Wednesday, April 21, 2010

Wages Payable Trial Balance

When the month end trial balance is done by a company's accountant , should the wages payable account be cleared to 0?

No, money in the wages payable account is owed to someone that is not the company, whether it be this period or next, the money must be paid.

Thus, the wage payables on the accounting ledger need to stay on the company's  books until you actually pay the vendors for the items or the employees their wages.

Only nominal accounts (expense and revenue accounts) are closed at the end of the accounting period. Real accounts (balance sheet accounts) are not closed since they are actually existing as of balance sheet date and will only be closed when required.

Monday, April 12, 2010

Contribution Margin Practice Problem

There is a manufacturing company that has total fixed costs for product A that are $ 23,400 per month. At the same time,  the variable cost per unit is determined to be $32 and the selling price is $45.

How many units of product A must the firm sell to generate $12000 per months in profits related to selling this product?

Accounting Answer:

Contribution Margin (CM) per unit = Sales Price Per unit (SPU) - Variable Cost per Unit =  $45 - $32 = $13

Sales unit = ( target profit + fixed cost ) / Contribution Margin (CM) per unit = ( 12000 + 23400 ) / 13 = 2723 units

2723 units of the product must be sold to meet this desired profit for the manufacturing company.

Friday, April 9, 2010

Calculate Account Receivable Turnover

A receivable turnover ratio measures how long it takes for a company to collect on credit sales. This turnover ration tells an accountant how many times receivables are turned over. The average collection period will indicate the average length of time that a firm must wait after making a sale before it receives cash.

Receivables Turnover = Sales/ Accounts Receivable

Wednesday, April 7, 2010

What drives “convergence” for international firms?

Convergence is the increasing similarity of management practices in firms.  It is more apparent in transnational firms than multinational firms.

Globalization is pushing convergence for multiple reasons including global customers, growing levels of economic development, and global competition. In order for firms to remain competitive, it is an advantage to be aware of what people are doing in other foreign countries.

Transnational firms must seek to take advantage of their foreign domestic situations by assimilating into their culture.

For further information about international business, check these links: 

Advantages and Disadvantages of Globalization
Multi-Domestic Strategy and Transnational Strategy

Tuesday, April 6, 2010

Fiscal Year Definition and Explanation

The following is the accounting definition and explanation of a fiscal year:

The year long accounting period used by a company is known as its fiscal year. The maximum length of this accounting period is generally twelve months which includes all transactions that have taken place in the accounting cycle or fiscal year

A year-long accounting period that ends when its business activities are at their lowest point in the annual operating cycle is called a natural business year. It is possible to see the long-term financial history of a company by reviewing balance sheets that are prepared every year. The history of operations for each fiscal year is shown in the income statement.

Saturday, April 3, 2010

Internal Audit Definition

What is an Internal Audit?

An internal audit is an independent appraisal function that occurs inside an organization to examine and evaluate its core activities.

The main objective of internal auditing is to assist members of the organization in running it the most efficient way possible. Therefore, internal auditing provides decision makers with analyses, appraisals, recommendations, counsel, and information concerning the activities reviewed. The core audit objective includes promoting effective control at the most reasonable cost.

However, a corporation may contract an external auditor or firm to conduct its internal audit function. This is especially true in the post Sarbanes-Oxley world where independence is at a high premium,

Thursday, April 1, 2010

No Inequality in Trial Balance

The following four types of errors will not cause an inequality in the trial balance of an account.
  1. Recording a transaction more than once
  2. Posting part of a specific transaction correctly as a debit or credit yet doing it in the wrong account.
  3. Failing to record a transaction or to post a transaction in the appropriate account
  4. Accidentally recording the exact same erroneous amount for both debit and credit parts of a transaction.
Additional Accounting Examples and Explanations:

Information on the Accounting Cycle
What is a Trial Balance?
Common Trial Balance Errors

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.