An accounting method wherein revenues are recognized when cash is received and expenses are recognized when paid. This method is inferior to the accrual basis of accounting where revenues are recognized when they are...
An accounting method wherein revenues are recognized when cash is received and expenses are recognized when paid. This method is inferior to the accrual basis of accounting where revenues are recognized when they are...
A government index that tracks the changes in prices in order to measure general inflation. This index can be used by small companies to obtain the benefits of LIFO without tracking individual units in inventory. See the...
A company’s balance sheet that shows each item’s amount after it has been divided by the amount of total assets. In other words, current assets will be shown as a percentage of total assets. This will allow...
An intangible asset reported on the balance sheet at the company’s cost (or lower). Often, successful trade names were developed by companies over many years. As a result the cost of the trade name is minimal, but...
The acronym for earnings before interest, taxes, depreciation, and amortization. This measure is used by some companies as a supplementary disclosure, since EBITDA does not comply with U.S. GAAP (generally accepted...
or simply the gross margin.) Companies should be continuously monitoring its gross margin ratio to be certain it is sufficient to cover its selling, general and administrative expenses, interest expense, and to earn a...
What is inventory? Definition of Inventory Inventory is a very significant current asset for retailers, distributors, and manufacturers. Inventory serves as a buffer between 1) a company’s sales of goods, and 2) its...
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...
of the inventories is lower than the cost. Companies should physically count their inventories at least once a year and the calculations reviewed carefully since the cost of the inventory is critical in the calculation...
and intangible assets acquired, minus 2) the liabilities that were assumed. Goodwill is reported on the balance sheet as a long-term or noncurrent asset. Since 2001, U.S. companies are no longer required to amortize the...
What are the typical items reported as current liabilities? Definition of Current Liabilities Current liabilities (also known as short-term liabilities) for most companies are the obligations that must be paid within one...
an opportunity cost, or some other amount. A concern with transfer pricing is whether the transfer price will cause a subunit’s manager to take the action that is best for the company as a whole. Example of Transfer...
and then getting it entered. At smaller companies the bookkeeper is likely to process the payables (receiving suppliers’ invoices, verifying them, and remitting the amounts), receivables (billing customers, processing...
inventory items are moving between operations. As a result, large companies are likely to physically count the inventory items only at the end of the accounting year. Using the Quantities in the Company’s Inventory...
will be expensed in early years of the asset’s life and therefore less in the later years (compared to equal amounts using straight-line depreciation). Use of Double-Declining-Balance on Financial Statements...
Is the provision for doubtful debts an operating expense? Definition of Provision for Doubtful Debts Some companies use Provision for Doubtful Debts as the name of the contra-asset account which is reported on the...
Goodwill is a long-term (or noncurrent) asset categorized as an intangible asset. Goodwill arises when a company acquires another entire business. The amount of goodwill is the cost to purchase the business minus the...
The allocation of the cost of a plant asset to expense in an accelerated manner. This means that the amount of depreciation in the earlier years of an asset’s life is greater than the straight-line amount, but will...
Temporary differences between the reporting of a revenue or expense for financial statements (books) and the reporting of the item for income tax purposes. For example, it is common for companies to depreciate equipment...
What is a cash cow? A cash cow is often a profitable product or service that dominates a market and generates far more cash than is needed to maintain its market position. Companies may use the money from the cash cow to...
though NIFO cannot be used for valuing inventory and the cost of goods sold on the financial statements, it is useful for making decisions. For example, some companies will use NIFO when determining selling prices. Join...
Under the accrual basis of accounting, this account reports the cost of the electricity, heat, sewer, and water used during the period indicated in the heading of the income statement. Because utility companies deliver...
assets minus current liabilities. (Net working capital is also known as working capital.) Example of Net Working Capital As an example, a company with current assets of $130,000 and current liabilities of $100,000 has...
with a “1”. The first digit of the liability accounts will begin with the digit “2”. Perhaps marketing expenses will begin with the digit “5” and administrative expenses will begin with the digit “6”....
costs. To avoid the death spiral, some companies attempt to allocate overhead costs based on activities and product complexities rather than simply spreading them on production machine hours. Also, some companies do not...
the inventory items in place and ready for sale.) The cost may vary somewhat since U.S. companies may choose between the periodic inventory system and the perpetual inventory system. In addition, these companies may...
What should be the entry when goods are purchased at a discount? Definition of Goods Purchased at a Discount There are two common types of discounts for companies buying goods to resell: Trade discount Early payment...
. for which the company will obtain higher revenues from its customers Since companies generally have limited amounts of money and employees to implement new projects as well as limits to the amount of disruptions to...
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
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...
. Periodicity allows companies to report meaningful financial statements covering relatively short periods of time. Periodicity is also known as the time period assumption. Examples of the Periodicity Assumption An...
about its future pension expense and liabilities. It also means simpler accounting. As a result, more companies are choosing defined contribution pension plans over defined benefit pension plans. Join PRO to Track...
What is capital budgeting? Definition of Capital Budgeting Capital budgeting is a process used by companies for evaluating and ranking potential capital expenditures or investments that are significant in amount. A few...
operating activities. Since most companies use the indirect method for the statement of cash flows, the interest expense will be “buried” in the corporation’s net income. Net income will be the first item listed...
of working capital during the year was $400,000. Therefore, its working capital turnover ratio was: net sales of $2,400,000 divided by average working capital of $400,000 = 6 times during the year. As with most...
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