When are expenses credited?
While general ledger expense accounts are typically debited and have debit balances, there are times when the expense accounts are credited.
Some instances when general ledger expense accounts are credited include:
Interest expense is a nonoperating expense when it is not part of a company’s main operations. For example, a retailer’s main operations are the purchasing and sale of merchandise, and a manufacturer’s main operations are the production and sale of goods. Neither the retailer nor the manufacturer has as its main operations the borrowing and lending of money. (On the other hand, a bank’s main operations involves interest expense on its depositors’ savings accounts and interest revenues on its loans and bond investments.)
By reporting interest expense as a nonoperating expense, it also allows for a better comparison between the operating income of a retailer that has little debt with a retailer that has a significant amount of debt.
What is an outlier?
In cost accounting, an outlier could be a cost or its related level of activity that is out of line with other observations. An outlier can be detected by plotting each observation’s cost and related level of activity onto a graph or scatter diagram. If one of those points deviates from the pattern of the other points, it is said to be an outlier. The outlier could be the result of an accounting error, an unusual charge, or a unique change in volume.
To avoid developing an incorrect formula for estimating future costs, the outlier should be investigated and perhaps excluded.
What is prime cost?
Prime cost is the combination of a manufactured product’s costs of direct materials and direct labor. In other words, prime cost refers to the direct production costs. Indirect manufacturing costs are not part of prime cost.
Why is an amount in the cash flows from investing activities shown in parenthesi..
An amount shown in parenthesis within the investing activities section of the cash flow statement indicates that cash was used to purchase a long-term asset. For example, if a company spent $350,000 to purchase property, plant and equipment, it will be reported in the cash flows from investing activities as Capital expenditures….(350,000).
The amounts appearing in parenthesis can be thought of as indicating the following:
What is LIFO?
LIFO is the acronym for last-in, first-out. It is a cost flow assumption that can be used by U.S. companies in moving the costs of products from inventory to the cost of goods sold.
Under LIFO the latest or more recent costs of products purchased (or produced) are the first costs expensed as the cost of goods sold. This means that the costs of the oldest products will be reported as inventory.
It is important to understand that while LIFO is matching the latest or most recent costs with sales on the income statement, the company can be shipping the oldest physical units of product. In other words, the flow of costs does not have to match the flow of the physical units. This is why LIFO is a cost flow assumption or an assumed flow of costs. (If the costs flowing matched the physical units flowing, it would be the specific identification method and there would be no need to assume a cost flow.)
Let’s illustrate LIFO with a company that has three units of the same product in inventory. The units were purchased at different costs and in the following sequence: $40, $44, and $46. The company ships the oldest item (the one purchased for $40). However, under LIFO the company will report its cost of goods sold as $46 (the latest cost). Note that the last cost of $46 is the first cost out of inventory—the LIFO assumption. This means that the company’s inventory will report the two first or oldest costs of $40 and $44.
LIFO has become popular because of inflation and the fact that the U.S. income tax rules permit companies to use LIFO. With LIFO a company is able to match its recent, more-inflated costs with its sales thereby reporting less taxable income than would occur under another cost flow assumption. Also, the matching of the latest costs with recent sales is a better indicator of the company’s current profitability.
While general ledger expense accounts are typically debited and have debit balances, there are times when the expense accounts are credited.
Some instances when general ledger expense accounts are credited include:
- the end-of-year closing entries
- the reversing entry for a previous accrual adjusting entry involving an expense
- an adjusting entry to defer part of a prepayment that was debited to an expense account
- a correcting entry to reclassify an amount from the incorrect expense account to the correct account
Interest expense is a nonoperating expense when it is not part of a company’s main operations. For example, a retailer’s main operations are the purchasing and sale of merchandise, and a manufacturer’s main operations are the production and sale of goods. Neither the retailer nor the manufacturer has as its main operations the borrowing and lending of money. (On the other hand, a bank’s main operations involves interest expense on its depositors’ savings accounts and interest revenues on its loans and bond investments.)
By reporting interest expense as a nonoperating expense, it also allows for a better comparison between the operating income of a retailer that has little debt with a retailer that has a significant amount of debt.
What is an outlier?
In cost accounting, an outlier could be a cost or its related level of activity that is out of line with other observations. An outlier can be detected by plotting each observation’s cost and related level of activity onto a graph or scatter diagram. If one of those points deviates from the pattern of the other points, it is said to be an outlier. The outlier could be the result of an accounting error, an unusual charge, or a unique change in volume.
To avoid developing an incorrect formula for estimating future costs, the outlier should be investigated and perhaps excluded.
What is prime cost?
Prime cost is the combination of a manufactured product’s costs of direct materials and direct labor. In other words, prime cost refers to the direct production costs. Indirect manufacturing costs are not part of prime cost.
Why is an amount in the cash flows from investing activities shown in parenthesi..
An amount shown in parenthesis within the investing activities section of the cash flow statement indicates that cash was used to purchase a long-term asset. For example, if a company spent $350,000 to purchase property, plant and equipment, it will be reported in the cash flows from investing activities as Capital expenditures….(350,000).
The amounts appearing in parenthesis can be thought of as indicating the following:
- cash flowed out
- cash was reduced
- cash was used
- it was not good for the cash balance
- cash flowed in
- cash was increased
- cash was provided
- it was good for the cash balance
What is LIFO?
LIFO is the acronym for last-in, first-out. It is a cost flow assumption that can be used by U.S. companies in moving the costs of products from inventory to the cost of goods sold.
Under LIFO the latest or more recent costs of products purchased (or produced) are the first costs expensed as the cost of goods sold. This means that the costs of the oldest products will be reported as inventory.
It is important to understand that while LIFO is matching the latest or most recent costs with sales on the income statement, the company can be shipping the oldest physical units of product. In other words, the flow of costs does not have to match the flow of the physical units. This is why LIFO is a cost flow assumption or an assumed flow of costs. (If the costs flowing matched the physical units flowing, it would be the specific identification method and there would be no need to assume a cost flow.)
Let’s illustrate LIFO with a company that has three units of the same product in inventory. The units were purchased at different costs and in the following sequence: $40, $44, and $46. The company ships the oldest item (the one purchased for $40). However, under LIFO the company will report its cost of goods sold as $46 (the latest cost). Note that the last cost of $46 is the first cost out of inventory—the LIFO assumption. This means that the company’s inventory will report the two first or oldest costs of $40 and $44.
LIFO has become popular because of inflation and the fact that the U.S. income tax rules permit companies to use LIFO. With LIFO a company is able to match its recent, more-inflated costs with its sales thereby reporting less taxable income than would occur under another cost flow assumption. Also, the matching of the latest costs with recent sales is a better indicator of the company’s current profitability.
