to earn less than the specified interest rate. Comparison of IRR and NPV Both IRR and NPV use a company’s cash inflows and cash outflows that are discounted to a present value. (Neither use the accrual...
to earn less than the specified interest rate. Comparison of IRR and NPV Both IRR and NPV use a company’s cash inflows and cash outflows that are discounted to a present value. (Neither use the accrual...
) Example of Dividing the Cost of Real Estate Assume that a company purchases real estate (which includes land and a building) at a cost of $220,000. The appraisal at the time of the purchase indicates that the land has...
What is the difference between adjusting entries and correcting entries? Definition of Adjusting Entries Generally, adjusting entries are required at the end of every accounting period so that a company’s financial...
, such as Sales Discounts or Discounts for xxx. Let me give you an example from the meat industry. We had 40,000 pounds of beef without a local customer, so we sold it to a company 1,000 miles away for the local price of...
What is net income? Definition of Net Income Net income is the positive result of a company’s revenues and gains minus its expenses and losses. A negative result is referred to as net loss. (There are a few gains and...
What are payroll taxes? Definition of Payroll Taxes The payroll taxes are the federal, state, and local taxes that pertain to the wages, salaries, commissions, bonuses, etc. of a company’s employees. Some of the...
of accounting, if an employee earns gross wages of $800 in the last week in December, the gross wages (and related amounts) are reported on the company’s December financial statements. However, if the wages earned...
of activity changes. Example of Fixed Costs per Unit Assume that a company has two fixed costs: rent is $2,500 per month and salaries are $3,500 per month. The total fixed costs of $6,000 per month will not change when...
should be identical. Accounting software will generate a post-closing trial balance (or any other trial balance) with a click of the mouse. Example of Post-closing Trial Balance The post-closing trial balance will have...
ending inventory and COGS will differ depending on a company’s cost flow assumption. Three examples of cost flow assumptions are: FIFO which assigns the recent unit costs of the purchases to inventory and the oldest...
cash inflows and cash outflows during the period of the income statement A reconciliation of the change in a company’s cash and cash equivalents from the beginning of the accounting period to the end of the accounting...
useful tool when measuring a manager’s efficiency. Example of a Flexible Budget Let’s assume a company determines that its cost of electricity and supplies will vary by approximately $10 for each machine hour (MH)...
method, the interest expense will be included in the company’s net income or net earnings. The interest expense is adjusted to a cash amount through the changes to the working capital amounts, which are also reported...
31, 2023), you are ignoring the balances on the other 364 days of 2023. That’s a problem if the majority of the company’s activity occurs in the months of March through October. If that’s the case, using only the...
What are the effects of overstating inventory? Definition of Overstating Inventory Overstating inventory means that the reported amount for the cost of a company’s inventory is greater than the actual true cost based...
is debited under the allowance method. The use of Allowance for Doubtful Accounts allows us to see in Accounts Receivable the total amount that the company has a right to collect from its credit customers. The credit...
What is manufacturing overhead and what does it include? Definition of Manufacturing Overhead Manufacturing overhead (also known as factory overhead, factory burden, production overhead) involves a company’s...
expense over the years of the asset’s useful life.) Example of Revenue Expenditure Let’s assume that a company made a capital expenditure of $100,000 to install a high efficiency machine. The new machine requires...
A classic example of the materiality concept is a company expensing a $20 wastebasket in the year it is acquired instead of depreciating it over its useful life of 10 years. The matching principle directs you to record...
discount as a sales discount. The buyer may refer to the early payment discount as a purchases discount.) Not all companies offer early payment discounts. If the discount is allowed it will appear on the sales invoice....
that a company purchased a delivery vehicle for $50,000 and determined that the depreciation expense should be $9,000 for 5 years. Each year the account Accumulated Depreciation will be credited for $9,000. Since this...
physical inventory.) It is also used to estimate the amount of missing inventory caused by theft, fire or other disaster. Gross Profit Method Calculation Here’s how the gross profit method formula works. First you...
What is the meaning of a favorable budget variance? Definition of a Favorable Budget Variance A favorable budget variance means that the actual amount that occurred was better for the company (or organization) than the...
Payable. (Until it is, they refer to the amount as one of the company’s accrued liabilities.) For others, it is an account payable even if it is not yet recorded in Accounts Payable. Example of an Account Payable...
two alternatives. Note: Incremental costs may include more than the change in variable costs. Example of Incremental Cost Let’s assume that a company has the following experience: Total cost of manufacturing 8,000...
of an accounting year at a cost of $430,000. Further, the equipment is expected to be used in the business for 10 years. At the end of the 10 years, the company expects to receive the salvage value of $30,000. In this...
the time value of money. Since the investments have an impact over many years, the preferred methods for capital budgeting decisions are those which use discounted cash flows. (In addition to using the discounted cash...
What is cost accounting? Definition of Cost Accounting Cost accounting is involved with the following: Determining the costs of products, processes, projects, etc. in order to report the correct amounts on a company’s...
of production method, let’s assume that a company has a machine with a cost of $500,000 and a useful life that is expected to end after producing 240,000 units of a component part. Further, the machine’s salvage...
to the liability account Dividends Payable and a debit to the account Retained Earnings (or the temporary account Dividends). Mark the Cheat Sheet as Complete Must-Watch Video Learn How to Advance Your Accounting and...
Our Explanation of Nonprofit Accounting includes a chart that contrasts the financial statements of a nonprofit (or not-for-profit) organization with those of a for-profit business corporation. There are many examples to...
on the left side of the accounting equation and are likely to have account balances on which side of a T-account? Select... Debit side Credit side 5. Liability and stockholder’ equity accounts are listed on the right...
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.
Our Explanation of Inventory and Cost of Goods Sold will take your understanding to a new level. You will see how the income statement and balance sheet amounts are affected by the various inventory systems and cost flow...
describes an __________. 3. Methods that compute the present value of future cash flows are referred to as __________ cash flow techniques. 4. Part of the difference between a company’s net income during a specific...
represents the cost which has not yet been depreciated. Example 1. A company purchases equipment at a cost of $100,000 and it is expected to be useful for 10 years. At the end of 10 years it will be scrapped for $0. A...
Our Explanation of Standard Costing uses an easy-to-relate to example for illustrating a manufacturer's standard costs and variances. Also provided is a chart which indicates each variance, what it tells you, and where...
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.
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For the past 52 years, Harold Averkamp (CPA, MBA) has
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