What is LIFO? Definition of LIFO LIFO is the acronym for last-in, first-out, which is a cost flow assumption often used by U.S. corporations in moving costs from inventory to the cost of goods sold. Under LIFO, the most...
What is LIFO? Definition of LIFO LIFO is the acronym for last-in, first-out, which is a cost flow assumption often used by U.S. corporations in moving costs from inventory to the cost of goods sold. Under LIFO, the most...
The total annual return on a bond investment if held to maturity. For example, if a bond is purchased at less than its maturity value, the yield to maturity includes the annual interest plus the gain as the bond...
activities. The combination of the cash inflows and the cash outflows from a company’s operations (activities outside of its investing and financing activities). loss on disposal, net of tax. An accounting loss on the...
Comprehensive income consists of the following two components (which are reported on the statement of comprehensive income): Net income (or loss) from the income statement, and Other comprehensive income (some...
inventory when an item is sold (leaving the most recent costs in inventory) LIFO in which the most recent costs are removed from inventory when an item is sold (leaving the oldest costs in inventory) An average method...
One of the cost flow assumptions associated with the periodic inventory system. The latest (recent) costs of goods purchased are removed from inventory first and are charged to the income statement as cost of goods sold....
The first-in, first-out cost flow assumumption under the perpetual inventory system. The first (oldest) costs are the first costs removed from inventory at the time that goods are sold. The most recent costs will remain...
One of the cost flow assumptions associated with the periodic inventory system. The first (oldest) costs are removed from inventory first and are charged to the income statement as cost of goods sold. The recent costs...
was $300,000 while the cost of its inventory increased from $100,000 to $120,000. The result is that its cost of goods sold is $280,000 (purchases of $300,000 minus the $20,000 increase in inventory). A second way to...
Why does LIFO usually produce a lower gross profit than FIFO? Definition of LIFO LIFO (which is the acronym for Last In, First Out) is a cost flow assumption in which the most recent costs of inventory items are the...
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...
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...
The method used for removing costs from the inventory of goods. The cost flow can be different from the physical flow of goods. For example, in the U.S. the LIFO cost flow can be used even if the oldest goods are shipped...
of goods sold on its income statement. For the minor change in the cost of inventory from the beginning to the end of the accounting period, an adjustment can be made. For example, let’s assume that the cost of...
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...
The ABC inventory system is different from activity-based costing. The ABC inventory system is used in order to focus on the most important items in inventory. Usually a relatively few items will account for a very...
are completed, their cost will be moved from the WIP account into the Finished Goods Inventory account. The cost of a manufacturer’s work-in-process inventory are to be disclosed in the company’s financial...
. If the retailer records the $7,000 of purchases as an expense (cost of goods sold), then at the end of the year the retailer’s adjusting entry must debit Inventory for $100 (since the inventory has increased from...
Our Explanation of Working Capital and Liquidity provides you with an in-depth look at the components of working capital and the challenges of converting current assets to cash before obligations come due. You will see...
the periodic inventory system there is no entry to credit the Inventory account or to debit the account Cost of Goods Sold. Hence, the Inventory account contains only the ending balance from the previous year. As a...
appearing first followed by the income statement accounts. Examples of General Ledger Accounts Some of the more common balance sheet accounts and how they are further arranged in the general ledger include: asset...
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...
. A corporation cannot record a gain or loss on its income statement for transactions involving its own __________. 17. The preferred __________ requirement must be deducted from a corporation’s net income when...
in inventory is a component in the calculation of the Cost of Goods Sold, which is often presented on a company’s income statement. An increase in inventory will be subtracted from a company’s purchases of goods,...
been added to inventory (and therefore not sold). It is also possible that the company sold more than the cost of its purchases by selling some of the merchandise from its inventory. 13. The interest expense incurred by...
taxes.) Example of Rotating Inventory Stock A grocery store restocks its shelves by moving the oldest units to the front of the shelves and places the newest units in the back of the shelves. The hope is that the...
inventory. Example of Importance of Accurate Inventory Here is an example of why accuracy in calculating inventory is important. After accounting for the total cost of 1) the items purchased or produced in the current...
the depreciable asset is sold, scrapped, or retired, its accumulated depreciation and its cost are removed from the respective accounts. (Any difference between the book value and the amount received is recorded as a...
to the date of the sale. Next, the asset’s cost and its accumulated depreciation are removed from the accounts. Any money received is debited to Cash and any gain or loss on the sale is also recorded.] Example of a...
current ratio is 2:1 [($300,000/$150,000):1]. Acid-Test Ratio or Quick Ratio The acid-test ratio is also known as the quick ratio. It is a more conservative indicator of a company’s ability to pay its current...
of the statement of cash flows. Supplemental Wrong. The entire proceeds from the sale of a long-term asset are shown in the investing activities section of the statement of cash flows. 3. The Loss on the Sale of...
. The employee is unable to pay for the repair and has no other means for getting to work. The company agrees to lend the employee $800 and to withhold $100 per week from the employee’s weekly payroll checks until the...
as follows: Debit Cash for $1,060,000 (the amount received from investors) Credit Bonds Payable for $1,000,000 (the face, par, and maturity amount) Credit Premium on Bonds Payable for $60,000 (the amount to be...
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.
and the current year’s ending inventory is $115,000. Under the periodic inventory system, this inventory increase of $15,000 could be recorded as a debit of $15,000 to Inventory (thereby increasing the account balance...
Our Explanation of Accounting Equation (or bookkeeping equation) illustrates how the double-entry system keeps the accounting equation in balance. You will see how the revenues and expenses on the income statement are...
focus on the incremental costs of carrying or holding inventory. The cost of carrying inventory will vary from company to company. For instance, if a company has a large cash balance with no attractive investment...
What is the difference between periodic and perpetual inventory systems? Periodic Inventory System In a periodic system the account Inventory: Has only the ending balance from the previous accounting year Excludes the...
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