What does stepped cost mean? Stepped cost refers to the behavior of the total cost of an activity at various levels of the activity. When a stepped cost is plotted on a graph (with the total cost represented by the...
What does stepped cost mean? Stepped cost refers to the behavior of the total cost of an activity at various levels of the activity. When a stepped cost is plotted on a graph (with the total cost represented by the...
What is zero-based budgeting? Definition of Zero-Based Budgeting Zero-based budgeting, or ZBB, is a rigorous budgeting process that requires that every dollar of every expense in the budget be justified, even if the...
What is a multiple-step income statement? Multiple-Step Income Statement Definition A multiple-step income statement presents two important subtotals before arriving at a company’s net income. For a company that sells...
What is meant by overabsorbed? Overabsorbed is usually used in the context of a manufacturer’s production overhead costs. Since manufacturing overhead costs are not directly traceable to products, they need to be...
What is a deferred expense? Definition of Deferred Expense A deferred expense refers to a cost that has occurred but it will be reported as an expense in one or more future accounting periods. To accomplish this, the...
What is the accrual method? Definition of Accrual Method The accrual method of accounting reports revenues on the income statement when they are earned even if the customer will pay 30 days later. The accrual method of...
How do I learn of new accounting rules? The U.S. accounting rules issued by the Financial Accounting Standards Board (FASB) can be found on its free website www.fasb.org/st/. There you will find: FASB Statements...
Nonmanufacturing Overhead For multiple-choice and true/false questions, simply press or click on what you think is the correct answer. For fill-in-the-blank questions, press or click on the blank space provided. If you...
When will a transaction affect only one side of the accounting equation? Only one side of the accounting equation will be affected when one asset is used to acquire another asset or to replace another asset, when one...
What is self-insurance? Self-insurance means no insurance. For example, if a retailer decides to self-insure its buildings, the retailer will not have an insurance policy to pay for losses that may occur to its...
Why would Prepaid Insurance have a credit balance? Definition of Prepaid Insurance Generally, Prepaid Insurance is a current asset account that has a debit balance. The debit balance indicates the amount that remains...
What is the statement of comprehensive income? Definition of Statement of Comprehensive Income The statement of comprehensive income is one of the five financial statements required in a complete set of financial...
Why is the distinction between product costs and period costs important? The distinction between product costs and period costs is important to: Properly measure a company’s net income during the time specified on its...
What is premium on bonds payable? Definition of Premium on Bonds Payable Premium on bonds payable (or bond premium) occurs when bonds payable are issued for an amount greater than their face or maturity amount. This is...
Is the rental cost of a building considered overhead? Definition of Rent as Overhead The rental cost of a building used in manufacturing is part of manufacturing overhead. Manufacturing overhead is assigned or allocated...
What is the accounts receivable collection period? Definition of Accounts Receivable Collection Period The accounts receivable collection period is similar to the days sales outstanding or the days sales in accounts...
What are income statement accounts? Definition of Income Statement Accounts Income statement accounts are one of two types of general ledger accounts. (The other accounts in the general ledger are the balance sheet...
What is a sunk cost? Definition of Sunk Cost A sunk cost is a cost that was incurred in the past and cannot be undone. Since most transactions cannot be undone, most amounts spent in the past are sunk. A past or sunk...
What is the difference between the current ratio and the acid test ratio? The difference between the current ratio and the acid test ratio (or quick ratio) mainly involves the current assets inventory and prepaid...
What is the book value of bonds payable? Definition of Book Value of Bonds Payable The book value of bonds payable is also known as the carrying value of bonds payable. The book value of bonds payable is the net or...
Do I buy a new machine or use an old one? One technique for deciding whether to buy a new machine or to use an old machine is to look at the future cash flows if you buy a new machine and the future cash flows if you use...
How do you record an owner's money that is used to start a company? Recording Money to Start a Sole Proprietorship If Amy Ott begins a sole proprietorship by putting money into her business, the sole proprietorship will...
What is interest income? Definition of Interest Income Interest income is the amount of interest earned on investments (that promise to pay interest) and/or compensation for agreeing to receive cash payments from...
What is the discounted value of expected net receipts? Let’s first define expected net receipts. These are future receipts after deducting any related payments. For example, if you are likely to receive $1,200 one year...
What causes a variation in profit margin and turnover ratios between industries? Mega grocery stores, discount stores, and warehouse clubs often have small profit margins but have high turnover ratios. The small profit...
What is a long-term asset? Definition of Long-term Asset A long-term asset is an asset that is not expected to be converted to cash or be consumed within one year of the date shown in the heading of the balance sheet....
What is a recurring journal entry? Definition of Recurring Journal Entry A recurring journal entry is a journal entry that is recorded in every accounting period. Some recurring journal entries will involve the same...
What is a learning curve? Definition of Learning Curve A common learning curve shows that the cumulative average time to complete a manual task (in which learning is involved) will decrease 20% whenever the cumulative...
Are LIFO inventory amounts ever written-up to their market value? LIFO inventory amounts will not be written-up, even when the current market value of the inventory is far greater than the amount reported on the balance...
How do I calculate IRR and NPV? Definition of IRR The internal rate of return (IRR) method or model determines the interest rate that discounts all cash inflows and cash outflows to a net present value of $0. In other...
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...
What is accounts payable? Definition of Accounts Payable Accounts payable involves the amounts owed by a company to its suppliers (vendors) for goods or services the company received on credit. Accounts payable is also...
What is the difference between adjusting entries and correcting entries? Definition of Adjusting Entries Generally, adjusting entries are required at the end of every accounting period so that a company’s financial...
What is a provision for discounts allowable? The provision for discounts allowable is likely to be a balance sheet account that serves to reduce the asset account Accounts Receivable. The provision account’s counter...
How do you record an asset that was partially financed? Example of Recording an Asset that was Partially Financed Assume that your company purchased a car for $10,000 by paying cash of $4,000 and signing a promissory...
What is the proper accounting for supplies? Definition of Supplies Office supplies are items used to carry out tasks in a company’s departments outside of manufacturing or shipping. Office supplies are likely to...
What is a post-closing trial balance? Definition of Post-closing Trial Balance A post-closing trial balance is a trial balance which is prepared after all of the temporary accounts in the general ledger have been closed....
What is present value? Definition of Present Value In accounting, present value refers to the amount after discounting future cash amounts to the present. The present is depicted on a timeline as the point 0, which is...
What is discount on bonds payable? Definition of Discount on Bonds Payable Discount on bonds payable (or bond discount) occurs when a corporation issues bonds and receives less than the bonds’ face or maturity amount....
Where is interest on a note payable reported on the cash flow statement? Definition of Interest on a Note Payable The interest on a note payable is reported on the income statement as Interest Expense. Usually this means...
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