-digit account numbers, while large companies may use 6 or more digits in their account numbers. Other Comments The chart of accounts often reflects a company’s organization chart. With that arrangement, the internal...
-digit account numbers, while large companies may use 6 or more digits in their account numbers. Other Comments The chart of accounts often reflects a company’s organization chart. With that arrangement, the internal...
years all expressed in easier to absorb amounts. Example of Trend Analysis Assume you want to see the trend of a service company’s revenues, net income, and number of clients during the years 2017 through 2023. With...
. In essence, the cost of goods sold is being matched with the revenues from the goods sold, thereby achieving the matching principle of accounting. When the cost of goods sold is subtracted from net sales, the result is...
of Depreciation Being a Direct Cost and/or an Indirect Cost Assume a company has a variety of manufacturing departments, one of which is the Finishing Department. The Finishing Department’s equipment is used for...
and the net income will be larger. Example of Absorption Costing Causing an Increase in Net Income Assume a company has no beginning inventory and it plans to manufacture 100,000 units. Also assume that its annual fixed...
referred to as a __________–__________ cost. 5. The additional quantity of inventory held by a company so that it will not run out of stock when there is an unexpected increase in demand for its product is known as...
How do I calculate the amount of sales tax that is included in total receipts? Sales Tax Calculation To calculate the sales tax that is included in a company’s receipts, divide the total amount received (for the items...
, between a company’s balance sheet date of December 31, 2023 and the time that the financial statements are distributed on January 31, 2024, it is possible a significant event occurs or information becomes known that...
, work-in-process, finished goods) and the cost of goods sold will contain the standard costs. (Think of the standard costs as the “should be” costs which are tied to the amounts in the company’s profit plan.) Any...
Are direct costs fixed and indirect costs variable? Direct Costs vs. Indirect Costs The terms direct costs and indirect costs could be referring to a product, a department, a machine, geographic market, etc. (which are...
account with the title Inventory Change or with the title (Increase) Decrease in Inventory. This account is presented as an adjustment to purchases in determining the company’s cost of goods sold. Example of Inventory...
is __________ expense. 18. The first section of the statement of cash flows reports the amount of cash provided or used by a company’s __________ activities. Select... financing investing operating 19. The second...
What are manufacturing costs? Definition of Manufacturing Costs Manufacturing costs are the costs of materials plus the costs to convert the materials into products. All manufacturing costs must be assigned to the units...
amount due for the sales invoice and might even show a negative amount due from the customer. If your company mails statements to its customers, the customer should be able to see its double payment when reviewing the...
In what order are liabilities listed in the chart of accounts? Order for Listing Liabilities It is logical for a company’s liabilities to be organized in the chart of accounts in the same way as they are presented on...
the efficiency or effectiveness of a company’s management. Examples of Turnover Ratios Some of the turnover ratios are: accounts receivable turnover ratio inventory turnover ratio total assets turnover ratio fixed...
Is the cost of goods sold an expense? Why the Cost of Goods Sold is an Expense We often think of expenses as salaries, advertising, rent, commissions, interest, and so on. However, the cost of goods sold is also an...
during their useful lives. Plant assets (other than land) are depreciated over their useful lives and each year’s depreciation is credited to a contra asset account Accumulated Depreciation. Plant assets and the...
that are needed for the external financial statements which must comply with US GAAP. Other topics involve analyses and reports that are not distributed outside of the company but are used by management in its decision...
assumption such as 1) first-in, first-out or FIFO, 2) last-in, first-out or LIFO, 3) weighted average, etc. If LIFO is used, the company must disclose what the dollar amount of inventory would have been if FIFO had been...
, or other cost object is an indirect cost.) Examples of Direct Costs Assume that a company produces artisan furniture. The following are direct product costs and they are direct production department costs: The cost of...
will be reported as an expense. Example of a Cost A company’s property insurance bill for the next six months of insurance shows a cost of $6,000. Initially the cost of $6,000 is reported as the current asset Prepaid...
of the income statement accounts (revenues, expenses, gains, losses) by transferring their balances to the owner’s capital account or the corporation’s retained earnings account. This is done after the company’s...
in inventory will be high. When the inventory turnover is high, the days’ sales in inventory will be low. Examples or Reasons for High Inventory Days Assume that a company maintains a constant quantity of items in...
of Adjusting the Allowance for Doubtful Accounts The balance in the account Allowance for Doubtful Accounts should be the estimated amount of the company’s receivables that will not be turning to cash. For example, if...
Other increases in long-term liabilities and stockholders’ equity Uses of cash reported in the financing activities section of SCF include: Repayment of short-term loans and/or long-term loans Retirement of bonds...
What is cost incurred? Definition of Cost Incurred A cost incurred is a cost that a company (or other organization) becomes liable for. Example of Cost Incurred Assume that a retailer begins operations on December 1 and...
What are the effects of depreciation? Definition of Depreciation Depreciation is the systematic allocation of the cost of a company’s assets used in its business from the balance sheet to the income statement (as an...
Should a cash discount be recorded as a reduction to an expense? Yes, a cash discount should be a reduction to an expense. After all, accountants define cost as the cash amount (or cash equivalent amount) at the time of...
asset turnover and fixed asset turnover are indicators of a company’s effectiveness in utilizing its assets. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting...
What are accrued liabilities? Definition of Accrued Liabilities Accrued liabilities are usually expenses that have been incurred by a company as of the end of an accounting period, but the amounts have not yet been paid...
What is value billing? Value billing is a way of billing a client for services provided. Basically, the amount billed is based on the value of the service (or information) instead of the number of hours spent. The...
’ equity section of the balance sheet, the cash that was generated from those retained earnings is not likely be in the company’s checking account. Instead, the corporation likely used the cash to acquire additional...
If the fully depreciated car continues to be used, there will be no further depreciation. The company cannot depreciate more than the car’s cost. If the fully depreciated car is sold or scrapped, the following...
How does an expense affect the balance sheet? Definition of Expense An expense is a cost that has been used up, expired, or is directly related to the earning of revenues. Most of a company’s expenses fall into the...
What is other comprehensive income? Definition of Other Comprehensive Income Other comprehensive income, or OCI, consists of items that have an effect on the balance sheet amounts, but the effect is not reported on the...
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...
Debts is a contra asset account (an asset account with a credit balance). It is used along with the account Accounts Receivable in order for the balance sheet to report the net realizable value of the company’s...
What is periodicity in accounting? Definition of Periodicity Periodicity is an accounting assumption made by accountants so that a company’s complex and ongoing activities can be divided up into annual, quarterly, and...
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