What does Manufacturing Overhead include?

Posted on Posted on: 23.09.2021Categories Business Accounting Blog  Leave a comment on What does Manufacturing Overhead include?

Whenever compiling a monthly report about the company’s finances, you’ll inevitably have to include the costs of production in there somewhere. This line accounts for exactly how much you had to spend to create your products during that month.

This account includes both direct costs and indirect costs. Direct costs are pretty straightforward – they include money you had to pay for materials and money you had to pay your workers to work. All the indirect costs for the production process itself are called ‘manufacturing overhead’.

What is Manufacturing Overhead?

Manufacturing overhead is an account that includes all those costs incurred for anything other than those two direct expenditures listed above, namely:

  1. Direct materials expenditure
  2. Continue reading “What does Manufacturing Overhead include?”

What are Charts of Accounts in Bookkeeping?

Posted on Posted on: 16.09.2021Categories Business Accounting Blog  Leave a comment on What are Charts of Accounts in Bookkeeping?

Whenever you compile financial statements for any reason, it will always have a bunch of financial accounts – graphs meant for different types of money transactions in and from the company, alongside the total size of all the payments made in the period under consideration for each account.

For instance, say you paid $10,000 for marketing during one particular month. Accordingly, the ‘marketing expenses’ will be listed as ‘-$10,000’ for that month’s balance. There are more financial transactions you’ll have to write up that may or may not contain marketing expenses or any other sort of expenditures or gains.

But where do you see which accounts (such as the ‘marketing expenses’ and others) should be used in these transactions? It’s Continue reading “What are Charts of Accounts in Bookkeeping?”

Cash Disbursements Journal

Posted on Posted on: 09.09.2021Categories Business Accounting Blog  Leave a comment on Cash Disbursements Journal

Managing finances is critical for any business naturally. Doing this is one of the main jobs of an accounting department. Cash disbursement is a process monitored by the accounting to simplify their job and add another level of management for payments.

Cash disbursement accounts for every expenditure payment done by the company. When one of these cash transfers occurs, it’s immediately added to the disbursement journal, including information such as:

  1. Amount
  2. Payment maker
  3. Payment receiver
  4. Purpose.

These journals, alongside many other ledgers, are meant for different areas of business activity. They are then used to fill the Ledger at the beginning of each month.

Cash Disbursements Journal

Why account it?

It may be a tedious task, but listing each item in the Continue reading “Cash Disbursements Journal”

What is Debt to Asset Ratio in Accounting?

Posted on Posted on: 02.09.2021Categories Business Accounting Blog  Leave a comment on What is Debt to Asset Ratio in Accounting?

The company’s value is mainly stored either in equity or debt. Understanding just how much of it is owned by creditors is important because if they own a sizable portion of the company, then investing in it is very risky.

The debt-to-asset ratio estimates precisely that – a portion of the company’s value owned by creditors as opposed to stockholders. This ratio is usually represented by leverage, with debt on one side and asset value on the other. Divide total debt by total asset value, and you’ll get a number that reflects the leverage size.

Explaining D2A ratio

The ratio represents the percentage of the business’ value occupied by the total debt it owes (in all forms), as opposed to the total assets that more or less belong to it. Continue reading “What is Debt to Asset Ratio in Accounting?”

Debit Memo: What is it and how to use it?

Posted on Posted on: 02.09.2021Categories Business Accounting Blog  Leave a comment on Debit Memo: What is it and how to use it?

Definition

A debit memo is simply a message that tells the receiver that their account has been debited by the sender in the sender’s bookkeeping records. If a client bounces a check or you want to reverse a previously issued credit memo, you would use a debit memo to handle the situation. The debit memo increases the balance of an invoice.

It is easy to remember the meaning of the term debit memo because it has the word debit in it, which just means the amount on the left-hand side of a ledger (when there is no other meaning to the debit). When it comes to the whole phase debit memo, it is important to keep in mind that the account is debited in the sender’s records and no the recipient’s. That is why the debit often is going to Continue reading “Debit Memo: What is it and how to use it?”

What Is Accrued Interest and How to Calculate It?

Posted on Posted on: 02.09.2021Categories Business Accounting Blog  Leave a comment on What Is Accrued Interest and How to Calculate It?

Overview

The first time you probably heard about accrued interest is when you considered student loans. Interest is charged on any type of loan that has an interest rate, which covers the majority of loans. When the loan interest has already been occurred, but the entity that owes this interest has not yet paid it and the lender has not received of the payment so far, you would refer to it as accrued interest.

What Is Accrued Interest and How to Calculate It?

Simply put, when you have interest on a loan, you are getting charged based on the principal. When it accrues and you are not paying on the loan, that means it is accumulating. Thus, the word accrue simply means accumulate and accrued interest can be thought of as accumulated interest.

It can also be thought of as an interest Continue reading “What Is Accrued Interest and How to Calculate It?”

What Does Times Interest Earned Ratio Mean and How to Calculate It?

Posted on Posted on: 02.09.2021Categories Business Accounting Blog  Leave a comment on What Does Times Interest Earned Ratio Mean and How to Calculate It?

Meaning

Times interest earned ratio determines the company’s ability to make interest payments on the money it has taken as a loan, that is, this is the company’s solvency ratio. The interest coverage ratio, as you can also call it, computes how many times pre-tax profits outweigh the interest portion of the loan repayment or the number of times one could pay interest from pre-tax profits. If a particular business is engaged exclusively in the main activity and has no other expenses/income, then its EBIT will be equal to the operating profit.

What Does Times Interest Earned Ratio Mean and How to Calculate It?

Formula

You can see the formula for computing this ratio above. Let’s use it to find the interest coverage ratio for Leaf Company. The business owner wants to buy new equipment and for this, Continue reading “What Does Times Interest Earned Ratio Mean and How to Calculate It?”

Flexible Budget: Basics and Advantages

Posted on Posted on: 02.09.2021Categories Business Accounting Blog  Leave a comment on Flexible Budget: Basics and Advantages

What is Budgeting?

The constantly changing business environment requires the search for new competitive advantages. One of them can be highly effective planning and management of business processes of an enterprise, which allows you to rationally allocate company resources. Planning of the organization’s activities most often comes down to building a system of budgets.

Theoretically, budgeting is the process of planning various kinds of asset transactions. In its simplest form, this means planning cash receipts and payments. Depending on the degree of adaptability, there are three types of budgets: flexible, fixed, and combined, which is a blend of fixed and flexible budgets. Today, we are going to discuss a flexible budget.

Flexible Budget: Basics and Advantages

Flexible Continue reading “Flexible Budget: Basics and Advantages”

Learn to Calculate Depreciation Using Units of Production Method

Posted on Posted on: 02.09.2021Categories Business Accounting Blog  Leave a comment on Learn to Calculate Depreciation Using Units of Production Method

Overview

A units of a production method of depreciation provides for the accrual of depreciation in proportion to the volume of work performed, the output of products (units of products) and establishes the ratio of the purchase value of an asset (minus its residual value) with a certain volume of products produced.

This method is based on the assumption that the actual income received from the usage of the relevant asset in each reporting period is associated with the release of units of products produced with its involvement in these accounting periods.

Many believe that a type of equipment such as a machine should be depreciated for accounting purposes in proportion to the units produced on it during each reporting period (based Continue reading “Learn to Calculate Depreciation Using Units of Production Method”

What is a Sales Journal needed for?

Posted on Posted on: 26.08.2021Categories Business Accounting Blog  Leave a comment on What is a Sales Journal needed for?

There are many journals used by companies to record their financial activities. They are crucial because, otherwise, they wouldn’t be able to calculate their financial situations accurately enough and keep track of transactions.

A Sales journal is one of these entry lists. It’s one of the most important of the bunch, seeing how it records sales transactions throughout the company’s life. Unlike many other journals that end up being sources of information for the Balance sheets and other statements, the Sales journals are useful on their own. You will end up with a list of how much of your revenue came from sales, which is essential for inner use.

What is a Sales Journal needed for?

Why use Sales Journals?

A Sales journal is a ledger containing information about all Continue reading “What is a Sales Journal needed for?”