Accounting Questions & Answers

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When are expenses credited?
Typically, general ledger expense accounts are debited and will carry a debit balance. However, there are times when an expense account will be credited. The following lists some instances when [...]

What is the difference between FIFO, LIFO, and Average Cost?
The difference between these three inventory methods is in the way Cost of Good Sold (COGS) is calculated. A company typically does not track every single piece of inventory when [...]

What are prime costs?
Prime costs refer to the direct labor and the direct costs associated with manufactured products. Prime costs are often referred to when speaking of activity-based costing and other methods of [...]

What is a comparative income statement?
A comparative income statement consists of typically two or three years of income statements on a single statement. The current year income statement will be reported the furthest to the [...]

What is LIFO liquidation?
Put simply, LIFO (last-in-first-out) liquidation is when a company sells more inventory than it purchases over a period of time, assuming the company is accounting for inventory using the LIFO [...]

What is the Social Security tax rate for 2011?
The employee's portion of the Social Security tax, which is withheld from employees' salary and wages during 2011, will be 4.2% of the first $106,800 of each employee's taxable earnings. [...]

Under GAAP, what are "below-the-line" items?
Under GAAP, below-the-line items are those items listed on the income statement that are "below" income from continuing operations. Two categories of items are presented below the line:

1. Discontinued Operations [...]

How do you calculate net pension expense?
Pension expense is recorded on the income statement and reduces reported earnings. Under the accrual method of accounting, pension expense represents the employer's expense for the company's pension plan during [...]

What is retained earnings?
Generally, retained earnings is a corporation's cumulative earnings since the corporation was formed minus the dividends it has declared since it began. In other words, retained earnings represents the corporation's [...]

How do cash dividends affect the financial statements?
When a corporation declares a cash dividend on its stock, its retained earnings are decreased and its current liabilities (Dividends Payable) are increased. When the cash dividend is paid, the [...]