What is operating income? Definition of Operating Income Operating income is defined as a corporation’s operating revenues minus its operating expenses. Operating income will be shown as a subtotal on many...
What is operating income? Definition of Operating Income Operating income is defined as a corporation’s operating revenues minus its operating expenses. Operating income will be shown as a subtotal on many...
How does an expense affect the balance sheet? Definition of Expense An expense is a cost that has been used up, expired, or is directly related to the earning of revenues. Most of a company’s expenses fall into the...
The accounting method under which revenues are recognized on the income statement when they are earned (rather than when the cash is received). The balance sheet is also affected at the time of the revenues by either an...
Our Explanation of Manufacturing Overhead gives you examples of what is included in manufacturing overhead. You will learn that these are indirect product costs and therefore are allocated to the products in order to...
In accounting this means to defer or to delay recognizing certain revenues or expenses on the income statement until a later, more appropriate time. Revenues are deferred to a balance sheet liability account until they...
How can a company have a profit but not have cash? Definition of Profit Under the accrual basis of accounting, profit is the amount of revenues earned minus the amount of expenses incurred. Note that revenues are not...
revenues, etc.) and operating expenses (cost of sales, SG&A expenses) appear first The subtotal Gross profit is the result of subtracting the Cost of sales from the Net sales The subtotal Operating income is the...
by reading our Nonmanufacturing Overhead (Explanation). 1. Selling expenses should be allocated to the cost of goods sold for external financial reporting. True Wrong. False Right! 2. According to U.S. accounting...
in the factory. In addition to the manufacturing costs, there are selling, general and administrative (SG&A) expenses and perhaps interest expense. Generally, accountants do not consider these expenses to be product...
Subscription Expense and will credit Cash (or Accounts Payable). If the amount of the subscription is significant, the company should debit the cost of the subscription to the current asset account Prepaid Expenses and...
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...
of a company’s revenues, expenses, gains, losses, and the resulting net income that occurred during a year, quarter, or other period of time. Examples of Items Appearing in the Income Statement The main items reported...
What are nonmanufacturing overhead costs? Definition of Nonmanufacturing Overhead Costs Nonmanufacturing overhead costs are the business expenses that are outside of a company’s manufacturing operations. In other...
by reading our Nonprofit Accounting (Explanation). 1. A nonprofit's revenues and expenses are reported on its statement of __________ activities. 2. The accounting equation of a nonprofit is Assets = Liabilities +...
The income statement format where the operating and nonoperating revenues are grouped and totaled and the operating and nonoperating expenses are grouped and totaled. Then there is one subtraction of the combined...
Our Explanation of Accounting Basics uses a simple story to introduce important accounting concepts and terminology. It illustrates how transactions will be included in a company's financial statements.
the amounts established at the time that the static budget was prepared and approved.) For costs that vary with volume or activity, the flexible budget will flex because the budget will include a variable rate per unit...
of a decentralized corporation such as related subsidiary corporations, separate divisions of a corporation, or some other subunits. Depending on the production capacity and the demand for each subunit’s goods or...
two alternatives. Note: Incremental costs may include more than the change in variable costs. Example of Incremental Cost Let’s assume that a company has the following experience: Total cost of manufacturing 8,000...
What is meant by the full cost of a product? Many (perhaps most) accountants use the term full cost to mean the full manufacturing or production cost of a product. To these accountants this means a product’s cost of...
because U.S. accounting principles and income tax regulations require manufacturers to follow full absorption costing. This means that the cost of manufactured goods must include the costs of the direct materials,...
to the retailers. Obviously its turnover ratios will be less impressive than the ratios of the first company. A company’s management is another variable that explains differences in the profit margin and turnover...
What are direct materials? Definition of Direct Materials Direct materials are defined as: Traceable matter that is converted by a manufacturer into products Part of manufacturer’s production costs A variable cost of a...
receivable will be recorded. (Under the cash basis of accounting, revenues are not reported on the income statement until the cash is received.) Also under the accrual basis of accounting, expenses are reported on the...
of the following is defined as net sales minus cost of goods sold? Select... Gross income Gross profit Net income Operating income View Coaching Gross profit = net sales minus cost of goods sold. [Operating income is...
An accounting method wherein revenues are recognized when cash is received and expenses are recognized when paid. This method is inferior to the accrual basis of accounting where revenues are recognized when they are...
Income Statement Income Statement The income statement is also known as the statement of income, statement of operations, statement of earnings, profit and loss statement, and P&L. It reports a corporation’s...
Our Explanation of Nonmanufacturing Overhead provides examples of a manufacturer's expenses which are not considered to be costs of a product for financial reporting. However, they are operating expenses that will have...
will have a problem when it comes to expenses. After all, expenses have debit balances. Since expenses will reduce a company’s profits, they are not good. Lots of people have tried to make debit mean something more...
If a company earns a profit, which balance sheet items change? Definition of Profit Profit is the result of revenues minus expenses. How Profits Change the Balance Sheet Since all business transactions affect at least...
+ Owner’s Capital + Revenues – Expenses – Owner’s Draws. The expanded accounting equation for a corporation provides more details for the stockholders’ equity amount shown in the basic accounting equation. The...
Where are accruals reflected on the balance sheet? Definition of Accruals The accrual of expenses and liabilities refers to expenses and/or liabilities that a company has incurred, but the company has not yet paid...
. PERIOD PRDEOI Unscramble PERIOD EOIRPD Unscramble 6. The amounts earned from a company's main activities. REVENUES VNEERSEU Unscramble REVENUES UNEVRESE Unscramble 7. The costs that are matched with revenues....
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...
reports a company’s revenues, expenses, and most of the gains and losses which occurred during the period of time shown in the statement’s heading. (A few gains and losses are not reported on the profit and loss...
What is the difference between a cost and an expense? Definitions of Cost and Expense Some people use cost interchangeably with expense. However, we use the term cost to mean the amount spent to purchase an item, a...
, and manufacturing overhead used to manufacture a product. Definition of Period Costs Period costs are expenses that will be reported on the income statement without ever attaching to products. Since they are not...
Featured Review
"I can't say enough good things about AccountingCoach. As an economist working in corporate tax, I needed to learn how to interpret accounting data quickly in order to succeed in my job. I've been an active user since around 2008, and over the years I've realized it's the only accounting resource I need. Thank you, AccountCoach!" - Denise G.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Read all 2,645 reviews
For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.
We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping: