What is a current liability? Definition of Current Liability A current liability is: An obligation that will be due within one year of the date of the company’s balance sheet, and Will require the use of a current...
What is a current liability? Definition of Current Liability A current liability is: An obligation that will be due within one year of the date of the company’s balance sheet, and Will require the use of a current...
costs are part of the cost accounting method known as absorption costing, which is required by U.S. GAAP and U.S. income tax regulations. Absorption costing means that fixed manufacturing costs must be assigned to the...
costing system specifies that the standard quantity of direct materials to manufacturer one unit of output is 5 pounds. The system also specifies that the standard cost per pound of the material is $3 per pound. If the...
Is there a relationship between direct materials variances and direct labor variances? Definition of Direct Materials Variances Direct materials variances (pertaining to standard costing) commonly consist of two...
Can a cost be both a direct cost and an indirect cost? A cost can be both a direct cost and an indirect cost. One of many examples is the cost of a supervisor in a department within a factory. Let’s assume that Sam...
In accounting, cost is defined as the cash amount (or the cash equivalent) given up for an asset. Cost includes all costs necessary to get an asset in place and ready for use. For example, the cost of an item in...
What is gross profit? Definition of Gross Profit Gross profit is defined as net sales minus the cost of goods sold. Gross profit is sometimes referred to as gross margin. (However, gross margin can also mean the gross...
in an account that normally has a debit balance, or a debit balance in an account that normally has a credit balance A credit entry, when a debit entry will not have parentheses An unfavorable variance in standard...
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 setup cost? Definition of Setup Cost In manufacturing, setup cost is the cost incurred to get equipment ready to process a different batch of goods. Hence, setup cost is regarded as a batch-level cost in activity...
of a product’s direct materials. Expressed another way, conversion costs are the manufacturing or production costs necessary to convert raw materials into products. The term conversion costs often appears in the...
Where can I find high quality business forms? AccountingCoach.com has developed 85 business forms to help you prepare financial statements, calculate financial ratios, break-even points, standard costing variances, and...
Is a favorable variance always an indicator of efficiency in operation? In a standard costing system, some favorable variances are not indicators of efficiency in operations. For example, the materials price variance,...
Are transportation-in costs part of the cost of goods sold? Definition of Transportation-in Costs Transportation-in costs, which are also known as freight-in costs, are part of the cost of goods purchased. The reason is...
Are direct costs fixed and indirect costs variable? Direct Costs vs. Indirect Costs The terms direct costs and indirect costs could be referring to a product, a department, a machine, geographic market, etc. (which are...
Is rent expense a period cost or a product cost? Definition of Rent Expense Rent expense is often a monthly amount paid by a company for use of a building. Typically, the rent is due on the first day of every month that...
Is the cost of land, buildings, and machinery a fixed cost? Land, Buildings and Machinery are Fixed Assets It is common for people to refer to land, buildings, and machinery as fixed assets. They are also referred to as...
to as journalizing. After journalizing a transaction, the process of recording those amounts in the appropriate general ledger accounts is known as posting. 7. What is the normal balance for an asset account? Select......
% minus the company’s normal gross profit percentage. (This should be available from the previous year’s income statements. Multiply the cost of goods sold percentage times the sales since December 31. The result is...
What is a credit balance? Definition of Credit Balance In accounting and bookkeeping, a credit balance is the ending amount found on the right side of a general ledger account or subsidiary ledger account. Examples of...
that salaried employees having a gross salary of less than $455 per week for a 40-hour work week must receive overtime pay when working more than the normal 40 hours. In addition to the U.S. Department of Labor’s Fair...
Why are revenues credited? Why Revenues are Credited Revenues cause owner’s equity to increase. Since the normal balance for owner’s equity is a credit balance, revenues must be recorded as a credit. At the end of...
since its debit balance is contrary to the normal credit balance of the owner’s equity or capital account. The title of the account for recording R. Smith’s draws from his or her business is R. Smith, Drawing or R....
What is a contra asset account? Definition of Contra Asset Account A contra asset account is an asset account where the account balance is a credit balance. It is described as “contra” because having a credit balance...
for the current period’s expense that is reported on the company’s income statement. If Provision for Doubtful Debts is the name of the account used for recording the current period’s expense associated with the...
Why would the cost behavior change outside of the relevant range of activity? Cost behavior often changes outside of the relevant range of activity due to a change in the fixed costs. When volume increases to a certain...
account? A contra asset account is an asset account where the account balance is a credit balance. It is described as “contra” because having a credit balance in an asset account is contrary to the normal or...
What is a contra account? Definition of Contra Account A contra account is a general ledger account with a balance that is opposite of the normal balance for that account classification. The use of a contra account...
Should a manufacturer's selling prices be based on costs? A manufacturer’s selling prices should not be based on costs alone. One reason is that the actual cost of each product is not known with precision. At...
of an account. When an account balance is on the right side of an account, we say the account has a credit balance. A credit entry in an asset account will reduce the account’s usual debit balance. A credit entry in...
containing the amounts owed for vendor invoices and other bills that have been approved but not yet paid. The normal balance in Accounts Payable is a credit balance. Amounts owed which did not involve a promissory note....
What is a contra liability account? Definition of Contra-Liability Account A contra-liability account is a liability account in which the balance is expected to be a debit balance. Since a debit balance in a liability...
What is interest income? Definition of Interest Income Interest income is the amount of interest earned on investments (that promise to pay interest) and/or compensation for agreeing to receive cash payments from...
is also a contra account to owner’s equity, because the drawing account’s debit balance is contrary to the normal credit balance for an owner’s equity account. At the end of the accounting year, the drawing...
What is a debit balance? Definition of Debit Balance In accounting and bookkeeping, a debit balance is the ending amount found on the left side of a general ledger account or subsidiary ledger account. Examples of Debit...
What is a product cost? Definition of a Retailer’s Product Cost In accounting, a retailer’s product cost is the cost paid to a supplier plus any other costs that are necessary to get the product in place and ready...
What is an indirect cost? Definition of Indirect Cost An indirect cost is a cost that is not directly traceable to a cost object (product, department, etc.). Rather, the indirect cost is sometimes referred to as a common...
What is prime cost? Definition of Prime Cost In cost accounting, the prime cost of a manufactured product is the combination of the following: Direct materials cost Direct labor cost The indirect manufacturing costs...
The incremental cost of storing or holding inventory. It is an annual percentage that includes the cost of rent, insurance, cost of capital, deterioration and obsolescence.
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