How does financial accounting help decision making?

June 30, 2024 No Comments

A: There are three main areas where financial accounting helps decision making. It provides investors a baseline of analysis for – and comparison between – the financial health of security-issuing institutions. Financial accounting helps creditors assess the solvency, liquidity and creditworthiness of businesses. Financial accounting

How does fixed overhead differ from varied overhead?

June 30, 2024 No Comments

A: Overhead costs are ongoing expenses a business incurs in its operations. They must be paid even if a company has a low volume of business. There are two types of overhead costs: fixed and variable. Fixed overhead costs are expenses that do not change

How does gross margin and net margin differ?

June 30, 2024 No Comments

A: Understanding Two Margins Gross margin and net margin are profitability ratios used to assess the financial well being of a company. Both gross profit margin and net margin or net profit margin are expressed in percentage terms and measure profitability as compared to revenue for a period. Gross profit margin is

How does inventory accounting differ between GAAP and IFRS?

June 30, 2024 No Comments

A: There are three common methods for inventory accountability costs: weighted-average cost method; first in, first out, or FIFO; and last in, first out, or LIFO. Companies in the United States operate under the generally accepted accounting principles, or GAAP, which allows for all three

How does inventory turnover affect the cash conversion cycle (CCC)?

June 30, 2024 No Comments

A: A higher, or quicker, inventory turnover decreases the cash conversion cycle (CCC). A lower, or slower, inventory turnover increases the CCC. The CCC measures the number of days it takes a company to generate and collect revenue from its inventory assets. Stated differently, the

How does proration affect asset depreciation?

June 30, 2024 No Comments

A: Accountants calculate an asset’s pro-rata depreciation during the first and final year of its service. The IRS established applicable convention for pro-rata asset depreciation, which represents an assumption about the date when the property is placed into service or retired. While the half-year convention

How does ratio analysis make it easier to compare different companies?

June 30, 2024 No Comments

A: Ratio analysis provides an investor with tools to analyze a company’s financial statements. Investors use ratios to evaluate one stock in a sector in comparison to another company in the same industry. Using ratio analysis simplifies comparing financial statements of multiple companies. Some key

How does transfer pricing affect managerial accounting?

June 30, 2024 No Comments

A: In managerial accounting, the transfer price represents a price at which one subsidiary, or upstream division, of the company sells goods and services to the other subsidiary, or downstream division. Goods and services can include labor, components and parts used in production and general

How is an accrued interest entry made in accounting?

June 30, 2024 No Comments

A: In financial accounting, accrued interest is reported by borrowers and lenders. Borrowers list accrued interest as an expense on the income statement and a current liability on the balance sheet . Lenders list accrued interest as a revenue and current asset, respectively. Entries to

How is asset turnover calculated?

June 30, 2024 No Comments

A: The asset turnover ratio measures the efficiency of a company’s assets to generate revenue or sales. It compares the dollar amount of sales or revenues to its total assets. The asset turnover ratio calculates the net sales as a percentage of its total assets.

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