What is the High-Low Method? In cost accounting, the high-low method is a technique used to split mixed costs into fixed and variable costs. Although the high-low method is easy to apply, it is seldom used because it can distort costs, due to its reliance on two extreme values from a given data set. High-Low…
What is Variable Costing? Variable costing is a concept used in managerial and cost accounting in which the fixed manufacturing overhead is excluded from the product-cost of production. The method contrasts with absorption costing, in which the fixed manufacturing overhead is allocated to products produced. In accounting frameworks such as GAAP and IFRS, variable costing…
What is Accelerated Depreciation? Accelerated depreciation is a depreciation method in which a capital asset reduces its book value at a faster (accelerated) rate than it would using traditional depreciation methods such as the straight-line method. Therefore, under accelerated depreciation, an asset faces greater deductions in its value in the earlier years than in the…
What are Prepaid Expenses? Prepaid expenses represent expenditures that have not yet been recorded by a company as an expense, but have been paid for in advance. In other words, prepaid expenses are expenditures paid in one accounting period, but will not be recognized until a later accounting period. Prepaid expenses are initially recorded as…
What is the Selling, General & Administrative (SG&A) Expense? SG&A includes all non-production expenses incurred by a company in any given period. It includes expenses such as rent, advertising, marketing, accounting, litigation, travel, meals, management salaries, bonuses, and more. On occasion, it may also include depreciation expense, depending on what it’s related to. In an…
What is a Profit Margin? In accounting and finance, a profit margin is a measure of a company’s earnings (or profits) relative to its revenue. The three main profit margin metrics are gross profit margin (total revenue minus cost of goods sold (COGS) ), operating profit margin (revenue minus COGS and operating expenses), and net profit margin (revenue…
Accounts Payable vs Accounts Receivable In accounting, confusion sometimes arises when working between accounts payable vs accounts receivable. The two types of accounts are very similar in the way they are recorded, but it is important to differentiate between accounts payable vs accounts receivable because one of them is an asset account and the other…
What are Audited Financial Statements? Public companies are obligated by law to ensure that their financial statements are audited by a registered certified public accountant (CPA). The purpose of the independent audit is to provide assurance that company management has presented financial statements that are free from material error. Additionally, hiring an independent and qualified…
What is Section 338? The United States Congress enacted Section 338 in 1982 to allow taxpayers to treat certain qualified stock purchases as asset acquisitions for federal income tax purposes. Section 338 provides two elections: the so-called “regular Section 338 election” under Section 338(g), and the other under Section 338(h)(10). These elections treat a stock…
What is Cost of Goods Sold (COGS)? Cost of Goods Sold (COGS) measures the “direct cost” incurred in the production of any goods or services. It includes material cost, direct labor cost, and direct factory overheads, and is directly proportional to revenue. As revenue increases, more resources are required to produce the goods or service….
