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How to write off inventory — AccountingTools

Offer Details: Writing off inventory involves removing the cost of no-value inventory items from the accounting records.Inventory should be written off when it becomes obsolete or its market price has fallen to a level below the cost at which it is currently recorded in the accounting records. The amount to be written down should be the difference between the book value (cost) of the inventory and the …

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Net of discount definition — AccountingTools

Offer Details: For example, a coupon offers 20% off the $100 retail price of a product, net of discounts. Other applicable discounts are a 10% Christmas discount and a 5% volume discount. Thus, the other two discounts are applied first to arrive at an $85 price for the product, after which the 20% coupon offer is applied, resulting in a $17 discount related

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Write off definition — AccountingTools

Offer Details: What is a Write Off? A write off is a reduction in the recorded amount of an asset.A write off occurs upon the realization that an asset no longer can be converted into cash, can provide no further use to a business, or has no market value.For example, a write off is mandated when an account receivable cannot be collected, when inventory is obsolete, when there is no longer any use for a fixed

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Off balance sheet definition — AccountingTools

Offer Details: What is Off Balance Sheet? Off balance sheet refers to those assets and liabilities not appearing on an entity's balance sheet, but which nonetheless effectively belong to the enterprise.These items are usually associated with the sharing of risk or they are financing transactions.A business tries to keep certain assets and liabilities off its balance sheet in order to present to the

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Working off the books definition — AccountingTools

Offer Details: What is Working Off the Books? The concept of working off the books means that a person is being compensated in cash for services performed, but the payments are not recorded on the books of the employing business. The business offers this sort of arrangement in order to avoid paying any payroll taxes, as well as to avoid paying for workers' compensation insurance and any of the …

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Credit memo definition — AccountingTools

Offer Details: A credit memo may be classified as an internal credit memo, in which case no copy is sent to the buyer. This approach is typically used when the company is writing off an outstanding receivable balance. Terms Similar to Credit Memo. A credit memo is also known as a credit memorandum or a credit note. Related Courses. Bookkeeping Guidebook

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Contra expense definition — AccountingTools

Offer Details: What is a Contra Expense? A contra expense is an account in the general ledger that is paired with and offsets a specific expense account.The account is typically used when a company initially pays for an expense item, and is then reimbursed by a third party for some or all of this initial outlay. For example, a company pays for medical insurance on behalf of its employees, which it records in

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CPA vs CMA certification comparison — AccountingTools

Offer Details: It doesn’t mean you’re automatically written off, but it does mean that you won’t rank as high as someone who does have a certification. So having a certification is essentially a case of checking the boxes to make sure that you fulfill all the requirements for a management position. This does not mean that having a certification is a top

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Direct write-off method vs allowance method — AccountingTools

Offer Details: The Difference Between the Direct Write-Off and Allowance Methods. Under the direct write-off method, a bad debt is charged to expense as soon as it is apparent that an invoice will not be paid. Under the allowance method, an estimate of the future amount of bad debt is charged to a reserve account as soon as a sale is made. This results in the following differences between the two methods:

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Disposal account definition — AccountingTools

Offer Details: What is a Disposal Account? A disposal account is a gain or loss account that appears in the income statement, and in which is recorded the difference between the disposal proceeds and the net carrying amount of the fixed asset being disposed of. The account is usually labeled "Gain/Loss on Asset Disposal." The journal entry for such a transaction is to debit the disposal account for the net

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How to identify obsolete inventory — AccountingTools

Offer Details: An extended cost for each item is also listed, in order to give report users some idea of the write-off that might occur if an item is declared obsolete. If a computer system includes a bill of materials , there is a strong likelihood that it also generates a “where used” report, listing all the bills of material for which an inventory item

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Bank reconciliation definition — AccountingTools

Offer Details: Check off in the bank reconciliation module all deposits that are listed on the bank statement as having cleared the bank. Enter as expenses all bank charges appearing on the bank statement, and which have not already been recorded in the company's records.

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The proper classification of fixed assets — AccountingTools

Offer Details: When to Classify an Asset as a Fixed Asset. When assets are acquired, they should be recorded as fixed assets if they meet the following two criteria:. Have a useful life of greater than one year; and. Exceeds the corporate capitalization limit.. The capitalization limit is the amount of expenditure below which an item is recorded as an expense, rather than an asset.

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How to write off a fixed asset — AccountingTools

Offer Details: A fixed asset is written off when it is determined that there is no further use for the asset, or if the asset is sold off or otherwise disposed of. A write off involves removing all traces of the fixed asset from the balance sheet, so that the related fixed asset account and accumulated depreciation account are reduced.. There are two scenarios under which a fixed asset may be written off.

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Capitalization of software development costs

Offer Details: Software capitalization involves the recognition of internally-developed software as fixed assets . Software is considered to be for internal use when it has been acquired or developed only for the internal needs of a business. Examples of situations where software is considered to be developed

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Holiday pay definition — AccountingTools

Offer Details: Holiday pay is any form of paid time off, such as a government-declared holiday, maternity leave, or sick time off. Employees are eligible to receive holiday pay as soon as they become employees - there is no waiting period, as is commonly the case with vacation pay. However, an employer is not required to compensate its part-time or seasonal

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Divestitures and Spin-Offs Course — AccountingTools

Offer Details: The divestiture or spin-off of a business unit can cause major problems for the parent company, or represent a golden opportunity to streamline and focus on its core capabilities. In the Divestitures and Spin-Offs course, we discuss the problems with divestitures and how to resolve them by focusing on specific concerns in many functional areas

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How to account for liabilities — AccountingTools

Offer Details: A liability is a a legally binding obligation payable to another entity. Liabilities are a component of the accounting equation, where liabilities plus equity equals the assets appearing on an organization's balance sheet.. Examples of Liabilities. Examples of liabilities are as follows: Accounts payable. Accrued liabilities. Accrued wages

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Notes receivable accounting — AccountingTools

Offer Details: The note has now been completely paid off, and ABC has recorded a total of $246 in interest income over a three-month period. What if Arizona had instead agreed to pay all of the interest income on the maturity date of the note, which in the example is in 90 days? Then ABC accrues the interest in each of the three months of the note.

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Accounting for a fully depreciated asset — AccountingTools

Offer Details: A commercial fixed asset database will automatically turn off depreciation, as long as the termination date was correctly set in the system. However, an impairment charge must be noted in such a commercial database, or else the system will continue to record depreciation at the original depreciation rate, even when the remaining book value has

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Obsolete inventory definition — AccountingTools

Offer Details: A write off completely eliminates the inventory asset from the accounting records, while a write down reduces the amount of the recorded asset to the price at which it can still be sold. Ideally, a business should maintain an obsolete inventory reserve that is …

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How to downsize a business — AccountingTools

Offer Details: Corporate downsizing involves laying off employees for a variety of reasons, such as a downturn in sales volume, the closure of a facility, or an acquisition that results in redundant positions. In these situations, the employment of a number of employees is terminated through no fault of their own. A variation on the concept is a furlough

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How to write off a bad debt — AccountingTools

Offer Details: A bad debt can be written off using either the direct write off method or the provision method.The first approach tends to delay recognition of the bad debt expense.It is necessary to write off a bad debt when the related customer invoice is considered to be uncollectible. Otherwise, a business will carry an inordinately high accounts receivable balance that overstates the amount of

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Accounting for film costs — AccountingTools

Offer Details: What is the Accounting for Film Costs? Film costs are the direct costs associated with physically producing a film, as well as allocations of production overhead and capitalized interest.Examples of these direct costs are cast compensation, post-production, set construction, sound synchronization, story costs, and wardrobe.. Film costs are amortized to expense using the individual …

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Examples of corporate fraud — AccountingTools

Offer Details: Any employee can steal from an organization by making off with assets, such as cash or fixed assets. Weak controls can encourage employees to engage in this activity. Unauthorized Use. An employee may use company assets in an unauthorized manner, such as driving a company car for personal use, or using a company condominium for personal use

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The difference between an invoice and a statement

Offer Details: There are several key differences between an invoice and a statement.An invoice documents a specific sale transaction where goods or services were provided to the buyer, while a statement itemizes all invoices that have not yet been paid by the buyer. This results in the following differences: The intent of an invoice is collect payment from the buyer for a specific sale, while a …

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The cost method of accounting for investments

Offer Details: What is the Cost Method of Accounting for Investments? When an investing entity makes an investment and the investment has the following two criteria, the investor accounts for the investment using the cost method:. The investor has no substantial influence over the investee (generally considered to be an investment of 20% or less of the shares of the investee).

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Accounting for sales discounts — AccountingTools

Offer Details: How to Account for Sales Discounts A sales discount is a reduction in the price of a product or service that is offered by the seller, in exchange for early payment by the buyer. A sales discount may be offered when the seller is short of cash , or if …

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Fixed asset disposal accounting — AccountingTools

Offer Details: A variation on the first situation is to write off a fixed asset that has not yet been completely depreciated. In this situation, write off the remaining undepreciated amount of the asset to a loss account. To use the same example, ABC Corporation gives away the machine after eight years, when it has not yet depreciated $20,000 of the asset's original $100,000 cost.

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Revenue at gross or net — AccountingTools

Offer Details: When to Record Revenue at Gross or Net. Recording revenue at gross means that you record the revenue from a sale transaction on the income statement.Recording revenue at net usually means that you’re only recording a commission on a sale transaction as the entire amount of revenue. If there isn’t strictly a commission, you can still report revenue at net by netting the amount billed to the

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Business valuation methods — AccountingTools

Offer Details: Book value is the amount that shareholders would receive if a company’s assets, liabilities, and preferred stock were sold or paid off at exactly the amounts at which they are recorded in the company’s accounting records.

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Payroll journal entries — AccountingTools

Offer Details: Manual Paycheck Entry. It is quite common to create a manual check, either because an employee was short-paid in the preceding payroll, or because the company is laying off or firing an employee, and so is obligated to pay that person before the next regularly scheduled payroll.This check may be paid through the corporate accounts payable bank account, rather than its payroll account, so …

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How to calculate the gain or loss from an asset sale

Offer Details: To calculate a gain or loss on the sale of an asset, compare the cash received to the carrying value of the asset. The following steps provide more detail about the process: If the asset is a fixed asset, verify that it has been depreciated through the end of the last reporting period.If the asset had previously been classified as held for sale, it should not have been depreciated since it was

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Over accrual definition — AccountingTools

Offer Details: What is an Over Accrual? An over accrual is a situation where the estimate for an accrual journal entry is too high. This estimate may apply to an accrual of revenue or expense.Thus, an over accrual of revenue will result in an excessively high profit in the period in which the journal entry is recorded, while an over accrual of an expense will result in a reduced profit in the period in which

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Accounting for Films (#249) — AccountingTools

Offer Details: A different form of asset write-off occurs when work is begun on a film, but it’s never released. In this case, the production company has three years to either get the project ready for production, or write it off. A good example would be acquiring the film rights to a book, and then deciding that the movie is too difficult to produce.

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Days' sales in inventory definition — AccountingTools

Offer Details: A company could post financial results that indicate low days in inventory, but only because it has sold off a large amount of inventory at a discount, or has written off some inventory as obsolete. An indicator of these actions is when profits decline at the same time that the number of days sales in inventory declines.

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How to take a write-off in accounting — AccountingTools

Offer Details: A write off is needed whenever the fair value of an asset is below its carrying amount. The write off process involves the following steps: Determine the amount of the write off. It is entirely possible that only a portion of the amount recorded on the books for an asset (known as its carrying amount) needs to be written off.

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Freight In and Freight Out (#177) — AccountingTools

Offer Details: The main reason for an immediate charge off is to keep freight in from mucking up the inventory records. It’s just one more item that gets loaded into the bill of materials or allocated through overhead, and one more item that the auditors need to be aware of when they examine the year-end inventory balance.

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Sales promotion definition — AccountingTools

Offer Details: They can also be used to sell off excess or obsolete goods at discounted prices, thereby keeping inventories down to a manageable level. Disadvantages of Sales Promotions Caution must be used when engaged in sales promotions, since excessively favorable deals can be so expensive that the net effect of a promotion is a decline in profits.

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Idle capacity definition — AccountingTools

Offer Details: What is Idle Capacity? Idle capacity is the remaining amount of capacity left in a company after productive capacity and protective capacity have been eliminated from consideration. Productive capacity is that portion of a work center's total capacity needed to process currently scheduled production, while protective capacity is additional capacity held in reserve to ensure that a sufficient

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The difference between bad debt and doubtful debt

Offer Details: The first alternative for creating a credit memo is called the direct write off method, while the second alternative is called the allowance method for doubtful accounts. Accounting for a Doubtful Debt. A doubtful debt is an account receivable that might become a bad debt at some point in the future.

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Production volume variance definition — AccountingTools

Offer Details: What is the Production Volume Variance? The production volume variance measures the amount of overhead applied to the number of units produced. It is the difference between the actual number of units produced in a period and the budgeted number of units that should have been produced, multiplied by the budgeted overhead rate.The measurement is used to ascertain whether the …

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Budget Stress Testing (#291) — AccountingTools

Offer Details: Maybe they can run the sales staff with one fewer person, or put off some building maintenance for a year. We’ve all seen it, and usually the management team gets away with it. But not all the time. Sometimes, the result of this kind of behavior is a complete collapse.

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Accrued expenses — AccountingTools

Offer Details: What are Accrued Expenses? An accrued expense is an expense that has been incurred, but for which there is not yet any expenditure documentation. In place of the expenditure documentation, a journal entry is created to record an accrued expense, as well as an offsetting liability (which is usually classified as a current liability in the balance sheet).In the absence of a journal entry, the

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The accounting entry for depreciation — AccountingTools

Offer Details: What is the Accounting Entry for Depreciation? The accounting for depreciation requires an ongoing series of entries to charge a fixed asset to expense , and eventually to derecognize it. These entries are designed to reflect the ongoing usage of fixed assets over time. Depreciation is the

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The under absorption and over absorption of overhead

Offer Details: Consequently, an immediate write-off is usually limited to smaller variances, while the latter method is used for larger variances. The entire issue of overhead absorption can be reduced by using just-in-time systems to reduce the amount of inventory on hand at the end of an accounting period. By doing so, a case can be made to charge all

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Where an equipment purchase appears on the income

Offer Details: Hammer Industries acquires a milling machine for $25,000, and expects to actively use it for the next five years, after which it will sell off the equipment for scrap. Using the straight-line method of depreciation, each annual income statement produced by Hammer will include a $5,000 depreciation charge. Related Courses. Fixed Asset Accounting

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How to account for a patent — AccountingTools

Offer Details: A patent is considered an intangible asset; this is because a patent does not have physical substance, and provides long-term value to the owning entity. As such, the accounting for a patent is the same as for any other intangible fixed asset, which is:. Initial recordation.Record the cost to acquire the patent as the initial asset cost. If a company files for a patent application, this cost

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Is equipment a current asset

Offer Details: Equipment is not considered a current asset.Instead, it is classified as a long-term asset.The reason for this classification is that equipment is designated as part of the fixed assets category in the balance sheet, and this category is a long-term asset; that is, the usage period for a fixed asset extends for more than one year.This classification of equipment extends to all types of

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