Our Explanation of Manufacturing Overhead gives you examples of what is included in manufacturing overhead. You will learn that these are indirect product costs and therefore are allocated to the products in order to...
Our Explanation of Manufacturing Overhead gives you examples of what is included in manufacturing overhead. You will learn that these are indirect product costs and therefore are allocated to the products in order to...
What is the difference between net cash flow and net income? Definition of Net Cash Flow Net cash flow is the combination of the cash received and the cash disbursed. In other words, it is the combination of the debit...
. To make the best decisions, management needs the future amounts. Obviously, the future has not yet occurred, therefore getting the approximate future amounts will be a challenge. Past Amounts Are Not Relevant The...
What are consolidated financial statements? Definition of Consolidated Financial Statements Consolidated financial statements are financial statements for a group of separate legal entities that are controlled by one...
What is net realizable value? Definition of Net Realizable Value Net realizable value (NRV) is the cash amount that a company expects to receive. Hence, net realizable value is sometimes referred to as cash realizable...
was less than the standard quantity allowed for the good output, the variance is favorable and the Materials Usage Variance account will have a credit balance. While using standard costs is helpful for planning and...
to determine the approximate amount of inventory that has been lost due to theft, fire, or other reasons. The gross profit method of estimating ending inventory assumes that the gross profit percentage or the gross...
that a company purchased new equipment 5 years ago at a cost of $210,000. The asset had a useful life of 7 years and no salvage value. As a result, each year the company debited Deprecation Expense for $30,000 and...
as a separate cost. Examples of Implicit Costs and Explicit Costs Let’s assume that a company gives a promissory note for $10,000 to a seller of a unique used machine for which the fair value is unknown. The...
of depreciation over the asset’s useful life is the asset’s cost minus an estimated salvage value at the end of the useful life. The result of this calculation is sometimes referred to as the asset’s depreciable...
(as opposed to when the cash is received). Similarly, expenses and losses are reported on the income statement and the related liability is reported on the balance sheet when they occur (as opposed to waiting until the...
the $18,000 expense and its balance sheet as of December 31 will report the $18,000 liability. After the financial statements are prepared, the closing entries will transfer the balance in the account Temp Service...
Our Explanation of Adjusting Entries gives you a process and an understanding of how to make the adjusting entries in order to have an accurate balance sheet and income statement. Eight examples including T-accounts for...
Our Explanation of Bookkeeping provides you with a rich understanding of the recording of transactions. It then discusses the additional steps necessary for preparing accurate financial statements. This is great for...
Our Explanation of Accounts Receivable and Bad Debts Expense helps you understand the accounting for the losses associated with selling goods and providing services on credit. You will understand the impact on the...
Our Explanation of Improving Profits will assist you in focusing on the costs and revenues that are relevant (and ignoring those which are not relevant) for improving profits and eliminating losses. Examples of the...
as a percent of total assets. The vertical analysis of an income statement results in every income statement amount being restated as a percent of net sales. Example of Vertical Analysis of a Balance Sheet If a...
foot. Hence rent usually will not vary with sales. (An exception would be a retail mall where it is agreed that rent will be based on sales.) False Wrong. Generally property taxes and rents are fixed. They are usually...
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.
collection period is: the average accounts receivable balance divided by the average credit sales per day. Example of Average Collection Period Assume that a company had on average $40,000 of accounts receivable during...
salaries for the company’s marketing team should be reported as an expense in June since the future economic value cannot be measured/determined. Another example is the amount spent to repair equipment that broke...
. When 10 loaves are produced, the total cost of flour will be $4. If 50 loaves are produced, the cost of flour will be $20 (50 loaves X 1 pound X $0.40 per pound). An expense can also be a variable cost. For instance,...
What are the notes to the financial statements? Definition of Notes to Financial Statements The notes to the financial statements are a required, integral part of a company’s external financial statements. They are...
Why doesn't the balance sheet equal the post-closing trial balance? Definition of Balance Sheet The total amounts on a balance sheet show that a company’s assets = liabilities + owner’s (stockholders’) equity....
, the cost is recorded as an expense in the year of the expenditure.) Examples of Capitalized Costs When a company constructs a new building, the interest incurred to finance its construction is capitalized. This means...
What are the ways to value inventory? Definition of Valuing Inventory Generally, the financial statements of a U.S. company must report its inventory at its historical cost (not at its selling prices). Inventories are to...
Expenses are often divided into two major classifications: Operating expenses which involve a company’s main activities. A retailer’s operating expenses include the cost of goods sold and its selling, general and...
What is the profit and loss statement? Definition of Profit and Loss Statement The profit and loss statement, or P&L, is a name sometimes used to describe a company’s income statement, statement of income,...
tasks. Examples of Financial Accounting One part of accounting focuses on presenting the financial information in the form of general-purpose financial statements (balance sheet, income statement, etc.) that are...
What is the gross margin ratio? Definition of Gross Margin Ratio The gross margin ratio is a percentage resulting from dividing the amount of a company’s gross profit by the amount of its net sales. (The gross margin...
What is the difference between the current ratio and working capital? Definition of Current Ratio The current ratio is the proportion, quotient, or relationship between the amount of a company’s current assets and the...
loss computed using a past cost) Current and future costs that will differ between two alternatives in a decision. (Costs that will not differ are irrelevant and can be ignored.) Information provided in a timely manner...
What is a single-step income statement? Single-Step Income Statement Definition A single-step income statement arrives at a company’s net income in one step or subtraction: [total revenues and gains] – [total...
is considered to be nonoperating income or other income. (However, banks and other lenders, whose primary activities involve earning interest, will report their interest earned as part of their operating income.)...
What is obsolete inventory? Definition of Obsolete Inventory Obsolete inventory refers to products that a company had purchased or produced which cannot be sold. The obsolete items may be the result of one or more of the...
What is a long-term asset? Definition of Long-term Asset A long-term asset is an asset that is not expected to be converted to cash or be consumed within one year of the date shown in the heading of the balance sheet....
accounts, but with differing amounts. Recurring journal entries may also be referred to as memorized journal entries or standard journal entries. Examples of Recurring Journal Entries A company that prepares monthly...
Are Connected To illustrate the connection between the balance sheet and income statement, let’s assume that a company’s owner’s equity was $40,000 at the beginning of the year, and it was $65,000 at the end of...
What is the purpose of subsidiary ledgers? Definition of Subsidiary Ledger A subsidiary ledger contains the details to support a general ledger control account. For instance, the subsidiary ledger for accounts receivable...
in the use of accounting software and electronic worksheets. Generally, an accounting clerk will have a high school diploma and some may have a 2-year associate’s degree in accounting. The accounting clerks are likely...
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