expense budget would be stated as a percentage of sales. Example of a Static Budget Assume that a company’s annual budget is a static budget. In this static budget is a line “sales commissions expense budget...
expense budget would be stated as a percentage of sales. Example of a Static Budget Assume that a company’s annual budget is a static budget. In this static budget is a line “sales commissions expense budget...
What is a controller's cushion? A controller’s cushion or controller’s reserve involves temporarily recording too much expense for an item that the controller calculates. For example, the controller might budget...
Is a manufacturer's product warranty part of its manufacturing overhead or is it part of its SG&A expense? The costs associated with a manufacturer’s product warranty are part of its selling expenses and...
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...
If an accrual adjusting entry increases an expense and a liability, how does the balance sheet remain in balance? An expense is a temporary account which reduces owner’s equity or stockholders’ equity. The decrease...
Quiz for this topic. For more insight regarding a specific question, use the search box at the top of the page. 1. When an asset has the same amount of depreciation expense each full year, it is being depreciated under...
Since our Explanation of Cash Flow Statement illustrates how the amounts are determined, you will get a better understanding of this very important financial statement. No longer will you look at only the income...
a mathematical tool known as simple linear regression analysis. This will calculate the fixed expenses (a) and the variable rate (b) based on the historical observations. Example of Mixed Costs The annual expense of...
A cost or expense where the total changes in proportion to changes in volume or activity. For example, if a company pays a sales commission on all of its sales, commission expense is a variable expense because...
A method for recognizing bad debts expense arising from credit sales. Under this method there is no allowance account. Rather, an account receivable is written-off directly to expense only after the account is determined...
A current asset which indicates the cost of the insurance contract (premiums) that have been paid in advance. It represents the amount that has been paid but has not yet expired as of the balance sheet date. A related...
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.
Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
. When 10 loaves are produced, the total cost of flour will be $4. If 50 loaves are produced, the cost of flour will be $20 (50 loaves X 1 pound X $0.40 per pound). An expense can also be a variable cost. For instance,...
What is the meaning of systematic and rational allocation? Definition of Systematic and Rational Allocation Systematic and rational allocation is typically included in the definition of depreciation. In this context, it...
is also known as the times interest earned ratio. The interest coverage ratio is computed by dividing 1) a corporation’s annual income before interest and income tax expenses, by 2) its annual interest expense. A...
Why are loan costs amortized? Definition of Loan Costs Loan costs may include legal and accounting fees, registration fees, appraisal fees, processing fees, etc. that were necessary costs in order to obtain a loan. If...
with revenues (instead of recognizing or reporting an expense when it is paid). The accrual method also results in the reporting of revenues in the accounting period in which they were earned (instead of reporting them...
there is a total of $2,900 in Accounts Receivable that will not be collected, you need to enter an additional credit amount of $900 into the Allowance for Doubtful Accounts. The other part of this adjusting entry will...
Does paying an account payable affect net income? Definition of Paying Accounts Payable Under the accrual basis of accounting, expenses are recorded when they have occurred, not when they are paid. Therefore, if an...
Are earnings different from profits? Earnings and profits are often used interchangeably. Others might make a distinction between the two words. In the case of earnings per share, earnings means a corporation’s net...
on the income statement as Bad Debts Expense or Uncollectible Accounts Expense. Examples of Recording Bad Debts There are two methods for recording the bad debts associated with accounts receivable: Direct write-off...
What are the effects of depreciation? Definition of Depreciation Depreciation is the systematic allocation of the cost of a company’s assets used in its business from the balance sheet to the income statement (as an...
What is carriage outwards? Definition of Carriage Outwards Carriage outwards refers to the transportation costs that a seller must pay when it sells merchandise with the terms FOB Destination. Carriage outwards is also...
What is depreciation? Definition of Depreciation In accounting, depreciation is the assigning or allocating of the cost of a plant asset (other than land) to expense in the accounting periods that are within the...
the bond’s face amount, the difference is debited to this account and then amortized to interest expense over the life of the bonds. discount on bonds payable (or) bond discount When a new bond is issued and the...
the systematic allocation of an asset or liability amount from the balance sheet to expense (or revenue) on the income statement. Here are a few examples: The debit balance in the contra liability account Discount of...
decreases as adjusting entries credit the account Prepaid Insurance and debit Insurance Expense. Example of a Credit Balance in Prepaid Insurance Assume that a company’s annual premium on its liability insurance...
or number of units sold. The company responsible for paying the sales commissions will report a selling expense. It will also report a liability for any unpaid commissions. The company or person that did the selling...
What does capitalize mean? Definition of Capitalize In accounting, the word capitalize means to record an expenditure as an asset. The cost of this asset is then allocated to expense over its useful life. (If the...
What is the direct write-off method? Definition of Direct Write-off Method The direct write-off method is one of the two methods normally associated with reporting accounts receivable and bad debts expense. (The other...
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...
expense associated with bonds payable is deductible from a U.S. corporation’s taxable income. In other words, a profitable corporation will save paying income tax on the amount of the interest expense. The amount of...
accounting period. The repair occurred in the December accounting period but the bill will not be received until the January accounting period. As of December 31, the retailer needs an accrual adjusting entry so that...
of the amount must be reported as 1) revenue in a future period, or 2) expense in a future period. The deferral adjusting entry makes certain that the correct amounts will be reported on a company’s balance sheets and...
Delivery expense to be paid by the seller when its merchandise is sold with terms of FOB destination. This is an operating expense and is not included in the cost of merchandise.
Usually a change in the estimated useful life of an asset or a change in the estimated salvage value. The change usually causes a change in the depreciation expense for the current year and subsequent years. The...
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