Wednesday, July 30, 2008

Examples of Current Liabilities

Examples of Current Liabilities

Current liabilities are only liabilities that will be paid within one year

  1. Short-term borrowings
  2. Current maturities of long-term debt (due within a year)
  3. Accounts payable (due within a year)
  4. Notes payable (due within a year)
  5. Sales taxes payable
  6. Salaries payable
  7. Income taxes payable

Tuesday, July 29, 2008

Calculate Simple Interest and Calculate Compund Interest

How to Calculate Simple Interest

Formula:
Simple Interest = Principal Amount * Period Interest Rate * Number of periods

How to Calculate Compound Interest

Formula:
Compound Interest = Initial Deposit (1 + Interest Rate/Yearly Compound) nt

n = # of times per year interest in compounded
t = number of years invested

Tuesday, July 22, 2008

Manufacturing Overhead Variable Cost

When an accountant treats fixed manufacturing overhead as a variable cost, it can lead to many accounting errors:

  • Lead to faulty pricing decisions and keep/drop management decisions.
  • Produce a positive net operating income when the number of units sold is less than the break even point.
Additional Accounting Help:

Assumptions of CVP Analysis
Absorption Costing and CVP Analysis
CVP Relationships and Income Statement

Wednesday, July 16, 2008

Note Receivable Interest Revenue

On October 1, 2007, An investment bank loaned $300,000 to a small business in with a nine month, 12 percent note receivable. The banks’s accounting period ends on December 31. What amount would be reported in the bank's 2008 income statement as Interest Revenue?


Answer: $18,000

Friday, July 11, 2008

What is Accounting Materiality Concept

What is Accounting Materiality Concept?

  • It is the importance of an accounting transaction or item that determines if it is necessary to include it in the general ledger and accounting statements.

  • Insignificant events do not need to be recorded in the books.

For example, buying a pencil in a small business. Size of a company and revenue has an impact on the accounting materiality concept.

Monday, July 7, 2008

CVP Relationships Income Statement

CVP Relationships and the Income Statement

The traditional income statement for a manufacturer includes a cost-of-goods-sold amount that combines variable costs and fixed manufacturing overhead in the statement. Cost are not grouped by behavior but by function. CVP Analysis is harder to perform when costs are not grouped by behavior

The contribution income statement is presented in a format that highlights cost behavior on the income statement. Variable Costs are subtracted from sales to highlight total contribution margin. Fixed expenses are subtracted to calculate the period’s net income. This format is used for variable costing.

Sunday, July 6, 2008

Underapplied and Overapplied Overhead

In a manufacturing company, the difference between the overhead cost applied to Work in Process (WIP) and the actual overhead costs incurred by the firm for a period is termed either underapplied or overapplied overhead.


Underapplied Overhead= Amount of applied overhead is less than actual overhead

Overapplied Overhead = Amount of applied overhead is greater than actual overhead

MOH has a DEBIT balance.
MOH has a CREDIT balance.


Additional Accounting Examples

Saturday, July 5, 2008

FOB Shipping Point Problem

If a company purchases goods FOB shipping point, the point at which the purchase of inventory is recorded in the accounting general ledger when the

A. purchase order is sent. C. goods arrive.
B. sales invoice is sent. D. goods are shipped.

Correct Answer: D

Wednesday, July 2, 2008

Direct Write Off Method for Bad Debt

Which of the following is true under the direct write-off method of accounting for bad debts?


A. The current year bad debts expense could be more or less than the expense under the allowance method
B. The relationship between net sales and bad debts expense illustrates the matching principle
C. When specific accounts are written off, the Allowance for Bad Debts account is debited
D. The accounts receivables are stated in the balance sheet at their net realizable value


Correct Answer: A

Accounting Examples about Bad Debt Expense:
Percent of Accounts Receivable Method for Estimating Bad Debts Expense
Percent of Sales Method to Calculate Debt Expense

Tuesday, July 1, 2008

How To Record Accounting Transaction

Follow these Five Steps to Record an Accounting Transaction:

  1. Determine if the event is of financial importance to the business
  2. State the Monetary Value of the Event
  3. Locate which accounts the transaction affects.
  4. Determine whether the transaction increases or decreases the balances in those accounts
  5. Record the transaction in the the financial accounting ledger.

Popular Accounting Problems

The information on this site is for informational purposes only and should not be used as a substitute for the professional advice of an accountant, tax advisor, attorney, or other professional.