What is a memorandum entry? Definition of Memorandum Entry A memorandum entry is a short message entered into the general journal and also entered into a general ledger account. It is not a complete journal entry because...
What is a memorandum entry? Definition of Memorandum Entry A memorandum entry is a short message entered into the general journal and also entered into a general ledger account. It is not a complete journal entry because...
A formula that calculates the optimum quantity to be purchased (or produced) so as to minimize the combined total cost of carrying inventory and processing additional purchase orders (or production setups). The formula...
The preferred method for systematically moving bond discount or premium from the balance sheet over to interest expense on the income statement over the life of the bond. This method is superior to the straight-line...
What are direct materials? Definition of Direct Materials Direct materials are defined as: Traceable matter that is converted by a manufacturer into products Part of manufacturer’s production costs A variable cost of a...
A method used by retailers to achieve the LIFO cost flow without tracking individual units. A further advantage is that pools of products are used. This will likely mean less liquidation of LIFO cost layers that would...
See Explanation of Inventory and Cost of Goods Sold.
What does overstated mean? Definition of Overstated When an accountant uses the term overstated, it means two things: The reported amount is incorrect, and The reported amount is more than the true or correct amount. In...
A depreciation technique where a constant percentage (such as 200%, 150%, or 125%) is applied to the book value of an asset. (As an asset is depreciated its book value declines.) This technique results in greater...
The depreciation method that results in the same equal amount of depreciation expense for each full year over the life of the asset. See Explanation of Depreciation for an illustration and further discussion of...
What are mixed costs? Definition of Mixed Costs In accounting, the term mixed costs refers to costs and expenses that consist of two components: A fixed component, the total of which does not change as the volume of...
What does capitalize mean? Definition of Capitalize In accounting, the word capitalize means to record an expenditure as an asset. The cost of this asset is then allocated to expense over its useful life. (If the...
What is yield to maturity? Definition of Yield to Maturity Yield to maturity is the total return that will be earned by someone who purchases a bond and holds it until its maturity date. The yield to maturity might also...
What adjustment is needed when a check that was written in a previous month appears on the current month's bank statement? A check written in any previous month but not appearing on previous bank statements, should have...
Our income statement shows wide fluctuations in utilities expense from month to month. I suspect our accounting is not proper. Any suggestions? Under accrual accounting, your income statement should report the amount for...
Is a manufacturer's product warranty part of its manufacturing overhead or is it part of its SG&A expense? The costs associated with a manufacturer’s product warranty are part of its selling expenses and therefore part...
Should receipts be recorded using the date the money was received or the date the money was deposited in the bank accounts? Cash receipts should be recorded with the date the money was received. For example, a church...
What is meant by accounts written off? Definition of Accounts Written Off Accounts written off is likely referring to accounts receivable that a company deemed to be uncollectible and were removed from the general ledger...
What does it mean to amortize a loan? Definition of Amortize a Loan To amortize a loan usually means establishing a series of equal monthly payments that will provide the lender with: An interest payment based on the...
What is the margin of safety? Definition of Margin of Safety In break-even analysis, the term margin of safety indicates the amount of sales that are above the break-even point. In other words, the margin of safety...
What is the cost of goods manufactured? Definition of Cost of Goods Manufactured The cost of goods manufactured is a calculation of the production costs of the goods that were completed during an accounting period. In...
What is meant by nonoperating expenses and losses? Definition of Nonoperating Expenses and Losses Nonoperating expenses are business expenses that are outside of a company’s main or central operations. (Some describe...
What is meant by owner's draws? Definition of Owner’s Draws Owner’s draws are withdrawals of a sole proprietorship’s cash or other assets made by the owner for the owner’s personal use. The account in which the...
How do I determine my payroll tax liabilities? Your payroll tax liabilities will include the following: Federal, state, and local income taxes withheld from employees’ wages, salaries, bonuses, etc. but not yet...
Why is manufacturing overhead allocated to products? Definition of Manufacturing Overhead Allocated to Products Manufacturing overhead refers to the indirect production costs of producing goods, products, component...
What is meant by nonoperating revenues and gains? Nonoperating revenues are the amounts earned by a business which are outside of its main or central operations. Nonoperating revenues are also described as incidental or...
What is the three-way match? Definition of Three-Way Match In the accounting and bookkeeping area of accounts payable, the three-way match refers to a procedure used when processing an invoice received from a vendor or...
What is the meaning of debit? Definition of Debit The term debit is similar to the term used in Italy more than 500 years ago when the double entry accounting system was documented. What you need to know today is that...
What does the term arrears mean in accounting? Definition of Arrears In accounting, the term arrears will be used in the following situations: If a corporation does not declare and pay the dividend on its cumulative...
What is the meaning of pro rata? Pro rata is a Latin term that means in proportion. Pro rata is related to prorate, a term used in cost accounting. To illustrate the term pro rata, let’s assume that a company’s...
What is the gross profit method of inventory? Definition of Gross Profit Method The gross profit method is a technique for estimating the amount of ending inventory. The gross profit method might be used to estimate each...
Why do manufacturers use standard costs? One reason for a manufacturer to use standard costs is to plan carefully what its costs will be for the upcoming budgeting year and to then compare the actual costs with those...
Why are accruals needed every month? Reasons for Monthly Accruals Accrual adjusting entries are needed monthly only if a company issues monthly financial statements. Two reasons for the monthly accrual adjusting entries...
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