Financial Reporting

What Does Financial Reporting Mean? The scope of financial reporting is broader than just reporting information through income statements, balance sheets, authoritative pronouncements, and regulatory rules. Financial reporting concerns not only monetary information but also non-monetary information. Financial reporting does not mean reporting information only through income statements and balance sheets. If crucial information is … Read more

Inventory Control System

What Is an Inventory Control System? Inventory control systems are critical for businesses due to the importance of the inventory, which is a major asset. It is through the inventory that most of a business’s operating activities take place. Therefore, it is crucial to establish effective control systems to safeguard the inventory (e.g., to minimize … Read more

Statement of Changes in Working Capital

What Is the Statement of Changes in Working Capital? A statement of changes in working capital is prepared by recording changes in current assets and current liabilities during the accounting period. Working capital during this period is bound to change due to an increase or decrease in the current assets and current liabilities. Purpose of … Read more

How to Measure the Acquisition Cost of Property, Plant and Equipment

According to the FASB, “the historical cost of acquiring an asset includes the costs necessarily incurred to bring it to the condition and location necessary for its intended use.” In terms of property, plant, and equipment, this means that all the reasonable and necessary costs required to get the asset to its location and ready … Read more

Comparison Between Different Cost Flow Assumptions

Presented below is a comparison of the effect of the FIFO, average cost, and LIFO cost flow assumptions on ending inventory, cost of goods sold, and gross margin for the Cerf Company (we have not included specific identification in this comparison because of its limited use). The highest gross margin and ending inventory and lowest … Read more

Application of Different Cost Flow Assumptions

The data for the Cerf Company shown below will be used to demonstrate the computations required to apply three cost flow assumptions and the specific Identification method. Three points should be made about this example. First, It is simplistic in that only six purchases are made during the year. However, the procedures In this example … Read more

Perpetual Inventory System

What Is a Perpetual Inventory System? – Definition: Perpetual inventory system is a method of accounting for inventory where transactions are recorded and reported as soon as they take place. Usually, in this inventory system, computerized systems and software are used to immediately record the sales and purchases. Explanation: Before advancements in technology, companies would … Read more

Sensitivity Analysis

What Is Sensitivity Analysis? – Definition Sensitivity analysis involves examining what happens to a budget when changes are made in the assumption on which it is based. It is also known as ‘what-if’ analysis, and can be carried out using a spreadsheet or with manual calculations. Manual calculations are easier if they focus only on … Read more