What are some differences between financial and managerial accounting?
Financial accounting deals with regulated, historical, financial information that pertains to the whole company and is designed primarily to meet the information needs of outsiders. Managerial accounting is concerned with unregulated financial, economic a
What does the statement "costs can be assets or expenses" mean?
A cost that has the future economic potential to increase assets is recorded as an asset (e.g. product cost of products purchased). A cost that is used in the process of earning revenue is recorded as an expense (e.g. administrative salaries, and product
Why are the salaries of production workers accumulated in an inventory account instead of being directly expensed on the income statement?
The cash paid to production workers is not used to produce revenue but to produce inventory. The revenue is earned when the inventory is sold at which time the cost of salaries associated with those products sold should be expensed.
How do product costs affect the financial statements? How does the classification of product cost affect net income?
Product costs associated with goods that have not been sold are recorded in the account called inventory. Inventory cost is shown on the balance sheet as an asset. The amount of total assets and net income will be higher if a product cost is classified as
What is an indirect cost? Provide examples of product costs that would be classified as indirect.
An indirect product cost is a cost that cannot be easily or economically traced to a specific product. Product costs that would be considered indirect include costs such as production supplies, salaries of production supervisors, and depreciation, rent, a
How does a product cost differ from a general, selling, and administrative cost? Give examples of each.
Product costs are all costs incurred to obtain a product or provide a service. These costs are treated as assets, recorded in inventory, and expensed when the associated products are sold. Period costs are all costs not associated with a product. They are
What costs should be considered in determining the sales price of a product?
A pricing decision must include all costs associated with the product. The manufacturing product cost as well as all upstream costs (costs that occur before the manufacturing process begins, e.g., research and development costs) and downstream costs (cost
What is a just-in-time inventory system? Name some inventory costs that can be eliminated or reduced by its use.
JIT inventory system is a reengineering principle where inventory is made available for customer consumption at the time of customer demand. A JIT inventory system is designed to eliminate the storage of large amounts of inventory. By eliminating the stor