Sunday, August 23, 2009

Calculate Internal Rate of Return

The internal rate of return (IRR) is defined as the rate of return an investment project creates over its entire life. It is computed by finding that discount rate that results in a zero net present value for the project.

Additional Accounting Links:
Calculate Accounting Average

Useful External Links:

Online NPV Calculator
Calculate IRR using Excel

Friday, August 21, 2009

Conducting Continual Process Improvements

There are 2 fundamental ways to conduct continual process improvement:

  1. Breakthrough projects which lead to revision and improvement of existing processes or implementation of new processes - carried out by cross functional teams outside routine operations.
  2. Small step ongoing improvement activities conducted within existing processes by people.

Sunday, August 9, 2009

Purchase Raw Materials Journal Entry

Use the following information to record the purchase raw materials in the accounting ledger.
When you receive the ship, you are obligated to pay cash or a agree on paying at a later date

Both transactions require these accounting journal entries to keep the ledger in check.

  1. Increase raw materials inventory with credit
  2. Decrease cash account with debit
  3. Increase accounts payable with credit
Additional Accounting Tutorials and Accounting Examples:

Friday, August 7, 2009

Prepaid Expenses and Unearned Revenues

In accounting, prepaid expenses and unearned revenues are considered prepayments by accountants. That is defined as money has exchanged hands but the expense or revenue is not recorded due to the expense has not been incurred yet or the revenue has not been earned yet by the company.

Examples of prepaid expenses and unearned revenues

  • Prepaid Expense - A year long insurance contract a company paid $12,000 for at the beginning of the year. Since the insurance company owes the company service, the expense prepayment is recorded as an asset (Journal Entries: debit Prepaid Insurance and credit Cash).
  • Unearned Revenue - A year long subscription of $12,000 is received in advance by a magazine company. Because the company owes something, the unearned revenue is recorded as a liability (Journal Entries: debit Cash and credit Unearned Revenue).

Thursday, August 6, 2009

Current Asset Example

Accounting Problem:

A car dealer, who sells both new and used cars, has demo cars available that are primarily used for test drives by potential customers. These are used for more than one year and then sold as used by the car dealer.

Does the sale of a demonstration car represent the sale of a non-current asset, or the sale of an item of inventory?

Accounting Answer:

The use of the demonstration cars extends into the next accounting and therefore it is not a current asset because they are not intended for sale in the current period. They are not current assets and not part of working capital of the car dealership. The best accounting decision would be to capitalize the cars and depreciate them as you would in any business that uses cars.

The major distinction here is between capital and revenue items.It also shows that this is not a current asset used by the company.

Advantages and Disadvantages of Globalization

What is globalization and what are some of its advantages and disadvantages?

In recent decades, globalization has been defined as an economic force driving worldwide economic integration and the expanding of businesses beyond their domestic borders. The worldwide trend of diminishing trade barriers, increased technology, and reduced shipping costs have promoted a prosperous era of world trade. Companies are no longer limited to their domestic boundaries and may conduct business anywhere in the world. Some benefits of globalization include lower prices and job creation.

Manufacturing activities can be performed where labor and supplies are cheapest leading to reduced consumer costs. Jobs can be created in poorer economies that eventually lead to prosperous economic growth. Yet the effects of job creation and globalization are like a double edged sword. Jobs often are eliminated in countries with higher costs and out-sourced to countries with lower cost structures.

This has been viewed as one of the main disadvantages of globalization and a point of contention between employees of multinational companies. However, many of these benefits continue to outweigh its disadvantages therefore the world will continue to see globalization rise as a powerful global economic force.

What is Working Capital Management

Working capital management relates to the short-term management of a firm's short term assets and liabilities. For example, inventory is considered a short-term asset and accounts payable is categorized as a short-term liability that shows what the firm owes to other entities.

Tuesday, August 4, 2009

Structural Cost Drivers Example

What are Structural Cost Drivers? 

In a company, the types of activities and costs of activities performed to satisfy customer needs are influenced by an organization’s size, location, scope of operations, and technology employed.

Decisions affecting structural cost drivers are made infrequently, and are very hard to change once a decision is made. Some examples of possible structural cost drivers for a retail store might be:

  • Determining the size of stores 
  • Determining the type of construction
  • Determining the location of stores 
  • Determining types of technology to employ in stores
  • Determining how many stores to open
  • Determining the amount to spend on construction

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.