What Are the Four Distinct Categories of Non-Monetary Costs

question 16

Essay

What are the four distinct categories of non-monetary costs?

Understand the different classifications of costs including direct and indirect costs, and their implications on financial statements.

Distinguish between product costs (manufacturing costs) and period costs.

Identify specific examples of direct materials, direct labor, and manufacturing overhead.

Analyze the financial statement implications of various cost classifications.

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Definitions:

Accrual Basis

An accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when cash transactions occur.

Cash Basis

An accounting method where revenue is recorded when cash is received, and expenses are recorded when cash is paid out, without regard to when the transactions actually occur.

Indirect Method

A technique used in cash flow statement preparation that adjusts net income for changes in non-cash accounts to compute net cash provided by operating activities.

Patent Amortization

The gradual expense recognition of a patent's cost over its useful life to reflect the consumption of the patent's value over time.