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As you can see, the depreciation rate is multiplied by the asset book value every year to compute the deprecation expense. The expense is then added to the accumulated depreciation account. The double declining depreciation rate would equal 20 percent. Repeat the above steps for each year you plan to calculate depreciation. Instead of evaluating an asset’s value evenly from one year to the next, the double-declining depreciation method evaluates an asset’s value by doubling the amou […]
As previously mentioned, direct costs will always form part of a business’s cost of sales. Manufacturing overhead is typically incurred by businesses involved in the manufacturing of products. Businesses that do retail and/or wholesale typically won’t have manufacturing overhead. Indirect costs are often fixed expenses but they can also be variable expenses. Common examples include rent, the cost of utilities, salaries and wages of employees not directly involved (more…) […]
When a company uses the weighted-average method and prices are rising, its cost of goods sold is less than that obtained under LIFO, but more than that obtained under FIFO. Inventory is not as understated as under LIFO, but it is not as up-to-date as under FIFO. A company can manipulate income under the weighted-average costing method by buying or failing to buy goods near year-end. However, the averaging process reduces the effects of buying or not buying. An inventory valuation allows a compa […]
Operating profit, like gross profit and net profit, is a key financial metric used to determine the company’s worth for a potential buyout. The higher the operating profit as time goes by, the more effectively a company’s core business is being carried out. The operating income formula is calculated by subtracting operating expenses, depreciation, and amortization (more…) […]
Deposits listed on the cutoff statement to deposits in the cash receipts journal. Remember that tracing means that you’re going up from the source documents to the accounting records and you’re testing for completeness. By tracing from the cutoff statement you’re confirming that all checks sent out by the company were recorded (making sure they’re not understating their expenses). Deposits recorded in the cash receipts journal after year-end to the cutoff statement. Inst […]
Have they extended that evaluation period out to the reasonable period of time? Have they included all relevant information that’s available at that date? Remember, management’s evaluation is valid at the point at which they make that evaluation based on known information. For this reasonable period of time, management is required to identify whether any conditions or events are present when they’re making this evaluation that may cause significant doubt with respect to the ab […]
However, if Mr. A, owner of ABC Company, buys a car for personal use using his own money, that transaction is not recorded in the company’s accounting system because it clearly is not a transaction of the company. Hence, the income should be recognized in December 2020 even if it has not yet been collected as of that date.
Or maybe you’ve planned for a hurricane for your location that’s on the coast, but didn’t have plans further inland where storm damage could be more […]
By eliminating the effect of interest and taxes, it shows the business’s underlying profitability regardless of the company’s capital structure or the tax jurisdiction where it operates. Business owners and managers can use EBIT to get a picture of their business’ competitiveness and its attractiveness to investors.
EBIT represents the approximate amount of operating income generated by a business. The EBIT acronym stands for Earnings Before Interest and Taxes; by removing in […]
A temporary difference results when a revenue or expense enters book income in one period but affects taxable income in a different period. A temporary difference is expected to reverse in the future and therefore results in the creation of a DTL or DTA. The following are some examples of temporary differences and DTL/DTA created. A permanent difference will cause a difference between the statutory tax rate and (more…) […]
For this reason, many sellers offer discounts to their customers in order to increase their sales. It is an inducement for the customer to buy again from the buyer. Since the net price is determined by deducting the trade discount as provided for in the purchase agreement, there is no opportunity to accept or reject it. On the other hand, cash discounts may be accepted or rejected on the basis of the wishes of the debtor and the creditor. On the other hand, cash discounts are applied for the fi […]
