methods: Indirect method (almost always used) Direct method (rarely used) The indirect method begins with the company’s net income based on the accrual method. That amount is then converted to the cash from operating...
methods: Indirect method (almost always used) Direct method (rarely used) The indirect method begins with the company’s net income based on the accrual method. That amount is then converted to the cash from operating...
have been reduced by the cumulative amount of depreciation taken over the years. Other factors contributing to a high market value might be a corporation’s earnings and dividends that are consistently growing...
Why does the fixed cost per unit change? Definition of Fixed Cost per Unit Fixed costs such as rent, salaries, depreciation, etc. generally do not change in total within a reasonable range of volume or activity. On the...
by the adjustments needed to convert the accrual accounting net income to the cash flows from operating activities. A few of the typical adjustments are: Adding back depreciation expense Adding the decrease in accounts...
How do you divide the cost of real estate into land and building? Dividing the Cost of Real Estate into Land and Building In accounting, the cost of real estate must be divided into: The cost of land (because land is not...
and gain accounts such as Sales Revenues, Service Revenues, Interest Revenues, Gain on Disposal of Equipment, Gain from Lawsuit, and many others Contra-asset accounts including Allowance for Doubtful Accounts and...
. In response to this situation, manufacturers will use departmental overhead rates and perhaps activity based costing. Example of Plant-wide Overhead Rate Let’s assume that a company’s manufacturing overhead costs...
, depreciation, etc.) for the upcoming year. During that year, it expects to have 30,000 production machine hours of good output. Based on this, the manufacturer established a predetermined fixed manufacturing overhead...
a fixed asset had been put into service and simply keeps the asset in working order. (The amount spent to acquire a fixed asset is referred to as a capital expenditure. The amount of the capital expenditure will be...
the calculation and recording of depreciation, establishing allowances for uncollectible accounts, etc.). After making the adjusting entries, the accountant prepares the company’s financial statements (income...
makes an expenditure of $255,500 to purchase equipment. The expenditure occurs on a single day and the equipment is immediately placed in service. Assuming the equipment will be used for seven years, the asset’s cost...
A classic example of the materiality concept is a company expensing a $20 wastebasket in the year it is acquired instead of depreciating it over its useful life of 10 years. The matching principle directs you to record...
is placed into service, the account Construction Work-in-Progress will be credited for its balance (the accumulated costs) and will be recorded with a debit in the appropriate property, plant and equipment account....
Receivable, Accumulated Depreciation, and allowance accounts used with inventory and investments. Two examples of valuation accounts associated with a liabilities are Bond Issue Costs and Discount on Bonds Payable. The...
, the property, plant and equipment are reported at cost minus the accumulated depreciation (except land). If these assets have increased in value, the fair value is not reported because of the cost principle. Also,...
, some fixed costs could be eliminated. Here’s an illustration. A company manufactures products in its 100,000 square foot plant. The company’s depreciation on the plant is $1,000,000 per year. The capacity of the...
sales, the company is deciding whether to eliminate E. If E is eliminated, the compensation of E’s employees and other expenses directly associated with E (amounting to $400,000) will be eliminated. However, the...
description. Once a transaction is recorded in the general journal, the amounts are then posted to the appropriate accounts in the general ledger. Examples of Using the General Journal The following are examples of...
statements will report depreciation expense of $7,500 in each of the 12 years remaining on the lease. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to Advance Your Accounting and...
of the physical space occupied by the inventory including rent, depreciation, utility costs, insurance, taxes, etc. Cost of handling the items. Cost of deterioration and obsolescence. Often the costs are computed for a...
What does amortization mean? Definition of Amortization In general, the word amortization means to systematically reduce a balance over time. In accounting, amortization is conceptually similar to the depreciation of a...
of the manufacturing overhead costs are fixed in total (manufacturing rent, depreciation, managers’ salaries, repairs, etc.), the per unit cost of a product depends on the number of units manufactured during a given...
. Liquidation value is subjective and the amount can vary significantly depending on the assumptions made. The matching principle requires that the cost of plant assets be allocated to depreciation expense. This means...
they are depreciated over their useful lives. The accumulated depreciation for these assets is also reported as part of the property, plant and equipment. The amount of capital expenditures for an accounting period is...
to the products that require the activities. Example of Traditional Method of Cost Accounting Assume that a manufacturer has $2,000,000 of manufacturing overhead costs consisting of depreciation, electricity, insurance,...
example of a semivariable cost is the annual cost of operating a vehicle. Some of the vehicle’s total annual operating costs will be the same regardless of the miles driven. These fixed costs include depreciation,...
decisions.) Examples of Indirect Manufacturing Costs Some examples of indirect manufacturing costs include: depreciation, repairs and maintenance, electricity, etc. for the production facilities and the production...
.) If a company purchases an old machine in need of complete updating, the cost of the new components and the labor to rebuild the machine will be capitalized. This means that the total cost of the machine will be...
should be systematically recognized/reported as an expense on the appropriate income statements. Some examples include the expensing of prepaid insurance premiums and the depreciation of assets used in the...
of the manufacturing costs are not directly traceable to individual products and will need to be allocated to them. Examples of indirect manufacturing costs include the rent, property taxes, depreciation, heat,...
expenses. These include rent, depreciation, salaries of managers and executives, etc. A reduction in the contribution margin. Contribution margin is sales minus the variable expenses. Hence, an increase in the variable...
, Accumulated Depreciation, Notes Payable, Accounts Payable, Payroll Taxes Payable, Paid-in Capital, Retained Earnings, and others. Join PRO to Track Progress Mark the Question as Read Must-Watch Video Learn How to...
on the balance sheet are the company’s resources such as cash, accounts receivable, inventory, investments, land, buildings, equipment, some intangible assets . Generally assets are reported at their cost or a lower...
, assigned, or applied to goods produced. Examples of Actual Overhead A few of the many overhead costs are: Electricity used to power the production equipment Natural gas to heat the production facilities Depreciation of...
many income statements in the form of depreciation expense and/or as part of a manufacturer’s cost of goods sold. The total capex amount that was spent in a recent accounting period is reported in the statement...
income statement accounts used in a business include Sales, Sales Returns and Allowances, Service Revenues, Cost of Goods Sold, Salaries Expense, Wages Expense, Fringe Benefits Expense, Rent Expense, Utilities Expense,...
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...
that it owes to a lender. This principal payment means an outflow of cash which has a negative effect on the company's cash balance. Thus, the negative amount is reported in the financing activities section of the...
Our Explanation of Standard Costing uses an easy-to-relate to example for illustrating a manufacturer's standard costs and variances. Also provided is a chart which indicates each variance, what it tells you, and where...
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