What is cost benefit ratio formula?
The BCR Formula The benefit cost ratio is calculated by dividing the present value of benefits by that of costs and investments If you have consistently used negative cash flows for either the cost or the benefit side, your result will be negative
What are the five cost concepts?
Accounting costs and Economic costs Outlay costs and Opportunity costs Direct/Traceable costs and Indirect/Untraceable costs Incremental costs and Sunk costs
What are the types of costs?
Following this summary of the different types of costs are some examples of how costs are used in different business applications
- Fixed and Variable Costs
- Direct and Indirect Costs
- Product and Period Costs
- Other Types of Costs
- Controllable and Uncontrollable Costs—
- Out-of-pocket and Sunk Costs—
What is basic cost concept?
(1) Cost: It is the amount of resources given up in exchange for some goods or services The resources given up are expressed in monetary terms Cost is defined as “the amount of expenditure (actual or notional) incurred on or attributable to a given thing or to ascertain the cost of a given thing”
What is cost principle example?
The cost principle, also known as the historical cost principle states that assets should be recorded at their original cost, rather than their current market value For example, an asset you purchased a year ago may suddenly gain value for a variety of reasons
What are the three principles of food costing?
10 Principles of Food Cost Control
- Food Cost % = (Beginning Inventory + Purchases – Ending Inventory) / Food Sales
- Food Cost % = Total Food COS / Total Food Revenue
- Ideal Food Cost % = Ideal Food Cost / Total Food Revenue
What is realization principle?
The realization principle is the concept that revenue can only be recognized once the underlying goods or services associated with the revenue have been delivered or rendered, respectively Thus, revenue can only be recognized after it has been earned Advance payment for goods
What does realization mean?
the making or being made real of something imagined, planned, etc the result of such a process: The new church was the realization of a ten-year dream the act of realizing or the state of being realized an instance or result of realizing
What is matching principle example?
Example of Matching Principle For example, if a business pays a 10% commission to sales representatives at the end of each month If the company has $in sales in the month of December, the company will pay the commission of $next January
What are the four accounting concepts?
These basic accounting concepts are as follows:
- Accruals concept Revenue is recognized when earned, and expenses are recognized when assets are consumed
- Conservatism concept
- Consistency concept
- Economic entity concept
- Going concern concept
- Matching concept
- Materiality concept
What is the difference between matching principle and revenue recognition principle?
In practice, the matching principle combines accrual accounting (wherein revenues and expenses are recorded as they are incurred, no matter when cash is received) with the revenue recognition principle (which states that revenues should be recognised when they are earned or realised, no matter when cash is received)
What is the revenue principle?
The revenue recognition principle, a feature of accrual accounting, requires that revenues are recognized on the income statement in the period when realized and earned—not necessarily when cash is received
What are the 5 steps in the revenue recognition process?
5 Steps to the New Revenue Recognition Standard
- Step one: Identify the contract with a customer
- Step two: Identify each performance obligation in the contract
- Step three: Determine the transaction price
- Step four: Allocate the transaction price to each performance obligation
- Step five: Recognize revenue when or as each performance obligation is satisfied
What are the four criteria for revenue recognition?
The staff believes that revenue generally is realized or realizable and earned when all of the following criteria are met:
- Persuasive evidence of an arrangement exists,3
- Delivery has occurred or services have been rendered,4
- The seller’s price to the buyer is fixed or determinable,5
- Collectibility is reasonably assured
How do you recognize revenue?
GAAP Revenue Recognition Principles
- Identify the customer contract
- Identify the obligations in the customer contract
- Determine the transaction price
- Allocate the transaction price according to the performance obligations in the contract
- Recognize revenue when the performance obligations are met
Can you recognize revenue before delivery?
Revenue can be recognized at the point of sale, before, and after delivery, or as part of a special sales transaction Such arrangements may include periodic payments as milestones are achieved by the seller
Can you recognize revenue when you invoice?
Revenues are recognized when earned, not necessarily when received Revenues are often earned and received in a simultaneous transaction, such as the case when a customer makes a retail in-store purchase
What is revenue recognition with example?
What is the Revenue Recognition Principle? The revenue recognition principle states that one should only record revenue when it has been earned, not when the related cash is collected For example, a snow plowing service completes the plowing of a company’s parking lot for its standard fee of $100
What is an example of revenue?
Examples of revenue accounts include: Sales, Service Revenues, Fees Earned, Interest Revenue, Interest Income For example, interest earned by a manufacturer on its investments is a nonoperating revenue Interest earned by a bank is considered to be part of operating revenues
Why is revenue recognition important?
The most important reason to follow the revenue recognition standard is that it ensures that your books show what your profit and loss margin is like in real-time It’s important to maintain credibility for your finances Financial reporting helps keep your transactions aligned
How do you identify expenses?
The accounting method the business uses determines when an expense is recognized If the business uses cash basis accounting, an expense is recognized when the business pays for a good or service Under the accrual system, an expense is recognized once it is incurred