in inventory is a component in the calculation of the Cost of Goods Sold, which is often presented on a company’s income statement. An increase in inventory will be subtracted from a company’s purchases of goods,...
in inventory is a component in the calculation of the Cost of Goods Sold, which is often presented on a company’s income statement. An increase in inventory will be subtracted from a company’s purchases of goods,...
deducting the cost of goods sold and all other expenses including income tax expense. The calculation is: Net Income after Tax divided by Net Sales. The profit margin ratio is most useful when it is compared to 1) the...
. As the amount of prepaid insurance expires, the expired portion is moved from the current asset account Prepaid Insurance to the income statement account Insurance Expense. This is usually done at the end of each...
What is job order costing? Definition of Job Order Costing Job order costing or job costing is a system for assigning and accumulating manufacturing costs of an individual unit of output. The job order costing system is...
What is the gross margin ratio? Definition of Gross Margin Ratio The gross margin ratio is a percentage resulting from dividing the amount of a company’s gross profit by the amount of its net sales. (The gross margin...
by the investor is 4% per semiannual period or 8% annually. The reason that the bond can be purchased at a discount from its face and maturity amount, is that the current market interest rate is now 8% and the bond is...
ownership of the unit to the lessee (tenant) at the end of the one-year lease. Another lease might involve a business leasing a forklift from a forklift dealer. This lease states that it is noncancelable and requires 60...
What is a credit memo? Definition of Credit Memo One type of credit memo is issued by a seller in order to reduce the amount that a customer owes from a previously issued sales invoice. Another type of credit memo, or...
variances and will be recorded in separate variance accounts. Any balance in a variance account indicates that the company is deviating from the amounts in its profit plan. While standard costs can be a useful...
that a company has steady demand of 12,000 units per year for one of its products. The company purchases the product from its supplier at a cost of $100 each. The company’s incremental cost to process an order is $144...
or loss on the sale of plant assets, etc. Example of Operating Income Using the amounts from above example, the retailer’s operating income is: sales of $400,000 minus the cost of goods sold of $250,000 minus the...
Why are average balance sheet amounts used in calculating the turnover ratios? In the calculation of a turnover ratio, the numerator is an amount from an annual income statement, while the denominator is a balance sheet...
units of Product X is $360,000, or $36 per unit From the above information, we see that the incremental cost of manufacturing the additional 2,000 units (10,000 vs. 8,000) is $40,000 ($360,000 vs. $320,000). Therefore,...
Are salaried employees entitled to overtime pay? Some salaried employees are entitled to overtime pay. The salaried employees entitled to overtime pay are referred to as nonexempt employees. Nonexempt means that the...
inventory. Example of Importance of Accurate Inventory Here is an example of why accuracy in calculating inventory is important. After accounting for the total cost of 1) the items purchased or produced in the current...
the company’s true amount of cash. Example of an Outstanding Check in the Bank Reconciliation In the bank reconciliation process, the total amount of outstanding checks is subtracted from the ending balance on the...
What is a nominal account in accounting? Definition of Nominal Account In accounting, nominal accounts are the general ledger accounts that are closed at the end of each accounting year. The closing process transfers...
/ 3 years). This allocation of the phones’ cost to the accounting periods that benefit from the asset’s use follows the accountant’s matching principle. This makes the company’s financial statements more...
. Therefore, the relevant amounts for the decision include the cost of the new equipment and the revenues and cost savings that will result from purchasing and using the new equipment. Further, the costs that will remain...
are likely to be different from the income tax laws and regulations. Generally, a profitable regular corporation’s financial statements will report both income tax expense and a current liability such as income taxes...
What is a sole proprietorship? Definition of Sole Proprietorship A sole proprietorship is a form of business organization that is owned by one person and is easy to start. The owner is referred to as a sole proprietor....
) and expenses and losses when they occur (not when money is paid out). The cash flow statement concludes by showing that its amounts agree to the change in the company’s cash and cash equivalents from the beginning to...
What is the difference between liability and debt? Definition of Liability In accounting and bookkeeping, the term liability refers to a company’s obligation arising from a past transaction. Examples of Liabilities A...
liability until it is moved from the balance sheet to the income statement as an expense. This is done to achieve the accountants’ matching principle. Examples of Deferred Expenses Let’s assume that a large...
How are the balance sheet and income statement connected? Connection between Balance Sheet and Income Statement The connection between the balance sheet and the income statement results from: The use of double-entry...
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...
comes from recorded transactions, many of the analyses and reports include estimated and projected amounts based on various assumptions. Generally, this information is not distributed to people outside of the...
that were withheld from the employees’ paychecks (except that the employer does not match the Additional Medicare Tax). Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your...
from its night depository. When preparing a bank reconciliation as of June 30, the company needs to adjust the balance on the bank statement by adding $4,600 for the deposit in transit. This is done because the $4,600...
Reconciling the Bank Statement When preparing a bank reconciliation, you may find the following tip to be helpful: “Put it where it ain’t.” My now deceased neighbor (Herb) insisted that I share this tip, which he...
equipment. The cash savings from the new equipment is expected to be $100,000 per year for 10 years. The payback period is expected to be 4 years ($400,000 divided by $100,000 per year). A second project requires a cash...
the amount of money currently on hand.) Expense accounts and loss accounts including Cost of Goods Sold, Wages Expense, Rent Expense, Interest Expense, Loss on Disposal of Equipment, Loss from Lawsuit, etc. (The debit...
as an expense for the period (year, month, etc.) shown in the income statement’s heading. Definition of Accumulated Depreciation Accumulated depreciation reports the total amount of depreciation that has been reported...
. On July 1, the company receives a premium refund of $120 from the insurance company. The company records the refund with a debit to Cash and a credit to Prepaid Insurance. The recurring monthly adjusting entries are...
depreciation cannot exceed the asset’s cost. The cost principle prohibits a company from recording an asset that was not acquired in a transaction. Hence, a company cannot report its highly successful management team...
or gross margin of $2 divided by the selling price of $10. Definition of Markup Markup in dollars is the difference between a product’s cost and its selling price. [Note: some retailers may use the term markup to mean...
the depreciation expense had reduced net income but cash was not reduced. In other words, the positive $8,000 of depreciation expense is not a source of cash, it is merely a needed adjustment to convert the accrual net...
with recently deposited checks from customers, the money in a checking account is available on demand. (This is why banks refer to the amounts in their customers’ checking accounts as demand deposits.) The balances in...
What is a stockholder? Definition of Stockholder A stockholder (also known as a shareholder) is the owner of one or more shares of a corporation’s capital stock. A stockholder is considered to be separate from the...
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