accounting 7,8,9 Flashcards

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  • A toy manufacturer is trying to decide on which machine to invest in.
  • For example, if you choose one job over another, the potential wages from the alternative decision are implicit costs.
  • Machine 2 has an economic profit of $25,000, which equals its accounting profit since the investment opportunity would have been taken.
  • Economic profit is a metric most commonly used internally when evaluating investment decisions.
  • It is the profit shown on the income statement and is calculated by subtracting explicit costs from revenue.
  • The most common explicit costs are items such as the cost of goods sold, rent, interest expenses, utility expenses, marketing expenses, and depreciation expenses.

Economic profit is used primarily by internal users when evaluating the decision, they made related to mutually exclusive projects. A mutually exclusive project is a term that describes the situation in which a firm only has enough resources to choose one alternative. Assets that are most likely to turn into cash or used up in 1 yr.

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We look at 100+ variables to create a personalized learning plan just for you. We look at 100+ variables to create a personalized learning plan just for your student. When the amount of annual depreciation is revised because of a change in the estimated useful life of an asset, prior years’ Ŝnancial statements should be restated. A declining Ŝxed asset turnover ratio can be caused by acquiring additional assets in the current period in anticipation of increased revenue in the future.

Accounts receivable and inventory, prepaid expenses. A toy manufacturer is trying to decide on which machine to invest in. Machine 1 costs $100,000 and manufacturers toy trucks. The firm estimates that it will sell 10,000 toy trucks for a $15 profit each.

When Does A Purchase Allowance Occur?

Assuming nothing else changes, a decrease in average net Ŝxed assets will cause the Ŝxed asset turnover ratio to increase. Impairment occurs when the estimated future cash şows from a long-lived asset are less than its book value.

The calculation for depletion of natural resources is similar to the calculation for depreciation when the units-of-production method is used. Intangible assets with limited lives are usually amortized using the straight-line method with no residual value.

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Accounting profit and economic profit are two important measures when evaluating performance. Accounting profit is calculated by taking total revenues less total explicit costs. It is reported to the IRS and used for taxes.

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Whenever There Is An Adjustment In The Ledger Side Of The Bank Reconciliation

Amounts due to be paid within the next 12 months. Accounts payable and interest payable are examples.

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accounting 7,8,9 Flashcards

For example, if you choose one job over another, the potential wages from the alternative decision are implicit costs. Economic profit is mostly used to judge if an investment or decision is worth it or not. After further analysis, management decided to use the economic profit to evaluate their decision. Machine 1 has an accounting profit of $50,000, but implicit costs of $50,000 due to the missed investment opportunity. The economic profit of this decision is $0. Machine 2 has an economic profit of $25,000, which equals its accounting profit since the investment opportunity would have been taken. Accounting profit and economic profit are two measures companies use to evaluate performance.

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Eric Sottile has a bacholors degree in accounting from the University of Kentucky and a bachelors degree in finance from the University of Kentucky. Eric works for a public accounting firm and has passed his CPA exams with an average score of 94. Companies within the same industry do not always use the same depreciation method, but will use the same expected useful life for the same piece of equipment. Extraordinary repairs, replacements, and additions are added to the appropriate asset accounts rather than being recorded as expenses.

accounting 7,8,9 Flashcards

Any business that buys and sells product for the purpose of making a profit. Browse over 1 million classes created by top students, professors, publishers, and experts. Received $300 from Josh Harrison, along with a letter stating his intention to pay within 30 days. Unexpectedly collected $300 from Fred Walker on the account that had been previously written off. Allied industries does not expect to collect the rest of the amount. The aging of accounts recievable shows that Bob will probably not collect $4,000 of its accounts recievable.

When A Business Simply Applies An Average Cost To All Its Inventory

Accounting profit is mainly used by investors and creditors. Economic profit on the other hand is calculated by taking total revenues and subtracting both accounting 7,8,9 Flashcards explicit and implicit costs. Implicit costs, also known as opportunity costs, are the costs related to the gain from not choosing an alternative.

  • Allied industries does not expect to collect the rest of the amount.
  • Bill Maher has always been a vocal critic of Islam, even at times makingimpolitic statements about the religion.
  • Accounting profit is calculated by taking all of the revenues of a firm and subtracting all the explicit costs, which are all the costs incurred by the firm and reported on the income statement.
  • Classified is going to group assets and liabilities into current or long term.

Accounting profit measures revenues after explicit costs, which is essentially the net income of a firm. It is one of the most common metrics used to evaluate performance over a period of time. On the other hand, Economic profit is a metric that measures both explicit and implicit costs. Learn what the differences between accounting profit and economic profit are. Understand how each is calculated and find solved examples of each type of profit.

Economic profits are most commonly used in determining if an investment is worth it or not. Accounting profit and economic profit are different performance measures used for different reasons and by different users.

Publicspats are rare in the asset-management industry, where companies typically resolve disputes behind closed doors. While our engineeringprowess has advanced a great deal over the past sixty years, the principles of innovation largely have not.

Since machine 1 produces a higher economic profit, it makes sense to invest in machine 1. However, since machine 2 only costs $50,000, they would have had an additional $50,000 to invest under this scenario.

When A Customer Decides To Keep Such Undesirable Products At A Reduced Price Contra Revenue Account

Accounting profit is calculated by taking all revenues less all explicit costs. Explicit costs are all costs incurred that show up on the income statement. If the firm invests in machine 2, they can expect an accounting profit of $25,000. This is calculated by finding the product of the expected demand of 5,000 units and the $15 profit per unit, which equals $75,000, and subtracting the cost of the machine ($50,000). The firm decides to calculate accounting profit for each investment decision. If the firm invests in machine 1, they can expect an accounting profit of $50,000. This is calculated by finding the product of the expected demand of 10,000 units and the $15 profit per unit, which equals $150,000, and subtracting the cost of the machine ($100,000).

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