How do I calculate the after-tax cost of debt? Definition of After-Tax Cost of Debt The after-tax cost of debt is the interest paid on the debt minus the income tax savings as the result of deducting the interest expense...
How do I calculate the after-tax cost of debt? Definition of After-Tax Cost of Debt The after-tax cost of debt is the interest paid on the debt minus the income tax savings as the result of deducting the interest expense...
What is a service department? Definition of Service Department A service department is usually associated with a manufacturer’s production departments. However, a service department does not produce any of the...
What is a cost center? Definition of Cost Center A cost center is often a department within a company. The manager and employees of a cost center are responsible for its costs but are not directly responsible for...
What is the interest coverage ratio? Definition of Interest Coverage Ratio The interest coverage ratio is a financial ratio used as an indicator of a company’s ability to pay the interest on its debt. (The required...
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 are inventoriable costs? Definition of Inventoriable Costs Inventoriable costs are: A retailer’s cost of the goods (products) that it purchased for resale, and any additional cost to get the goods in place and...
How do you record a deposit on utilities? Definition of Deposit on Utilities A new customer of a public utility (electricity, natural gas, telephone, etc.) may be required to pay a refundable amount known as a utility...
What is the 13-point average for inventory? The 13-point average for inventory for the calendar year 2023 would be the sum of the following: (the inventory amount at December 31, 2022 plus the 12 end-of-the-month amounts...
What is the difference between a cost center and a profit center? Definition of Cost Center A cost center is a subunit of a company that is responsible only for its costs. A few examples of cost centers are: Production...
What are turnover ratios? Definition of Turnover Ratios In accounting, turnover ratios are the financial ratios in which an annual income statement amount is divided by an average asset amount for the same year....
What are sales discounts? Definition of Sales Discounts Sales discounts (if offered by sellers) reduce the amounts owed to the sellers of products, when the buyers pay within the stated discount periods. Sales discounts...
Why would a balance sheet list current liabilities as negative amounts? Reasons for Negative Current Liabilities on a Balance Sheet Some older accounting software used minus signs or parentheses to indicate credit...
What is the major weakness of the traditional method of allocating factory overhead? Definition of Traditional Method Allocating Factory Overhead The traditional method of allocating factory overhead (manufacturing...
Why is prepaid insurance a short term asset? Definition of Prepaid Insurance as a Short-term Asset Prepaid insurance is usually a short term or current asset because insurance premiums are rarely billed for periods...
What is sales mix? Definition of Sales Mix Sales mix is the relative proportion or ratio of a business’s products that are sold. Sales mix is important because a company’s products usually have different degrees of...
What is the difference between a general ledger and a general journal? Definition of General Ledger The general ledger contains the accounts used to sort and store a company’s transactions. The general ledger is...
What is float? Definition of Float In accounting and bookkeeping, float is the time between the writing of a check and the time that the check clears the bank account on which it is drawn. Examples of Float Payer...
What is a responsibility center? Definition of Responsibility Center A responsibility center is a part or subunit of a company in which the manager has some degree of authority and responsibility. The company’s...
What is illusory profit? Illusory profit, also called phantom profit, is the difference between 1) the profit reported using historical costs required by US GAAP, and 2) the profit computed using replacement costs....
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...
Is rent expense a period cost or a product cost? Definition of Rent Expense Rent expense is often a monthly amount paid by a company for use of a building. Typically, the rent is due on the first day of every month that...
How do you calculate Return on Capital Employed (ROCE)? Return on capital employed is used as a measurement of the performance of a division of a company. It assumes that the division is not responsible for its financing...
What are the two methods for recording prepaid expenses? Definition of Prepaid Expenses Prepaid expenses refers to payments made in advance and part of the amount will become an expense in a future accounting period. A...
Is the cost of land, buildings, and machinery a fixed cost? Land, Buildings and Machinery are Fixed Assets It is common for people to refer to land, buildings, and machinery as fixed assets. They are also referred to as...
Why would the cost behavior change outside of the relevant range of activity? Cost behavior often changes outside of the relevant range of activity due to a change in the fixed costs. When volume increases to a certain...
What type of expense is the purchase of propane? Technically, the purchase of propane is not an expense. Depending on the business, the propane is an asset until it is used, resold, or included in a product that is sold....
What is the effect on the income statement when the allowance for uncollectible accounts is not established? Definition of Allowance for Uncollectible Accounts The Allowance for Uncollectible Accounts or Allowance for...
What is the tax advantage when bonds are issued instead of stock? Definition of Bonds and Stock In this context, bonds refers to bonds payable, a form of long-term debt that typically promises to pay interest every six...
What causes an increase in break-even point? Definition of Break-even Point The break-even point is the sales volume or sales revenue that is needed to cover the company’s expenses. In other words, it is the point...
What is the difference between Notes Payable and Accounts Payable? Definition of Notes Payable The account Notes Payable is a liability account in which a borrower’s written promise to pay a lender is recorded. (The...
What do overabsorbed and underabsorbed mean? Definition of Overabsorbed and Underabsorbed In cost accounting, overabsorbed and underabsorbed pertain to a manufacturer’s manufacturing overhead costs. The manufacturing...
What is standard costing? Definition of Standard Costing Standard costing is an accounting system used by some manufacturers to identify the differences or variances between: The actual costs of the goods that were...
What is the difference between a budget and a standard? Definition of a Budget In business and other organizations, a budget often refers to a department’s or a company’s projected revenues, costs, or expenses....
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 solvency? Definition of Solvency I use the term solvency to mean a company is able to 1) pay its obligations when they come due, and 2) continue in business. Some people look to a company’s working capital to...
What are departmental overhead rates? Definition of Departmental Overhead Rates Departmental overhead rates are used by many manufacturers to allocate (assign, apply) manufacturing overhead to the goods it produces...
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...
How is the material usage variance account reported on the financial statements? Definition of Materials Usage Variance The materials usage variance (in a standard costing system) results from using more or less than the...
What is relevant range? Definition of Relevant Range In accounting, the term relevant range usually refers to a normal range of volume or normal amount of activity in which the total amount of a company’s fixed costs...
Where are short-term bank loans reported on the statement of cash flows? Definition of Short-Term Bank Loans Short-term bank loans are generally loans that must be repaid within one year of the date of the balance sheet....
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