If a company sells land that it was holding for future use, the company will 1) debit Cash for the amount it receives, 2) credit Land for the amount in the general ledger account that applies to the land being sold, and 3) record the difference as a gain [...] Continue Reading…

An implicit interest rate is one that is not explicit; in other words, the rate is not stated. For example, if I lend you $5,000 and you agree to repay me $1,000 at the end of each year for six years you are obviously paying interest. However, our agreement [...] Continue Reading…

When inventory is valued at the lower of cost or market, and the market is less than cost, a loss is recorded. (Market is the replacement cost constrained by the net realizable value and the net realizable value minus the normal profit.) For example, let’s assume that on December [...] Continue Reading…

An arms length transaction involves two independent parties and each is attempting to get the best deal possible.

For example, if your mother is selling her two-year old car to you for $7,000 and the blue book wholesale value is $14,000, that is NOT an arms length transaction. Your mother [...] Continue Reading…

When a company incurs rent for its manufacturing operations, the rent is a product cost. It is common for the rent to be included in the manufacturing overhead that will be allocated or assigned to the products. That rent as part of the manufacturing overhead cost will cling to [...] Continue Reading…