A ratio consisting of an income statement account balance divided by the average balance of a balance sheet account. For example, the inventory turnover is computed as follows: Cost of Goods Sold divided by the average...
A ratio consisting of an income statement account balance divided by the average balance of a balance sheet account. For example, the inventory turnover is computed as follows: Cost of Goods Sold divided by the average...
An assumption that determines the order in which costs should flow out of a balance sheet account (e.g. Inventory, Investments, Treasury Stock) when the item is sold. For an illustration of the cost flow assumption, see...
’ credit sales in accounts receivable; 2) inventory turnover, and the related ratio days’ cost of sales in inventory; 3) total asset turnover; and 4) fixed asset turnover. The accounts receivable turnover ratio and...
with significant amounts of inventory and plant assets. For example, when inventory is measured by using the first-in, first-out cost flow assumption under US GAAP, the actual historical cost of inventory that is...
Why does a cost system developed for inventory valuation distort product cost information? The cost system for inventory valuation may have been developed to provide a reasonable total cost of inventory and a reasonable...
Why is the distinction between product costs and period costs important? The distinction between product costs and period costs is important to: Properly measure a company’s net income during the time specified on its...
, the inventory turnover ratio divides a company’s cost of goods sold for a recent year by the company’s average inventory during that year. Perhaps the most frequently used accounting ratio is the current ratio,...
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...
or moment, there is an inconsistency between the numerator and the denominator. For example, the numerator in the inventory turnover ratio is the cost of goods sold for the 365-day year, while the denominator reflects...
Is there a difference between work-in-process and work-in-progress? It depends on the user of the terms. Definition of Work-in-Process I use the term “work-in-process” to mean a manufacturer’s inventory that is not...
inventory costs on the balance sheet because the latest, higher costs were removed from inventory ahead of the older lower costs LIFO means that the cost of goods sold on the income statement will contain the higher...
What is EOQ? Definition of EOQ EOQ is the acronym for economic order quantity. The economic order quantity is the optimum quantity of an item to be purchased at one time in order to minimize the combined annual costs of...
. The inventory turnover ratios are high because the stores feature the fast selling brands at low prices. Their strategy is that huge sales volumes with small profit margins will still result in adequate net income...
is the __________-test ratio. 6. The numerator in the calculation of the receivable turnover ratio is the net credit __________ for the year. 7. The inventory turnover ratio is best computed with the numerator being the...
is _________ capital. WORKING GROKWIN Unscramble WORKING KIWGNOR Unscramble 2. Current assets divided by current liabilities is the __________ ratio. CURRENT RERTCUN Unscramble CURRENT RTNURCE Unscramble 3. 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...
at the buyer’s location on January 2. On December 30, the seller should record a sale, an account receivable, and a reduction in its inventory. The buyer should record the purchase, the account payable, and the...
season is finished, the merchandise returns from holiday sales are completed, and the January clearance sales have taken place. [The 52-53 week periods with 13-week quarters allows for better comparisons than calendar...
of merchandise on May 15, but allows the customer to pay on June 15. On May 15, the company will credit its income statement account Sales and will debit its current asset account Accounts Receivable. (When the customer...
What is the difference between revenues and receipts? Definition of Revenues A company’s revenues are amounts it has earned as the result of business activities such as selling merchandise or performing services. Under...
. Example of a Special Journal One example of a special journal is the sales journal which is used exclusively for a company’s sales of merchandise to customers that are allowed to pay at a future date. The sales...
revenue that had been prepaid by a customer, the company’s balance sheet’s liability deferred revenue will decrease and retained earnings will increase. Examples of the Effect of Revenue on the Balance Sheet...
unsecured claim is likely to be settled only after the secured creditors’ claims and the priority unsecured creditors’ claims are settled. Example of Unsecured Claim Assume that on July 1, Supplier Company sells...
What is a multiple-step income statement? Multiple-Step Income Statement Definition A multiple-step income statement presents two important subtotals before arriving at a company’s net income. For a company that sells...
for the gross amount received, but the IRS may use the term income to mean the gross amount received. While accountants use the term revenues when referring to a company’s sales of its merchandise, the same...
, each customer’s remittance, return of merchandise, discounts, and so on. With these details in the subsidiary ledger, the Accounts Receivable account in the general ledger can report summary amounts for the accounts...
the collection of the money owed to the company (part of the company’s accounts receivable and the customer’s accounts payable), the company’s invoice may state credit terms such as 2/10, net 30. For example,...
. 1. CB Corporation’s balance sheet as of December 31 reported the following: Cash and cash equivalents $20,000 Temporary investments $30,000 Accounts receivable $50,000 Inventory $150,000 Equipment $400,000 Total...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
., there are several cost flow assumptions available. However, a company must select one and then use it consistently. Below is an overview of three cost flow assumptions and how they affect the cost of goods sold....
-in-process, finished goods, and supplies to identify the inventory items which have not turned over in a long time. Those items may need to be scrapped so that a loss can be reported and cash will not flow for income...
standards and U.S. income tax regulations. The details for allocating or assigning the manufacturing costs to the products manufactured are contained in the college course known as cost accounting or managerial...
to the products purchased. Therefore, the unsold products in inventory should include a portion of the transportation-in costs. The products that have been sold, should have their share of the transportation-in costs in...
as the asset Propane Inventory. As the propane is sold, the dealer will reduce Propane Inventory for the cost of the propane sold and will increase the expense Cost of Goods Sold. Example 3. A manufacturer uses propane...
for the manufacturer’s cash to be used to: pay for the raw materials needed in its products pay for the labor and overhead costs needed to convert the raw materials into products hold the finished products in...
No. 33 required large companies to report supplementary information on the effects of changing prices on its inventory and its property, plant and equipment. (In the late 1970’s the U.S. was experiencing double-digit...
What is the difference between the current ratio and the acid test ratio? The difference between the current ratio and the acid test ratio (or quick ratio) mainly involves the current assets inventory and prepaid...
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