This variance tells us how efficient the direct labor was in making the actual output that was produced by the direct labor.

The direct labor efficiency variance compares the standard hours that it should have taken to make the actual output Vs. the actual hours it took and multiplies the [...] Continue Reading…

Adjusting entries are made at the end of the accounting period (but prior to preparing the financial statements) in order for a company’s accounting records and financial statements to be up-to-date on the accrual basis of accounting. For example, each day the company incurs wages expense but the payroll [...] Continue Reading…

LIFO is the acronym for Last-In, First-Out. In the context of inventory, it means that the cost of the most recently purchased units will be the first costs to be matched with the recent sales on the income statement. (The oldest costs will remain in inventory.) When the end [...] Continue Reading…

Accountants use the word foot to mean adding a column of numbers. To crossfoot means to verify that the sum of the totals in various columns also agrees to a grand total.

For example, assume you have a table of numbers that shows the sales of five items for the [...] Continue Reading…

If the dollar amount of supplies is significant, the amount of unused supplies as of the balance sheet date should be reported in the asset account Supplies or Supplies on Hand. The supplies that have been used during the accounting period should be reported in the income statement account [...] Continue Reading…

With regards to inventory, net realizable value (NRV) is the estimated selling price in the ordinary course of business minus any cost to complete and to sell the goods. NRV is one of the amounts considered when determining the lower of cost or market for items in inventory.

Net realizable [...] Continue Reading…

The term carrying amount is often used in place of book value. The carrying amount refers to the amounts that the company has on its books for an asset or a liability. For example, the carrying amount of a company’s truck is the cost of the truck minus the [...] Continue Reading…

A contra revenue account might be described as a revenue account that is expected to have a debit balance instead of the usual credit balance. (Its balance is contrary to—or opposite of—the usual credit balance for a revenue account.)

Another description of a contra revenue account is one that reduces [...] Continue Reading…

The gross profit method is a technique used to estimate the amount of ending inventory. The technique could be used for monthly financial statements when a physical inventory is not feasible. (However, it is no substitute for an annual physical inventory.) It is also used to estimate the amount [...] Continue Reading…

Accountants report a merchandiser’s and a manufacturer’s revenues when a sale is made. The term, FOB Shipping Point, indicates that the sale occurred at the shipping point—at the seller’s shipping dock. FOB Destination indicates that the sale will occur when it arrives at the destination—at the buyer’s receiving dock.

Accountants [...] Continue Reading…