See net realizable value.
See net realizable value.
What are phantom profits? The terms phantom profits or illusory profits are often used in the context of inventory (but can also pertain to depreciation) during periods of rising costs. The amount of phantom or illusory...
A restricted asset for the purpose of retiring a bond.
The British term for controller.
Also referred to as draws. These are a reduction of owner’s equity, but are not a business expense and they do not appear on the sole proprietorship’s income statement.
The first major section of the statement of cash flows. To learn more, see Explanation of Cash Flow Statement.
A contra liability account containing the amount of discount on bonds payable that has not yet been amortized to interest expense. To learn more, see Explanation of Bonds Payable.
See next-in, first-out cost flow assumption (NIFO).
This phrase has two connotations. One is the cost of holding inventory. In this case the carrying cost is the cost of capital tied up in inventory, the cost of storage, insurance, and obsolescence. Often this is...
The depreciation computed for financial reporting purposes—as opposed to income tax depreciation. To learn more, see Explanation of Depreciation.
A loan from a bank or other lender in which the borrower has pledged an asset as collateral in case the loan cannot be repaid in full.
Under the accrual method of accounting, the account Unemployment Tax Expense on Warehouse reports the unemployment tax expense the company has incurred for the employees in the warehouse during the period indicated in...
An asset account which reports the carrying amount of a company’s investment in another enterprise.
Using debt in order to control more assets. Also known as financial leverage.
See cash surrender value.
See donor-imposed restriction.
See direct labor efficiency variance.
A liability account with a credit balance associated with bonds payable that were issued at more than the face value or maturity value of the bonds. The premium on bonds payable is amortized to interest expense over the...
What is a mortgage loan? Definition of Mortgage Loan A mortgage loan is a loan associated with the purchase of real estate, such as a home or buildings used in a business. As part of the loan process, the lender files a...
An item that is dependent on another item. For example, your wages would be a dependent variable and the hours you work would be the independent variable. This relationship is often expressed as y = a + bx, where y is...
See job order cost sheet.
See nonprofit organization.
See bond sinking fund.
Costs that have both a fixed and variable component. For example, the cost of operating an automobile includes some fixed costs that do not change with the number of miles driven (e.g., operating license, insurance,...
A publication by the U.S. Internal Revenue Service (IRS) to assist employers with federal payroll taxes. The complete title of the publication is Publication 15 (Circular E), Employer’s Tax Guide. It is available...
A corporation’s cost of capital is its weighted average after-tax cost of its debt, preferred stock, common stock, retained earnings, and other components of stockholders’ equity. The cost of capital is...
A variance arising in a standard costing system that indicates the difference between the standard amount of variable manufacturing overhead for the good units produced (standard hours times standard rate) and the...
See dividends in arrears.
A decrease in the value of a long term asset to an amount that is less than the amount shown under the cost principle.
See death spiral.
How do you calculate accrued vacation pay? Definition of Accrued Vacation Pay Accrued vacation pay is the amount of vacation pay that a company’s employees have earned, but the company has not yet paid. Example of...
A balance sheet with at least two columns of amounts. The column of amounts that is closest to the words will be the most recent amounts. The column furthest from the words will contain the oldest amounts. The older...
Merchandise that has been shipped by a supplier but the merchandise has not yet reached the customer’s location. Goods in transit that were shipped FOB Shipping Point should be included in the customer’s...
A contract to provide coverage or protection in exchange for a payment or “premium.” Examples of insurance protection include liability, property, business interruption, life, disability, etc. The company...
See first in, first out (FIFO).
See inventory: finished goods.
A potential gain that is not recognized by accountants in the financial statements until it actually occurs. For example, Company P is suing Company D over a patent infringement. Company P has a contingent gain. Because...
The ratio of total liabilities to total assets. For example, a company with total assets of $800,000 and total liabilities of $200,000 will have a debt ratio of 0.25 to 1, or 25% ($200,000 divided by $800,000).
A technique for allocating costs to a product, service, customer, etc. The premise is that activities cause an organization to incur costs. Once the costs of the activities have been identified and each activity’s...
Costs that have been used up or consumed. Expired costs are reported as expenses. (Costs that have not yet expired are reported as assets.)
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