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

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

Unfavorable activity variances may not indicate bad performance because:

they indicate that actual costs were lower than budgeted costs.

the variance could be due to higher-than-expected sales volume, which is generally positive.

they always result from errors in accounting records.

they show that the company is overperforming in all areas.

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Verified step by step guidance

Understand the concept of activity variances: Activity variances occur when there is a difference between the budgeted activity level and the actual activity level. These variances can be favorable or unfavorable depending on the context.

Analyze the meaning of 'unfavorable activity variances': An unfavorable activity variance means that the actual activity level was higher than the budgeted level, which could lead to higher costs. However, this does not necessarily indicate bad performance.

Consider the relationship between sales volume and activity variances: Higher-than-expected sales volume can lead to increased activity levels, which may result in unfavorable variances. However, higher sales volume is generally positive for the company as it indicates better revenue generation.

Evaluate the statement about accounting errors: Unfavorable activity variances do not always result from errors in accounting records. They are often a natural outcome of differences between planned and actual activity levels.

Conclude why unfavorable activity variances may not indicate bad performance: The variance could be due to higher-than-expected sales volume, which is a positive indicator of the company's performance, rather than an issue with operational efficiency or accounting errors.