Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

1. Introduction to Accounting

Useful Information

Financial Accounting

1. Introduction to Accounting

Useful Information

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Multiple Choice

Companies use a predetermined overhead rate rather than an actual overhead rate because:

It ensures that overhead costs are never overapplied or underapplied.

Predetermined rates eliminate the need for estimating overhead costs.

It allows overhead costs to be assigned to products more promptly during the period.

Actual overhead rates are always lower than predetermined rates.

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Verified step by step guidance

Understand the concept of overhead costs: Overhead costs are indirect costs that cannot be directly traced to a specific product or service, such as factory rent, utilities, or salaries of supervisors.

Learn the purpose of a predetermined overhead rate: Companies use a predetermined overhead rate to allocate overhead costs to products or services more promptly during the accounting period, rather than waiting until the end of the period to calculate actual overhead costs.

Recognize the formula for predetermined overhead rate: The predetermined overhead rate is calculated using the formula:

\frac{Estimated Overhead Costs}{Estimated Activity Base}

. The activity base could be direct labor hours, machine hours, or any other cost driver.

Understand why actual overhead rates are not used during the period: Actual overhead rates are calculated at the end of the period when all costs are known. Using actual rates during the period would delay cost allocation and decision-making, which is impractical for timely financial reporting and operational decisions.

Recognize the benefits of using predetermined overhead rates: Predetermined rates allow companies to assign overhead costs to products or services promptly, facilitating better cost control, pricing decisions, and financial reporting during the period.