[Smartly] Accounting Ii: Revenues & Expenses

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Definition: The process of determining how much a unit of inventory costs.

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Cost Accounting

Hint 1

Hint: Key word is *cost.*

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Definition: The expense account associated with the sale of inventory.

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Cost of Goods Sold (COGS)

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Definition: The method of accounting for the cost of inventory by expensing inventory sales as they occur.

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Specific identification

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Definition: The method of accounting for the cost of inventory by expensing the cost of the oldest inventory first.

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First-in, first-out (FIFO)

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Definition: The method of accounting for the cost of inventory by expensing the cost of the newest inventory first.

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Last-in, first-out (LIFO)

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These costs include direct labor and overhead costs for producing a good or service.

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Conversion Costs

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Hint: Combined costs of * converting* raw materials into finished product.

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Definition: All general costs of the production process, excluding direct labor and raw materials.

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Production overhead or Manufacturing overhead

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Definition: Tangible noncurrent assets

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Fixed assets

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Definition: The expected amount of time a fixed asset will remain useful (before becoming obsolete or unusable)

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Service life

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Definition: The means by which the cost of a fixed asset is expensed over time

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Depreciation

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Definition: A method of depreciating an asset in equal amounts each accounting period of the asset's service life

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Straight-line depreciation

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Definition: A method of assigning depreciation based on the output of an asset

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Units of production

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Definition: A method of assigning more depreciation expense in the beginning of an asset's service life and less at the end of its service life.

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Accelerated depreciation

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Definition: The total depreciation a fixed asset has undergone to date.

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Accumulated depreciation

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Definition: Natural resources, such as wells and mines, that undergo depletion.

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Wasting assets

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Definition: The total value of a wasting asset that will undergo depletion.

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Depletion base

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Hint: includes purchase cost as well as cost of preparing the resource for use (everything necessary for the asset to function).

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Formula:

The depletion base / total units of substance extracted from a resource

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Depletion rate

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Definition: The process by which intangible assets are expensed over time.

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Amortization

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Definition: Increases in revenue are recorded only when there is reasonable assurance that payment will be received.

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Conservatism concept

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Definition: Increases in revenue are recorded only when the product or service has been delivered.

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Realization concept

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Hint: revenue is recorded or *realized* only when the customer has product in hand.

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Definition: A liability account used when a customer has paid for a product or service, but the product or service has not been delivered.

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Deferred revenue

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Hint: Also called precollected revenue, unearned revenue, and advances from customers.

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Definition: Costs that are not expenses.

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Expenditures

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Hint: These costs signify either a decrease in assets or increase in liabilities.

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Definition: The benefits of the expenditures have not yet been realized.

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Unexpired expenditures

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Definition: The benefits of the expenditures have been used up.

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Expired expenditures

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Hint: These expenditures are now expenses.

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Definition: Recorded revenue that will not be collected.

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Bad debt

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Definition: A contra-asset that preemptively estimates how much revenue will fail to be collected.

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Allowance for doubtful accounts

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Hint: Also called the 'bad debt allowance'

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Definition: A type of accounting where revenue is recorded when cash is received and expenses are recorded when they are paid.

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Cash accounting

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Definition; A type of accounting where revenues and expenses are not necessarily recorded when cash is received or paid out.

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Accrual accounting

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Definition: Expenses are recorded in the same accounting period as their associated revenues.

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Matching concept

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Hint: If there are no such revenues, expenses are matched to the accounting period(s) when their benefits are used.

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Definition: The resale or disposal value of an asset at the end of its service life.

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Salvage value

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Definition: The difference between an asset's cost and its salvage value.

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Depreciable cost