Friday, February 26, 2010

Plantwide Overhead Rate

The Plant-wide overhead rate is used by companies as a single overhead rate that is used throughout all production departments in a specific plant. It is popular for companies to use multiple overhead rates rather than plantwide overhead rates to more accurately distribute overhead costs among produced products.

It is a good idea to use multiple overhead rates in manufacturing situations when one department is machine intensive and another department is more labor intensive in its production techniques.

Friday, February 19, 2010

Advance Payment Journal Entry

Many customers will pay for services in advance. The accountants jobs is to record this payment with a journal entry to help the company properly compute income in the future and understand where it is making its revenue. This will be of more concern for companies that are own an accrual basis of accounting.

Type of Journal Entry
Account titles
Advance payment from a customer for services or sales to be performed in the future.
Unearned Fees Earned


Thursday, February 18, 2010

Prepare Correct Trial Balance

How do you prepare the correct trial balance based on this following information?

There was a payment balance due to the company for $206 which was then  credited to Cash for $206 and credited to account payable for $260.

Accounting Answer:

In this situation, the normal postings to accounts payable are CREDIT in the case of creating a payable entry or DEBITS in the case of making a payment entry.

Therefore, payment balance due to for $206 means that a payment would be made from accounts payable a debit and credited to cash on the accounting ledger.

Friday, February 12, 2010

Product costs Assigned to Products

Product Costs Assigned in Accounting

In general, costs that are assigned to goods purchased or manufactured for resale is a type of product cost that must be properly categorized by the accountant.

Cost of Goods Sold (COGS): Product costs are recognized by the accountant in the period of sale as an expense called Cost of Goods Sold or COGS

Manufactured inventory (direct costs & overhead): Product cost of manufactured inventory consists of direct material (DM), direct labor (DL), and manufacturing overhead (MOH).

Merchandise Inventory + Shipping: The shipping costs must be included in the product cost of merchandise inventory acquired by a retailer or wholesaler for resale. This is equal to the purchase price+ shipping cost.

Inventoriable costs = The term is used interchangeably with product cost because a product is stored as the cost of inventory until the goods are sold by the company

Thursday, February 11, 2010

What is Throughput Costing

Throughput costing (super-variable costing) is a wildly different form of accounting variable costing where only direct material costs are considered inventory cost in an accounting system.

All of the other costs are costs of the accounting period in which they are actually incurred by the company. In particular, variable direct manufacturing labor costs and variable manufacturing overhead costs are regarded as accounting period costs and are deducted immediately as expenses of the period instead of by using throughput costing.

Tuesday, February 9, 2010

Loan in Process Account LIP

 What is a Loan in Process Account LIP?

The Loan in Process Account LIP acts as a deposit account for construction funds. The buyer's down payment is deposited into this account and is used for the initial construction costs that will be incurred while completing a project.

Disbursements of the actual loan funds will begin once the buyer's money is completely depleted. Furthermore, interest on the borrowed funds will be billed monthly on the amount withdrawn. Upon completion of the construction project,  the buyer will be asked to furnish a homeowner's insurance policy and monies for completing the escrow account.

Once final disbursements to the construction builder are made, monthly payments begin based on amortization of the balance at that time and the Loan in Process Accounting (LIP) is no longer essential.

Saturday, February 6, 2010

Short Term Loan Journal Entry

Companies will often borrow money on a short term basis. A journal entry will provide update the accounting ledger and allow for the proper calculation of the income state and balance sheet.

Type of Journal Entry
Account titles
Borrowing money from a bank for less than one year to provide capital to company
Accounts Payable


Notes Payable is used for loans longer than one year.

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.