Thursday, July 29, 2010

What is the PCAOB?

What does PCAOB stand for?

PCAOB stands for the Public Company Accounting Oversight Board. The PCAOB is located in the USA and is a private, non-profit corporation created by the Sarbanes-Oxley Act of 2002.

Its main purpose is to oversee the auditors of public companies and ensure that they are following the correct standards. The PCAOB Board consists of five members who are appointed by the Securities and Exchange Commission on a specified basis.

The main goals of the PCAOB was  to protect investors and the public interest by promoting informative, fair, and independent audit reports.

Wednesday, July 28, 2010

Purpose of Higher Leverage

What is the purpose of higher leverage?

There are many important reasons why a company might make use of high leverage in its borrowing practices. One reason is that higher leverage allows a company to expand without requiring additional stockholder investments but also will make repayment to creditors less certain.

It is important to check a company's financial statements with financial ratios to ensure that they will be able to meet future liabilities.

Additional Accounting Examples:

Tuesday, July 27, 2010

Dividend Preferences

It is important to consider Dividend Preferences in companies that have both common stock and preferred stock. The manner in which the dividends are divided is based on the rights of preffered stock holders.

Additional Accounting Examples and Explanations:

Prepaid Rent and Unearned Rent

What is the different between Prepaid Rent and Unearned Rent?

The following is an accounting example explaining the different between prepaid rent and unearned rent. Prepaid rent is a type of payment made by a tenant in advance of its due date and is an asset to the receiving company. For example, if the apartment's tenant had paid $240 in January for the entire year rent ($20 a month), it would show as of 1/31/xx $240 as prepaid rent. 240/12=20, 240-20=220.

The landlord in this situation would show $220 as unearned rent as of 1/31/xx a liability on the balance sheet, because they have received money for rent in which they have not provided service February through December, therefore the title unearned rent. This is the matching principle in accounting, primarily the major underlying principal of generally accepted accounting principles (GAAP).

Additional Accounting Examples:

Advance Payments and Unearned Rent

Credit Sales and Purchases

Accounting Cost Principle

Revenue Recognition Principle

Monday, July 26, 2010

Seasonal Change in Inventory

Many firms have inventories that are highly seasonal and change greatly throughout their business year. Therefore, calculating the inventory turnover from end of year inventories will not produce the most accurate results for different firms. Companies with large seasonal changes in inventories are better to calculate the firm's average inventory over the past year and use that to calculate inventory turnover than other less accurate methods.

Thursday, July 8, 2010

Examples of Selling Costs

In accounting terms, selling cost is the cost of seeking to create demand and of securing orders by a company with their products.

Some examples of selling costs include:

  • Advertising Salaries
  • Commissions of salesmen 
  • Showroom expenses
  • Travel expenses 
  • Advertising Literature
  • Bonuses
  • Samples 
  • Gifts to Customers

Saturday, July 3, 2010

What is Accounting Forecasting?

Forecasting is the accounting prediction of a value of a variable at some specified time in the future. Tt can be based on past values or expert judgment. Forecasting is essential is creating budgets that are reasonable and likely to be met or exceeded.

There are several types of Forecasts can include long, medium, or short-term forecasts. Specifically, they include:

  • Sales forecasts are necessary to prepare a sales budget
  • Capital expenditures forecasts are required to plan for funding for future years. 
  • Forecasts are developed to aid management in meeting goals and objectives.  
  • Product demand forecasts are used to prepare sales forecasts and detrmine the introduction of new products. These forecasts can also be used to determine if an old project should be dropped because its sales are lacking seriously. 

Friday, July 2, 2010

Management by Exception

Management by Exception is a special type of standard costing system that allows a company's managers to direct their attention to those areas that require corrective action because they are under performing.

Managers do not spend time reviewing areas that do not have much variance and will instead focus their efforts on areas that need the most work.

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.