Accounting Basics

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Opportunity Costs in Managerial Accounting

Sometimes choosing one alternative means losing money because you turned down another alternative. These costs are called opportunity costs. For example, suppose you can either visit your mother in Peoria [more…]

How to Distinguish Among Different Users of Accounting Information

People who use accounting information fall into two broad groups: insiders and outsiders. Business managers are insiders; they have the authority and responsibility to run a business. Everyone else is [more…]

How to Make Use of Accounting in Your Personal Financial Life

A great deal of the information you use in making personal finance and investing decisions is accounting information. You need a basic understanding of accounting terminology and valuation methods in order [more…]

The Newest Career in Accounting, the Chartered Global Management Accountant (CGMA)

Recently the American Institute of CPAs (AICPA) and the Chartered Institute of Management Accountants (CIMA) in the United Kingdom and the Republic of Ireland joined forces to sponsor and promote a new [more…]

Cost Accounting: Budgeting Basics

In cost accounting, a budget is a financial plan that includes both financial and non-financial information. Its most obvious features are a projection of revenue [more…]

Why Budgeting is Important in Cost Accounting

In cost accounting, when you put together a budget, you determine how you plan to use your resources. Assets are resources; cash is the most famous asset. Other property, like vehicles, for example, are [more…]

Center on Profit Centers in Accounting Reports

From a one-person sole proprietorship to a mammoth business organization like General Electric or IBM, one of the most important tasks of managerial accounting is to identify each source of profit within [more…]

How to Report Operating Expenses

Below the gross margin line in an internal P&L statement, reporting practices vary from company to company. There is no standard pattern. One question looms large: How should the [more…]

How to Present a Profit Analysis Template

Very little detail for sales revenue and expenses are included when presenting a profit model, in order to keep the template as brief as possible. After arguing for the separation of fixed and variable [more…]

Take a Closer Look at the Lines in the Profit Template

Profit center managers depend heavily on the information in their P&L reports. They need to thoroughly understand these profit reports. They should examine each element of the profit template. [more…]

How to Use the Profit Template for Decision-Making Analysis

The profit template is very useful for decision-making analysis. To demonstrate, suppose that you’re under intense competitive pressure to lower the sales price of one product you sell. This product is [more…]

Business Budget versus Government Budget

Business and government budgeting are more different than alike. Government budgeting is preoccupied with allocating scarce resources among many competing demands. Unlike the government, the revenue of [more…]

Liabilities: How to Judge Liquidity and Solvency of a Business

Solvency refers to the ability of a business to pay its liabilities on time. The liquidity of a business is not a well-defined term; it can take on different meanings. However, generally it refers to the [more…]

Cash and the External Balance Sheet

The external balance sheet reports just one cash account. But many businesses keep several bank checking and deposit accounts, and some keep a fair amount of currency on hand. A business may have foreign [more…]

Accounts Receivable and the External Balance Sheet

In its external balance sheet, a business reports just one summary amount for all its accounts receivable. However, this total amount is not nearly enough information for the business manager. [more…]

Fixed Assets less Accumulated Depreciation

Fixed assets is the all-inclusive term for the wide range of long-term operating assets used by a business — from buildings and heavy machinery to office furniture. Except for the cost of land, the cost [more…]

How to Report Accrued Expenses Payable

The controller should prepare a schedule for the manager that lists the major items making up the balance of the accrued expenses payable liability account. Many operating liabilities accumulate or, as [more…]

How to Report Income Tax Payable

It takes an income tax professional to comply with federal and state income tax laws on a business. The manager should make certain that the accountant responsible for its tax returns is qualified and [more…]

How to Report Interest-Bearing Debt

Interest bearing debt that is due in one year or less is included in the current liabilities section of the balance sheet. The reason is that financial reporting standards require that external balance [more…]

How to Report Owners’ Equity

External balance sheets report two kinds of ownership accounts: one for capital invested by the owners in the business and one for retained earnings (profit that has not been distributed to shareowners [more…]

Unreported Sales Revenue and Expenses

Some sales revenue and expense information that managers need is not reported in the external income statement of a business. Analyzing profit is a very open-ended process. There are many ways to slice [more…]

Are Costs Really That Important?

Without good cost information, a business operates in the dark. Cost concepts and cost measurement methods apply to all businesses. There’s no one-size-fits-all definition of cost, and there’s no one correct [more…]

How to Determine Manufacturing Costs Properly

Accountants for manufacturers have developed many methods for allocating indirect overhead costs, most of which are based on a common denominator of production activity. There are four basic types of manufacturing [more…]

Inventory as an Asset

For businesses that sell products, inventory is typically a major asset. It’s also typically the most problematic asset from both the management and accounting points of view. [more…]

Tax Obligations for the Micro-Entrepreneur

If you make a net profit in your entrepreneurial business, plan on paying taxes. A profitable home business certainly has tax obligations to be aware of. Here’s an explanation of the tax obligations you [more…]


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