greater than the costs identified with the...
it will be scrapped for no salvage value. Using the straight-line depreciation method, the monthly depreciation will be $5,000 per month ($600,000/120 months). Therefore, each month for 10 years the company will...
it indicates that the company has paid more than the amount owed, has made an incorrect entry, etc.) Equity accounts including the stockholders’ equity accounts Common Stock, Paid-in Capital in Excess of Par Value,...
Cost on Income Statement Let’s assume that a company buys equipment for $100,000 and it is expected to be used for 10 years with no salvage value at the end of its useful life. Using the straight-line method of...
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