What is the major weakness of the traditional method of allocating factory overhead? Definition of Traditional Method Allocating Factory Overhead The traditional method of allocating factory overhead (manufacturing...
What is the major weakness of the traditional method of allocating factory overhead? Definition of Traditional Method Allocating Factory Overhead The traditional method of allocating factory overhead (manufacturing...
How do I compute the units of production method of depreciation? Definition of Units of Production Depreciation The units of production method of depreciation (which is also referred to as the units of activity method)...
of these. assets These are a company’s resources that have future economic value which can be measured in the company’s currency. Prepaid expenses are one of these. Mark as wrong Mark as right expenses Under the...
inventory using the periodic inventory method contained an error of $10,000. The correct/actual cost of the inventory at the end of the first year was $110,000. The physical inventory at the end of the second year...
Our Explanation of the Balance Sheet provides you with a basic understanding of a corporation's balance sheet (or statement of financial position). You will gain insights regarding the assets, liabilities, and...
What is a rolling budget? Definition of Rolling Budget A rolling budget often refers to a company’s operating budget which presents the future monthly budgets for the next 12 months. A rolling budget is also known as a...
Our Explanation of Bonds Payable covers the recording of bonds, the accrual of interest expense, and the amortization of the discount and premium on bonds payable. You gain an understanding on why the market value of...
Our Explanation of Accounts Payable provides insights on the bill paying process in a large company. Included are discussions of the three-way match, early payment discounts, end of period accruals, and more.
the direct write-off method or the allowance method. Examples of the Write-off of a Bad Account Under the direct write-off method a company writes off a bad account receivable when a specific account is determined to be...
Our Explanation of Income Statement helps you learn the most important features of a corporation's income statement (also known as the statement of operations or profit and loss statement). We provide more understanding...
depreciation expense, assume that a company had paid $480,000 for its office building (excluding land) and the building has an estimated useful life of 40 years (480 months) with no salvage value. Using the...
or services on credit and the customer did not pay the amount owed. Examples of Bad Debts Expense There are two methods for reporting the amount of bad debts expense: direct write-off method allowance method The direct...
years of an asset’s life Less depreciation in the later years of the asset’s life Since the total amount of depreciation over the asset’s life will be the same regardless of the depreciation method used, the...
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...
Why does an inventory error affect two periods? Definition of Inventory Error An inventory error could be the result of any of the following: Omitting some items when physically counting inventory Double counting some...
How do you report a write-down in inventory? Definition of Write-down in Inventory Under FIFO and average cost methods, when the net realizable value of inventory is less than the cost of the inventory, there needs to be...
How do I record money received for an insurance claim on inventory loss? Definition of Money from Insurance Claim for Inventory Loss Let’s assume that a company has insurance on its inventory and its inventory is...
If inventory is understated at the end of the year, what is the effect on net income? Definition of Inventory is Understated If inventory is understated at the end of the year, it means that the amount of inventory being...
How do you calculate the cost of carrying inventory? Definition of Cost of Carrying Inventory The cost of carrying inventory (or cost of holding inventory) is the sum of the following: Cost of money tied up in inventory,...
What is the difference between inventory and the cost of goods sold? Definition of Inventory Inventory for a retailer or distributor is the merchandise that was purchased and has not yet been sold to customers. A...
value is not depreciated. However, it is common to assume that the salvage value will be $0. The depreciation method used for financial reporting is often different from the depreciation method used for U.S. income tax...
Should inventories be reported at their cost or at their selling prices? Definition of Inventory Cost Inventories are reported at cost, not at selling prices. A retailer’s inventory cost is the cost to purchase the...
from early-payment discounts. (Early-payment discounts of 1% or 2% are usually recorded by the seller in an account such as Sales Discounts and by the buyer using the periodic inventory method in an account such as...
What is the difference between expenses and payments? Definition of Expenses and Payments Under the accrual method of accounting, expenses are costs that have been used up or have been incurred in the process of earning...
What is purchase discounts lost? Definition of Purchase Discounts Lost The account Purchase Discounts Lost is a general ledger account used by a company that records vendors’ invoices using the net method. A debit...
Why can a retailer record its purchase of merchandise as a debit to purchases within the cost of goods sold, instead of the asset inventory? Before we explain why companies will record the purchases of merchandise in the...
Temporary investments Accounts receivable Inventory Supplies Prepaid expenses Current Liabilities Current liabilities are the company’s obligations that will come due for payment within one year of the balance...
in the company’s general ledger account Materials Purchase Price Variance. The company’s general ledger accounts for inventories (raw materials, work-in-process inventory, finished goods) and the cost of goods sold...
How do you calculate the cost of goods sold for a retailer? Formula for Calculating a Retailer’s Cost of Goods Sold A retailer’s cost of goods sold is: The cost of the retailer’s beginning inventory Plus the cost...
Our Explanation of Financial Statements provides you with the highlights of each of the five external financial statements issued by U.S. corporations. Our insights will give you a good understanding of what the...
When calculating inventory turnover, do you use sales or the cost of goods sold? I calculate the inventory turnover by using the cost of goods sold. I use the cost of goods sold because inventory is in the general ledger...
Methods of Depreciation It is very common for a company to depreciate its plant assets by using straight-line depreciation on its financial statements, while using an accelerated method of depreciation on its income tax...
coverage from December 1 through May 31. Examples of Two Methods for Recording Prepaid Expenses One method for recording a prepaid expense is to record the entire payment in an asset account. For example, assume that on...
on a project. There are two weaknesses with the payback method: 1) the time value of money is not considered, and 2) the cash flows occurring after the cash is paid back is ignored. Accounting rate of return or return...
income statement as the cost of goods sold. The goods that are unsold at the end of the accounting period must be reported on the retailer’s balance sheet as inventory. Accounting for the Goods Purchased There are two...
Why are wages reported as an expense when the work occurs, but the employees' tax records report them when they are paid? Accrual Method for the Corporation, Cash Method for the Employees The short answer is that...
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