. The accounting rule requires inventory to be reported at the lower of its cost or its net realizable value (NRV). The amount of the inventory write-down is reported on the current income statement. To illustrate,...
. The accounting rule requires inventory to be reported at the lower of its cost or its net realizable value (NRV). The amount of the inventory write-down is reported on the current income statement. To illustrate,...
cost of goods sold is 70% of sales. Next, compute the sales value of the merchandise sold since the last time an inventory amount was known. Let’s assume that the sales amounted to $100,000. Given the sales value of...
Cost of goods sold is usually the largest expense on the income statement of a company selling products or goods. Cost of Goods Sold is a general ledger account under the perpetual inventory system. Under the periodic...
This accounting guideline states that if doubt exists between two acceptable alternatives (in other words the accountant needs to break a tie), the accountant should choose the alternative that will result in a lesser...
Why is an increase in inventory shown as a negative amount in the statement of cash flows? Meaning of a Negative Amount on Statement of Cash Flows A negative amount on the statement of cash flows (SCF) indicates that the...
What is cycle counting? Cycle counting refers to physically counting a portion of the inventory items on many days throughout the year instead of counting all of the items on a single day near the end of the year. For...
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...
income prior period adjustments 19. Other comprehensive income pertaining to only the most recent one-year period will appear on the statement of __________. Select... earnings cash flows shareholders' equity 20....
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 actual overhead and applied overhead? Definition of Actual Overhead In the context of actual and applied overhead, actual overhead refers to a manufacturer’s indirect manufacturing costs....
. With standard costing, the general ledger accounts for inventories and the cost of goods sold contain the standard costs of the inputs that should have been used to make the actual good output. Differences between the...
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...
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...
What is the death spiral? Definition of Death Spiral In cost accounting and managerial accounting, the term death spiral refers to the repeated elimination of a manufacturer’s products which will result in spreading...
cost or fixed expense. Fixed expenses such as depreciation expense and property insurance expense are reported on a company’s income statement. Understanding which costs are fixed and which are variable is important...
Spreading the physical counting of inventory throughout the year. For example, a company may physically count a different 10% of its inventory each month instead of counting 100% of its inventory once per year.
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...
with the heading current assets. Current assets are listed in the order in which they are expected to turn to cash. This is known as the order of liquidity. Since cash is the most liquid asset, it is listed first. After...
Our Explanation of Income Statement helps you learn the most important features of a corporation's income statement (also known as the statement of operations or profit and loss statement). We provide more understanding...
What is an incremental cost? Definition of Incremental Cost An incremental cost is the difference in total costs as the result of a change in some activity. Incremental costs are also referred to as the differential...
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,...
incurred, the products have overabsorbed the overhead costs. At the end of the accounting year, the amount of the overapplied, overassigned, or overabsorbed overhead is often credited to the cost of goods sold. The...
The repeated elimination of products without a corresponding decrease in overhead costs. As a result the amount of overhead allocated to each unit of product increases. If selling prices are increased to cover the higher...
. common-size income statement This type of income statement is related to vertical analysis since all amounts are shown as a percentage of net sales. Mark as wrong Mark as right LIFO (or) last in, first out This cost...
of goods sold will be the $350,000 cost of the goods purchased + the $2,800 decrease in the costs in inventory. In short, a decrease in inventory is an addition to the cost of goods purchased. 21. How will freight-out...
To assign or allocate on a logical basis. For example, the materials price variance in a standard costing system is prorated to the following categories: materials inventory, work-in-process inventory, finished goods...
Used in the periodic inventory method to compute the value of inventory and the cost of goods sold. This average cost is based on the total cost of goods available for sale for the entire year (after all purchases for...
Usually used in describing fixed costs. We often state that fixed costs will not change as volume changes. However, if volume were to triple, there would likely be more fixed costs as the company will need more space and...
(including semivariable expenses) into fixed costs/expenses and variable costs/expenses. For simple businesses with similar products or services, the total amount of fixed costs/expenses is divided by the...
that the common costs or indirect costs that require allocation are not caused by volume. In other words, traditional cost allocations are often based on something other than the root causes of the costs. It is possible...
. The break-even point could be determined by using an electronic spreadsheet or by using a formula. The key is to determine how each of the company’s costs and expenses behave in order to compute the total amount of...
month of its accounting year, the manufacturer must debit Warranty Expense for $5,000,000 (5,000 cars X $1,000)and will credit Warranty Liability for $5,000,000. When warranty work is done, the manufacturer debits...
Receivable, Accumulated Depreciation, and allowance accounts used with inventory and investments. Two examples of valuation accounts associated with a liabilities are Bond Issue Costs and Discount on Bonds Payable. The...
in the current accounting period: Depreciation expense for equipment that was paid for in a prior year Insurance expense for which the premium was paid in a prior year Cost of goods sold from the sale of inventory items...
What are assets? Definition of Assets In accounting and bookkeeping, a company’s assets can be defined as: Resources or things of value that are owned by a company as the result of company transactions Prepaid expenses...
overhead, which is an indirect product cost that must be assigned to units of product manufactured on a logical basis. As a result, part of the rent is included in the units’ costs which are in inventory or have been...
equivalent unit of production under two cost flow assumptions: weighted-average and FIFO. Example of Equivalent Units of Production Assume that a manufacturer uses direct labor continuously in one of its production...
: Asset accounts such as Cash, Accounts Receivable, Inventory, Prepaid Expenses, Buildings, Equipment, etc. For example, a debit balance in the Cash account indicates a positive amount of cash. (Therefore, a credit...
Featured Review
"I am currently the controller for a wall-and-ceiling subcontractor. I have been in this position for almost 5 years now. I have no accounting background, as I was a professional hairstylist before I came to this company. With hard work, and with the AccountingCoach Online Course, I have become quite an amazing financial accountant! The previous controller for our company had set me up with PRO for weekly training. AccountingCoach is the best accounting website I've seen. I have referred multiple friends and family members to AccountingCoach for training, either for a new position at work, a refresher, or for someone wanting to change their career to accounting. The material on this website is on point. It is everything you would learn in a community college accounting degree, and it has benefited me in so many ways. It taught me the basics of accounting, plus so much more. It also helped me understand financial accounting, and cash-flow reporting, which is huge in the position I am now in." - Tamara K.
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: