Straight Line Depreciation Method or Original Cost Method
Straight line depreciation method or original cost method is the simplest and most commonly used depreciation method. Under this method, the difference between the original…
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Basic Concepts of Financial Accounting for CPA Exam - Online Syllabus Topics for Financial Accounting Course
Revaluation Depreciation Method
Revaluation depreciation method is usually used to calculate depreciation of assets where, there are numerous small identifiable assets of low value but nevertheless of lasting…
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Methods for Calculating Depreciation
Different methods are used to calculate the amount of depreciation charge. These are following: (1) Revaluation Depreciation Method (2) Straight Line Depreciation Method or Original…
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Characteristics of Depreciation
Depreciation has the following characteristics or attributes: (1) Depreciation is only charged on non-current assets. (2) Depreciation occurs from the date of purchase of an…
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Factors for Calculating Depreciation
While calculating the depreciation of non-current assets, following factors involve and must always be consider: (1) Cost Factor – The Original Cost of Asset: The cost…
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Depreciation
Non-Current Assets and Depreciation – Definition, Concept and Explanation: Non-current assets are purchased by a business not for resale but to be used within the…
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Accounting Treatment of Provisions for Doubtful Debts and Discounts Allowed
There are following important points related to accounting treatment of provisions for doubtful debts and discounts allowed: (1) Both provisions for doubtful debts and provision for…
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Advantages of Offering Cash Discounts
There are following benefits or advantages of offering cash discounts in business: (1) Discount offer induce a trade receivable to pay early, which not only…
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Cash Discounts Allowed and Provision for Discounts Allowed
Cash Discounts Allowed – Definition: Some firms allow cash discounts to their customers for prompt payment. In that case at year end, the outstanding trade…
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Recovery of Bad Debts and their Journal Entries
Recovery of Bad Debts – Concept, Accounting Journal Entries and Solved Example: Some times business receives a pleasant surprise, when it recovers the bad debts which…
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Aging Schedule of Trade Receivables
Definition and Concept of Aging Schedule for Calculating Provision for Doubtful Debts: Sometimes provision for doubtful debt is calculated with the help of aging schedule…
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Provision for Doubtful Debts
Concept and Definition of Provision for Doubtful Debts or Allowance for Bad Debts or Allowance for Un-Collectible Accounts: Businesses usually create a provision for doubtful…
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Bad Debts and Doubtful Debts
Bad Debts, Trade Receivables and Doubtful Debts – Definition, Example, General Journal Entry and their Difference: Bad Debts: A bad debt is a debt that is…
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Purpose and Use of Bank Reconciliation Statement
Purpose of Bank Reconciliation Statement (BRS): The purpose of bank reconciliation statement is to carried out uncover and correct any errors in the recording of…
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Steps and Rules for Preparing a Bank Reconciliation Statement
The process for preparing the bank reconciliation statement (BRS) follows the below steps or method: (1) Compare the both opening balances of cash book and…
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Bank Reconciliation Statement
Definition, Meaning and Need for BRS: If there is any discrepancy between the cash book balance and that of bank statement, then the business prepares…
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Absorption of Overheads
Absorption of Overheads or Cost Recovered – Definition, Procedure and Formula: Once total production overheads (calculation of overhead absorption rate) of production cost centers are…
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Plant Wide and Departmental Overhead Absorption Rates
Plant or Factory Wide (Single) Overhead Absorption Rate – Definition, Formula and Use: Plant or factory wide (single or blanket) rate is used for the…
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Calculation of Overhead Absorption Rate
Basis (Methods) for Calculating Overhead Absorption Rate: The production overheads calculated for each production department after going through apportionment and allotment are used to calculate…
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Overhead Absorption Rate
Overhead Absorption Rate (OAR’s) or Overhead Recovery – Definition, Uses and Types: Actual amount of overheads cannot be accurately determined at the time of producing…
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Allotment of Reciprocal Services
What is Allotment of Reciprocal Services Method or Re-Apportionment Method or Allocation of Service Department Overheads to Production Department Overheads? Definition and Procedure: A type…
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Allotment of Non Reciprocal Services
What is Allotment of Non-Reciprocal Service Method? Definition and Procedure: A type of cost allocation method (allotment of non-reciprocal service method) in which the usual procedure…
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Allotment of Service Department Cost to Production Department
Methods of Cost Allocation: There are two basic departments in a manufacturing company; one is production department and the other is service department. Allotment of service…
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Allocation and Apportionment of Production Overheads
Difference between Allocation and Apportionment of Production Overheads: Allocation of Production Overheads – Definition and Examples: Allocation of production overhead is a process to charge those…
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Cost Center and Cost Unit
Difference between Cost Center and Cost Unit: Cost Center – Definition, Types and Examples: Cost center includes a production or service location, function, activity or…
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Calculation of Total Sales Revenue under Absorption Costing System
Use of Absorption Costing System in Setting a Selling Price (Sales Revenue): One of the most important decision faced by an organization is the setting…
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Absorption Costing
Definition of Absorption Costing (Total Costing or Total Production Cost): Absorption costing or total costing or total production cost means all costs that are involve…
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Cash Budget Format and Example
Cash Budget Format and its Explanation with Solved Example: Cash Budget For the period ending……….. Solved Example: The directors of Kingston & Co. were concerned…
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Actions to Avoid Cash Shortage for Cash Budget
The cash budgets shows the pattern of future cash flows giving information on cash surpluses, which can be used, or deficits, which have to be…
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Introduction to Cash Budget
Definition and Explanation: Of all the components of the master budget, none is more important than the cash budget. Liquidity is of paramount importance to…
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Limiting Factor or Principle Budget Factor
Definition and Explanation with Solved Example: Limiting factors also known as key factors or principle budget factors or governing factors which put a limit to…
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Abandonment of a Product Line
Decision for Abandonment (Close) of a Product or Department – Explanation with Solved Examples: When a product line or department of business is unable to…
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Decisions for Accepting Special Order Pricing
Accepting Special Order Pricing to use up Spare Capacity – Explanation with Solved Examples: In the short term decision making, a business must ensure that…
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Make or Buy Decision
Explanation with Solved Example: Sometimes businesses encounter a situation where they have to decide between making a particular product themselves or to buy it from…
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Relevant and Irrelevant Costs for Short Term Decision Making
Relevant Cost – Definition and Explanation with Example: “The term relevant cost is used to describe not only changes in cost but also changes in…
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Difference between Marginal and Absorption Costing
The main difference between marginal (variable) costing and absorption costing techniques are given below: Marginal Costing (Variable Costing) Absorption Costing (1) Marginal cost is often…
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Income Statements under Marginal and Absorption Costing
Explanation with Solved Examples: In absorption costing technique no difference is made between fixed and variable cost in calculating profits. Absorption costing statement assumes that…
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Profit Volume Chart
Definition and Explanation: “Profit volume chart is a straightforward relationship of profits to sales level”. Break even chart does not directly show the amount of profit….
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Margin of Safety
Definition – Margin of Safety (MOS): Margin of safety (MOS) is defined as; “it is the difference between the actual or budgeted sales as the case…
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Assumptions and Limitations of Break Even Analysis
Assumptions: (1) All costs can be categorized as fixed or variable costs. (2) Total fixed costs remain unchanged for all output levels. (3) Total variable…
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Break Even Chart
Explanation of the Concept of Break Even Analysis with Diagram: Break even chart may be prepared in different forms and styles; but they all in…
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Target Profits
Definition, Explanation and Formula: Every business make plan to earn a specific amount of profit for a specific fiscal year, this profit is known as…
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Break Even Point in Sales Value
Methods to Calculate Break Even Point in Sales ($) Value: Break even point in sales ($) value may be calculated in two ways but both…
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Break Even Point
Definition: Break even point shows the output level (units produced or services rendered) at which total revenues just equals to total costs or point at…
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Break Even Analysis
Introduction to Break Even Analysis: Definition, Use and Components of Break-even Analysis: Break-even indicates a situation where; there is no profit or loss for a…
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Advantages and Disadvantages of Marginal Costing Technique
Advantages: The main advantages of marginal costing are given below: (1) By using marginal costing technique, the assessment of various sales or production alternatives options…
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Principles of Marginal Costing
Basic principles and guidelines for using marginal costing are as follows: (1) The sale of an extra unit of product or service results in the…
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Marginal Costing
Definition and Explanation of Marginal Costing (Direct or Variable Costing): Marginal costing is simply a technique to analyze cost information for decision making process. Different terms…
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Methods to Evaluate the Performance and Financial Strength of a Company
You as a financial consultant have been asked to evaluate the performance and financial strength of Deluxe Trading Co for the two years. For performance…
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Introduction to Financial Ratio Analysis
Definition and Explanation of Accounting Ratio Analysis (Financial Ratio Analysis): We have so far been concerned with the preparation of financial statements without any examination…
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Explains financial and managerial accounting. Exercises, problems, calculators and more.