. (The higher cost of goods sold means lower net income and lower taxable income than FIFO.) Another reason for a company to use the LIFO cost flow assumption is to improve the matching of costs with sales. If the...
. (The higher cost of goods sold means lower net income and lower taxable income than FIFO.) Another reason for a company to use the LIFO cost flow assumption is to improve the matching of costs with sales. If the...
accounts are also referred to as temporary accounts or nominal accounts because at the end of each accounting year their balances will be closed. This means that the balances in the income statement accounts will be...
costs and fixed expenses ($18,000 + $12,000 + $1,000). Once the $31,000 has been covered, 70% of the revenues will flow to the company’s net income. Join PRO to Track Progress Mark the Question as Read Must-Watch...
Business X for $5 million based on Business X’s annual net income X 10. The fair value of Business X’s identifiable assets was $4 million and its liabilities were $1 million. Therefore, Company A is paying $5...
. 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...
, the U.S. accounting rules require that the cost of the obsolete inventory items be reduced to their net realizable value. Failure to reduce their cost will mean that the following amounts on the company’s financial...
of goods sold. [Rather than simply showing the change in inventory as an adjustment to cost of goods, some income statements will show the calculation of Cost of Goods Sold as Beginning Inventory + Net Purchases = Goods...
have increased in value, the depreciation and cost of goods sold reported on the income statement will be less than the value of the economic capacity being used up. As a result, the reported net income will be greater...
the year. Therefore, the $25,000 increase in owner’s equity is likely the company’s net income earned for the year. The details for the $25,000 (revenues, expenses, gains, losses) will be reported on the company’s...
that are recorded in income statement accounts. This allows the balance sheet account Owner’s Capital (or Retained Earnings) to avoid having all of the thousands or millions of revenue and expense transactions from...
in the accounting periods in which the asset is being used. More Information on the Depreciation Entry It is important to understand the following: The depreciation entry will cause a decrease in the company’s net...
prices in order to determine whether the quantity of inventory has increased or decreased. Base year is also the initial year in a series of annual amounts. For instance, an accountant might prepare a chart that...
What is the difference between gross margin and markup? Definition of Gross Margin Gross margin or gross profit is defined as net sales minus the cost of goods sold. However, some people intend for the term gross margin...
in the beginning inventory (the prior year’s ending inventory) + the cost of the current year’s net purchases. Allocating Cost of Goods Available to Inventory and Cost of Goods Sold At the end of the year, the cost...
statement accounts, and The owner’s drawing account The income statement accounts record and report the company’s revenues, expenses, gains, and losses. When the company is a sole proprietorship, the balances in...
of the unique services it provided nor does it know the market value. As a result, WSC discounts the future $100,000 by using the interest rate of 20% for two years to arrive at the present value of $69,400. WSC will...
. If the company spends more for the direct materials, direct labor, and/or manufacturing overhead than should have been spent, the company will not meet its projected net income. In other words, analysis of...
are not allocated to the products, the company must have its selling prices and sales revenues sufficiently large to cover both the product costs and the period expenses to have a positive amount of net income. Join PRO...
be allocated to the resulting 90 lots in a meaningful way so that the developer can report the profit of selling two residential lots and the largest of the business lots. The basis for the allocation is likely to be...
in the period in which they are earned even though the dependable customers will pay the company 30 days later. Example of Revenues On June 10, a company sells $4,000 of goods to one of its best customers with credit...
What causes an increase in break-even point? Definition of Break-even Point The break-even point is the sales volume or sales revenue that is needed to cover the company’s expenses. In other words, it is the point...
in the balance sheet reporting Accounts Receivable (Net) of $82,000. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and Bookkeeping Career Perform better at...
rato. This ratio is computed by dividing a company’s net sales during a year by the average amount of the company’s total assets during the same year. In the case of financial ratios, a higher turnover ratio...
and it is often used to compute the net present value of the cash flows in a proposed investment. It is also considered to be the minimum after-tax internal rate of return to be earned on new investments. For a...
for the sole proprietorship business does not include an expense for the owner working in the business. This means that the reported net income is the total return for the owner’s work and investment. Join PRO to...
: $60,000 Year 3: $80,000 Year 4: $100,000 Year 5: $70,000 The payback period is 3.4 years ($20,000 + $60,000 + $80,000 = $160,000 in the first three years + $40,000 of the $100,000 occurring in Year 4). Note that the...
and the depreciation expense begins. This expense will reduce the company’s profits (net income, earnings). There may also be some additional revenues and costs, and perhaps cost savings, that will also affect the...
Accounting Basics (Flashcards) Download Single-Sided PDF Download Double-Sided PDF All Cards (26) Marked Wrong (0) Marked Right (0) gross profit (or) gross margin This is the remainder after subtracting the cost of goods...
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...
to one account entitled __________ Common Stock. 12. Stockholder's equity is subdivided into two major sections: __________ paid-in capital and __________ retained earnings . 13. The net income of a corporation is...
. 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...
, revenue recognition). The accrual method results in a better picture of a corporation’s net income during a specified period of time and it results in a better picture of a corporation’s assets and liabilities at...
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...
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...
. 7. Under the accrual basis of accounting, the discount on notes payable should be reported as interest expense When The Note Is Received Wrong. Over The Life Of The Note Right! When The Note Matures Wrong. 8. If you...
Our Explanation of Present Value of a Single Amount discusses the time value of money and the need to discount future amounts to the time of an investment or other transaction. The present value of 1 table is used to...
accrual accounting and the revenue recognition principle. 7. Under the accrual basis of accounting, the discount on notes payable should be reported as interest __________ expense over the life of the note. 8. If you...
in net income. Since the internet business was not purchased from another company and its cost to develop was not significant, the company’s balance sheet will report only the business’s cash, receivables and some...
. Knowing how costs behave when sales or other activities change will allow you to better understand how a company’s gross profit and net income will change. It also allows you to quickly calculate a product’s...
flow assumption from FIFO to the LIFO because they were experiencing rising costs. By flowing the recent higher costs into the cost of goods sold on the income statement and tax return (and keeping the older lower costs...
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