What is the cost of goods available? Definition of Cost of Goods Available For non-manufacturing companies using the periodic inventory system in its general ledger, the cost of goods available (COGA, or cost of goods...
What is the cost of goods available? Definition of Cost of Goods Available For non-manufacturing companies using the periodic inventory system in its general ledger, the cost of goods available (COGA, or cost of goods...
Is depreciation a temporary account? Definition of Depreciation Accounts There are two types of general ledger accounts in which depreciation is recorded: Depreciation Expense which is a temporary account since it is an...
What is salvage value? Definition of Salvage Value In accounting, salvage value is the amount that is expected to be received at the end of a plant asset‘s useful life. Salvage value is sometimes referred to as...
What is the purpose of the Allowance for Doubtful Accounts? Definition of Allowance for Doubtful Accounts The Allowance for Doubtful Accounts or Allowance for Uncollectible Accounts is a general ledger contra account...
Is there a difference between work-in-process and work-in-progress? It depends on the user of the terms. Definition of Work-in-Process I use the term “work-in-process” to mean a manufacturer’s inventory that is not...
What are some examples of investing activities? Definition of Investing Activities Investing activities often refers to the cash flows from investing activities, which is one of the three main sections of the statement...
Our Explanation of Financial Statements provides you with the highlights of each of the five external financial statements issued by U.S. corporations. Our insights will give you a good understanding of what the...
Why are the amounts on the financial statements rounded to thousands or millions? Definition of Rounding Amounts on Financial Statements Rounding the amounts on a company’s financial statements means dropping the less...
What is the difference between gross margin and markup? Definition of Gross Margin Gross margin or gross profit is defined as net sales minus the cost of goods sold. However, some people intend for the term gross margin...
What is a purchase allowance? Definition of Purchase Allowance A purchase allowance is a reduction in the buyer’s cost of merchandise that had been purchased. The purchase allowance is granted by the supplier because...
What is the difference between break-even point and payback period? Definition of Break-Even Point The break-even point is the amount of sales required to cover a company’s costs and expenses that are reported on its...
What is preferred stock? Definition of Preferred Stock Preferred stock is a type of capital stock issued by some corporations in addition to its common stock. Preferred stock is also known as preference stock. The word...
What is a standard cost? Definition of Standard Cost A standard cost is described as a predetermined cost, an estimated future cost, an expected cost, a budgeted unit cost, a forecast cost, or as the “should be”...
What is the difference between reserve and provision? Definition of Reserve Many decades ago, U.S. accountants decided to eliminate the word reserve when reporting the balances in contra asset accounts. The accounting...
How do the responsibilities of a bookkeeper differ from those of an accountant? I see a bookkeeper’s responsibilities as getting the business transactions into the company’s general ledger. This involves a tremendous...
What is double-entry bookkeeping? Definition of Double-Entry Bookkeeping Double-entry bookkeeping refers to the 500-year-old system in which each financial transaction of a company is recorded with an entry into at least...
What are net incremental cash flows? Net incremental cash flows are the combination of the cash inflows and the cash outflows occurring in the same time period, and between two alternatives. For example, a company could...
When should costs be expensed and when should costs be capitalized? Definition of Costs In the context of the question, costs are the amounts paid in exchange for materials, products, or services. The costs could be:...
What is variance analysis? Definition of Variance Analysis In accounting, a variance is the difference between an actual amount and a budgeted, planned or past amount. Variance analysis is one step in the process of...
What is the conservatism principle? Definition of Conservatism Principle In accounting, the conservatism principle (or accounting constraint) directs an accountant, who is faced with doubt between two possible...
What is the difference between expenses and payments? Definition of Expenses and Payments Under the accrual method of accounting, expenses are costs that have been used up or have been incurred in the process of earning...
What is the difference between gross margin and contribution margin? Definition of Gross Margin Some use the term gross margin to mean the same as gross profit, which is: net sales minus the cost of goods sold. Others...
What is the units of activity depreciation? Definition of Units-of-Activity Depreciation The units-of-activity depreciation is unique among the common methods of depreciation in that the useful life of the asset being...
What is decentralization? Definition of Decentralization Decentralization refers to a company’s top management delegating authority to subunits or segments of the company such as a company consisting of a consumer...
How do you calculate the actual or real interest rate on a bond investment? Definition of Actual or Real Interest Rate on a Bond Investment The actual or real interest rate on a bond payable is also known as effective...
What are accrued expenses and when are they recorded? Accrued Expenses Accrued expenses are expenses that have occurred but are not yet recorded in the company’s general ledger. This means these expenses will not...
Are transportation-in costs part of the cost of goods sold? Definition of Transportation-in Costs Transportation-in costs, which are also known as freight-in costs, are part of the cost of goods purchased. The reason is...
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...
What is a contingent liability? Definition of Contingent Liability A contingent liability is a potential liability that may or may not become an actual liability. Whether the contingent liability becomes an actual...
How can a manufacturer determine the precise cost of its products? A manufacturer may never be able to determine the precise cost of its individual products. The reason is that most of the manufacturing costs (other than...
What is cost accounting? Definition of Cost Accounting Cost accounting is involved with the following: Determining the costs of products, processes, projects, etc. in order to report the correct amounts on a company’s...
What is FIFO? Definition of FIFO In accounting, FIFO is the acronym for First-In, First-Out. It is a cost flow assumption usually associated with the valuation of inventory and the cost of goods sold. Under FIFO, the...
What are dividends? In accounting, dividends often refers to the cash dividends that a corporation pays to its stockholders (or shareholders). Dividends are often paid quarterly, but could be paid at other times. For a...
What is workers' compensation insurance? Workers’ compensation insurance is likely to be an insurance policy obtained by a company to cover the medical costs and lost wages for its employees’ work-related injuries...
What is long-term debt? Definition of Long-term Debt In accounting, long-term debt generally refers to a company’s loans and other liabilities that will not become due within one year of the balance sheet date. (The...
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...
What does current portion of long term debt mean? Definition of Current Portion of Long-Term Debt The current portion of long-term debt is the amount of principal that will be due within one year of the date of the...
What is an intangible asset? Definition of Intangible Asset An intangible asset is an asset that you cannot touch, since it lacks physical substance. Accountants record intangible assets at their cost when they are...
What is the meaning of fixed overhead absorbed? Definition of Fixed Overhead Absorbed Fixed overhead absorbed refers to a manufacturer’s fixed indirect manufacturing/production costs. Since these costs are indirect,...
Why is manufacturing overhead allocated to products? Definition of Manufacturing Overhead Allocated to Products Manufacturing overhead refers to the indirect production costs of producing goods, products, component...
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