There are three main sources of GAAP Accounting Principles:
Committee on Accounting Procedure CAP 1939-1959
- First private body interested in writing accounting rules
- Creation Encouraged by SEC
- Issued 51 Accounting Research Bulletins to accounting professionals
- Consisted of members who were practice certified public accountants (CPAs)
- Acted upon accounting problems when they began to occur
The
cost of capital is the minimum rate of return an investment project must generate in order to pay its financing costs.
For a levered firm, the financing costs can be represented by the
weighted average cost of capital:
More information about the weighted average cost of capital
Amortization is depreciation of the cost of intangible assets to expense in a controlled and timely manner over the useful life of the asset. It is very similar to
depreciation.
Cost driver is any expense that causes change of costs over a defined period of time in a company. The activities that cause these expense are called are also called
activity bases or activity drivers. Total Annual Overhead------------------------
Units of
Cost Driver = one $ per unit of
cost driver
What is the difference between a
fixed cost and a
variable cost?
- A fixed cost is defined as a cost that remains constant throughout the manufacturing process, in total, regardless of changes in the levels of activity within a company.
- A variable cost is defined as a cost that changes, in total, in direct proportion to changes level of activity within a company.
An
Opportunity cost is a potential benefit that is given up when a company chooses one alternative over another. These costs are not usually entered into the accounting records of an organization, but are considered in financing decisions.
Revenue not earned and cannibalized revenue are examples of
accounting opportunity costs
A
product cost is any accounting cost related to purchasing or manufacturing goods in a company. With regards to manufacturing goods, these costs consist of
direct materials, direct labor, and manufacturing overhead.
There are many different situations when to use a
process costing system of accounting . It is best to use a
process costing system should in situations where a homogeneous product is produced on a continuous basis. For example, producers of one product such as chemicals or auto-parts can use a
process costing system.Additional Information:
Differences between Process Costing and Job Order Costing Methods
The
book value per share of stock is equal to a corporation’s total amount of
stockholders’ equity divided by the number of common shares of stock outstanding. The
book value per share will not be the same as the
market value of a corporation's stock.
The
“time value of money” (TVM) illustrates that a dollar received today is more valuable than a dollar received in the future. A dollar received today can be invested to yield more than a dollar in the future under a risk free rate of return. The
time value of money is very important in financing decisions and
capital budgeting.
Calculate Average Accounting Return (AAR)
Audit Risk is the risk that an
auditor may fail to modify appropriately their opinion on financial statements presented by the company that are materially misstated by the company. This will not allow for a proper
audit to be done.
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