Commerce, Justice, Science; Energy and Water Development; and Interior and Environment Appropriations Act, 2026 (HR 6938) – This Act is one of the remaining budget bills to fund the government through Sept. 30, 2026. It includes funding for several agencies, including the Department of Commerce, the Department of Justice, the U.S. Army Corps of Engineers, the Department of Energy, and the Environmental Protection Agency. The bill was introduced by Rep. Tom Cole (R-OK) on Jan. 6. It passed in the House on Jan. 8, the Senate on Jan. 15, and was signed into law on Jan. 23.
Financial Services and General Government and National Security, Department of State, and Related Programs Appropriations Act, 2026 (HR 7006) – This Act was introduced by Rep. Tom Cole (R-OK) on Jan. 12. Yet another fiscal year 2026 budget bill, it authorizes investments to support economic growth and entrepreneurship, safeguard American security and authorize funding for the Executive and Judicial branches. The bill passed in the House on Jan. 14 and is awaiting passage in the Senate.
Trafficking Survivors Relief Act (HR 4323) – The purpose of this bipartisan bill is to help stop a vicious cycle that makes human trafficking victims vulnerable to further exploitation. The Act enables survivors to file motions to vacate non-violent convictions and purge arrest records for certain criminal offenses committed as a direct result of being trafficked. The current iteration of the bill was introduced by Rep. Russell Fry (R-SC) on July 19, 2025. It cleared the House on Dec. 1, the Senate on Dec. 18, and was signed into law on Jan. 23.
Finish the Arkansas Valley Conduit Act (HR 131) – Introduced by Rep. Lauren Boebert (R-CO) on January 3, 2025, this bill is related to a Colorado water infrastructure pipeline currently under construction, designed to port clean water from the Pueblo Reservoir to 50,000 Coloradans in the local area. The bill would have extended the repayment period for local municipalities and removed interest payments. The bill passed in the House on July 21 and in the Senate on Dec. 16; it was vetoed by the President on Dec. 31, 2025.
Miccosukee Reserved Area Amendments Act (HR 504) – This bill would have authorized the expansion of the Miccosukee Reserved Area to include a portion of Everglades National Park in Florida. In recent years, the area, known as Osceola Camp, has been prone to flooding, and this bill would have authorized safeguard measures to protect structures within the camp. The bill was introduced on Jan. 16, 2025, by Rep. Carlos Gimenez (R-FL). It passed in the House on July 14 and in the Senate on Dec. 11, 2025. The bill was vetoed by the President on Dec. 30 and failed an override vote in the House on Jan. 8.
Whole Milk for Healthy Kids Act of 2025 (S 222) – This Act amends the existing National School Lunch Act to allow schools participating in the federal school lunch program to serve whole milk. It was introduced by Sen. Roger Marshall (R-KS) on Jan. 23, 2025, passed the Senate on Nov. 20, the House on Dec. 15 and was signed into law by the President on Jan. 14.
Completing FY2026 Budget Appropriations, Protecting Trafficked Victims, and Vetoing Special Interest Projects
February 1, 2026 · Blog, Congress at Work, Uncategorized
⏱ 3 min read
Commerce, Justice, Science; Energy and Water Development; and Interior and Environment Appropriations Act, 2026 (HR 6938) – This Act is one of the remaining budget bills to fund the government through Sept. 30, 2026. It includes funding for several agencies, including the Department of Commerce, the Department of Justice, the U.S. Army Corps of Engineers, the Department of Energy, and the Environmental Protection Agency. The bill was introduced by Rep. Tom Cole (R-OK) on Jan. 6. It passed in the House on Jan. 8, the Senate on Jan. 15, and was signed into law on Jan. 23.
Financial Services and General Government and National Security, Department of State, and Related Programs Appropriations Act, 2026 (HR 7006) – This Act was introduced by Rep. Tom Cole (R-OK) on Jan. 12. Yet another fiscal year 2026 budget bill, it authorizes investments to support economic growth and entrepreneurship, safeguard American security and authorize funding for the Executive and Judicial branches. The bill passed in the House on Jan. 14 and is awaiting passage in the Senate.
Trafficking Survivors Relief Act (HR 4323) – The purpose of this bipartisan bill is to help stop a vicious cycle that makes human trafficking victims vulnerable to further exploitation. The Act enables survivors to file motions to vacate non-violent convictions and purge arrest records for certain criminal offenses committed as a direct result of being trafficked. The current iteration of the bill was introduced by Rep. Russell Fry (R-SC) on July 19, 2025. It cleared the House on Dec. 1, the Senate on Dec. 18, and was signed into law on Jan. 23.
Finish the Arkansas Valley Conduit Act (HR 131) – Introduced by Rep. Lauren Boebert (R-CO) on January 3, 2025, this bill is related to a Colorado water infrastructure pipeline currently under construction, designed to port clean water from the Pueblo Reservoir to 50,000 Coloradans in the local area. The bill would have extended the repayment period for local municipalities and removed interest payments. The bill passed in the House on July 21 and in the Senate on Dec. 16; it was vetoed by the President on Dec. 31, 2025.
Miccosukee Reserved Area Amendments Act (HR 504) – This bill would have authorized the expansion of the Miccosukee Reserved Area to include a portion of Everglades National Park in Florida. In recent years, the area, known as Osceola Camp, has been prone to flooding, and this bill would have authorized safeguard measures to protect structures within the camp. The bill was introduced on Jan. 16, 2025, by Rep. Carlos Gimenez (R-FL). It passed in the House on July 14 and in the Senate on Dec. 11, 2025. The bill was vetoed by the President on Dec. 30 and failed an override vote in the House on Jan. 8.
Whole Milk for Healthy Kids Act of 2025 (S 222) – This Act amends the existing National School Lunch Act to allow schools participating in the federal school lunch program to serve whole milk. It was introduced by Sen. Roger Marshall (R-KS) on Jan. 23, 2025, passed the Senate on Nov. 20, the House on Dec. 15 and was signed into law by the President on Jan. 14.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
Campaign messaging would have you believe retirees just scored a major victory. The talking point is everywhere: Social Security benefits are now tax-free. But anyone who reads the One Big Beautiful Bill Act will discover something different. The legislation contains nothing that removes Social Security from federal taxation. Zero provisions. The tax structure that has applied to benefits for over four decades remains fully intact.
So, what did pass? A new deduction aimed at older Americans. And through some rhetorical gymnastics, that deduction is being sold as something it fundamentally is not.
A Deduction Is Not an Exemption
The OBBBA creates an additional deduction exclusively for seniors. Single filers get $6,000 while married couples receive $12,000. This stacks on top of what they already claim through the standard deduction, lowering their overall taxable income.
For retirees whose financial situation falls in a particular range, this extra write-off might be enough to cancel out whatever portion of their Social Security would normally face taxation. But here’s the catch: the deduction applies to all income equally. It doesn’t single out retirement benefits for protection. If your earnings came entirely from investments or a workplace pension, the math would work identically.
Decades of Unchanged Rules
Federal taxation of Social Security benefits dates back to 1983. President Reagan signed that change with support from both parties, making up to half of benefits taxable for seniors with higher earnings. Then in 1993, Congress and President Clinton pushed the ceiling higher. Under current rules, as much as 85 percent of benefits can count toward taxable income for upper-income retirees.
None of that changed with this bill.
The thresholds determining who pays what have remained frozen since the Clinton era. Single filers earning under $25,000 and couples under $32,000 owe nothing on their benefits. Those in the middle tier face taxes on up to half. And couples bringing in more than $44,000 can see 85 percent of their Social Security added to their taxable total.
Because these cutoffs have never adjusted for inflation, more retirees get pulled into taxable categories every single year. The OBBBA leaves this problem completely unaddressed.
Looking at the Administration’s Own Math
Treasury Department calculations highlighted by the White House reveal how limited the benefit truly is. Picture a single retiree receiving $40,000 annually from Social Security alongside another $40,000 from retirement accounts like an IRA or 401(k). Current law would put their 2026 tax bill at $7,190. Under the new legislation, the amount drops to $5,685, a reduction of roughly $1,500. The senior deduction accounts for approximately $900 of those savings.
Helpful? Sure. But this person still owes thousands in federal taxes. Their Social Security benefits remain part of the calculation. The deduction simply chips away at overall liability without treating retirement benefits any differently than other income sources.
Temporary Relief with Built-In Limits
Unlike corporate tax provisions and cuts benefiting wealthy taxpayers, which received permanent status in the bill, the senior deduction disappears after 2028. It was written with an expiration date from the start.
Income limits further narrow who benefits. Single filers with earnings above $75,000 and married couples exceeding $150,000 see the deduction phase-out entirely. Ironically, these higher-earning retirees facing the steepest Social Security taxation are exactly the ones shut out from this supposed fix.
Conclusion and Why This Framing Succeeds
Announcing a supplemental deduction for older taxpayers generates little excitement. Declaring that Social Security taxation has ended makes waves. Political strategists understand that most people absorb information through headlines rather than legislative analysis. Few voters examine IRS guidance or compare statutory language.
The outcome is clever stagecraft masquerading as meaningful reform. Benefits remain taxable under the same formulas established decades ago. Inflation continues to drag more retirees across taxation thresholds, and this temporary, income-restricted deduction is merely wrapped in revolutionary packaging.
What Seniors Actually Got in the Latest Tax Bill
January 1, 2026 · Blog, Financial Planning, Uncategorized
⏱ 4 min read
Campaign messaging would have you believe retirees just scored a major victory. The talking point is everywhere: Social Security benefits are now tax-free. But anyone who reads the One Big Beautiful Bill Act will discover something different. The legislation contains nothing that removes Social Security from federal taxation. Zero provisions. The tax structure that has applied to benefits for over four decades remains fully intact.
So, what did pass? A new deduction aimed at older Americans. And through some rhetorical gymnastics, that deduction is being sold as something it fundamentally is not.
A Deduction Is Not an Exemption
The OBBBA creates an additional deduction exclusively for seniors. Single filers get $6,000 while married couples receive $12,000. This stacks on top of what they already claim through the standard deduction, lowering their overall taxable income.
For retirees whose financial situation falls in a particular range, this extra write-off might be enough to cancel out whatever portion of their Social Security would normally face taxation. But here’s the catch: the deduction applies to all income equally. It doesn’t single out retirement benefits for protection. If your earnings came entirely from investments or a workplace pension, the math would work identically.
Decades of Unchanged Rules
Federal taxation of Social Security benefits dates back to 1983. President Reagan signed that change with support from both parties, making up to half of benefits taxable for seniors with higher earnings. Then in 1993, Congress and President Clinton pushed the ceiling higher. Under current rules, as much as 85 percent of benefits can count toward taxable income for upper-income retirees.
None of that changed with this bill.
The thresholds determining who pays what have remained frozen since the Clinton era. Single filers earning under $25,000 and couples under $32,000 owe nothing on their benefits. Those in the middle tier face taxes on up to half. And couples bringing in more than $44,000 can see 85 percent of their Social Security added to their taxable total.
Because these cutoffs have never adjusted for inflation, more retirees get pulled into taxable categories every single year. The OBBBA leaves this problem completely unaddressed.
Looking at the Administration’s Own Math
Treasury Department calculations highlighted by the White House reveal how limited the benefit truly is. Picture a single retiree receiving $40,000 annually from Social Security alongside another $40,000 from retirement accounts like an IRA or 401(k). Current law would put their 2026 tax bill at $7,190. Under the new legislation, the amount drops to $5,685, a reduction of roughly $1,500. The senior deduction accounts for approximately $900 of those savings.
Helpful? Sure. But this person still owes thousands in federal taxes. Their Social Security benefits remain part of the calculation. The deduction simply chips away at overall liability without treating retirement benefits any differently than other income sources.
Temporary Relief with Built-In Limits
Unlike corporate tax provisions and cuts benefiting wealthy taxpayers, which received permanent status in the bill, the senior deduction disappears after 2028. It was written with an expiration date from the start.
Income limits further narrow who benefits. Single filers with earnings above $75,000 and married couples exceeding $150,000 see the deduction phase-out entirely. Ironically, these higher-earning retirees facing the steepest Social Security taxation are exactly the ones shut out from this supposed fix.
Conclusion and Why This Framing Succeeds
Announcing a supplemental deduction for older taxpayers generates little excitement. Declaring that Social Security taxation has ended makes waves. Political strategists understand that most people absorb information through headlines rather than legislative analysis. Few voters examine IRS guidance or compare statutory language.
The outcome is clever stagecraft masquerading as meaningful reform. Benefits remain taxable under the same formulas established decades ago. Inflation continues to drag more retirees across taxation thresholds, and this temporary, income-restricted deduction is merely wrapped in revolutionary packaging.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
When it comes it understanding a net charge-off (NCO), it’s the difference between any recovery of delinquent debt and gross charge-offs a business sees in a defined accounting time frame. NCOs are debts a company projects with a low likelihood of being collected. It can happen when a customer stops paying outstanding invoices or sees a decline in their credit rating.
The first step considers it as a gross charge-off; if any amount is recovered, it’s subtracted to arrive at net charge-offs. If businesses can recover a percentage of what’s been charged off, the recovered monies can be net against the gross charge-offs to realize net charge-offs. A business’ loan loss provision is lowered by the net charge-off amount at the end of the accounting time frame and then refilled for the next accounting time frame based on new estimates for loan losses. This is part of a business’ provision for credit losses (PCL) that projects a certain percentage of accounts unable to be collected.
Accounting in Detail
The following formula calculates net charge-offs (NCO). This assumes a gross charge-off booking of 6 percent of all outstanding loans, with 1 percent ultimately being recovered during a particular accounting time frame.
Net Charge-Offs = Gross Charge-Offs – Amount of Recovered Debt
= 6 percent – 1 percent = 5 percent
Once the figure is calculated, the 1 percent collected adjusts the loan loss provision in the accounting statements.
Banks’ business models and financials demonstrate their ability to pay their depositors competitive interest rates while also being able to make loans. Since banks earn profits via net interest margin, earning a spread between what banks pay depositors on interest rates and what borrowers are charged on loans, the spread is integral to measuring profitability. To generate the total value of a bank’s balance sheet, it’s imperative for banks to estimate and project their charge-offs as accurately as possible.
Financial institutions determine credit loss provisions by analyzing their balance sheets and the level of risk represented by outstanding loans. They look at the ratio of loan losses to overall losses, which is their net charge-off rate. The net charge-off rate is used to evaluate a loan’s book quality against other banks.
How Different Risks Impact Net Charge-Off Levels
Banks that have different loan mixes will see different risk and reward payoffs. If one bank offers primarily secured loans, while it may have lower net interest margins, it will also have lower charge-offs because the collateral backing them is less risky overall. This is compared to other lenders that have a higher level of unsecured loans, such as credit cards and commercial loans. This scenario, in the case of riskier loans, may result in higher net interest margins, but also greater potential for higher losses.
Journal Entry Examples
The following journal entries illustrate how to account for bad debts. Using the direct write-off method, when debt collection efforts have been exhausted, bad debts are recorded as follows:
Expenses for bad debt: Debit $750
Accounts Receivable: Credit $750
If, however, the business recovers anything from the customer’s outstanding invoices, the following journal entries would be added if $200 were received:
Cash: Debit $200
Accounts Receivable: Credit $200
Conclusion
While this is primarily for early-stage companies with a low percentage of credit sales, it illustrates how businesses can update their books when projecting their numbers to account for net charge-offs.
Accounting for Net Charge Offs
January 1, 2026 · Accounting News, Blog, Uncategorized
⏱ 3 min read
When it comes it understanding a net charge-off (NCO), it’s the difference between any recovery of delinquent debt and gross charge-offs a business sees in a defined accounting time frame. NCOs are debts a company projects with a low likelihood of being collected. It can happen when a customer stops paying outstanding invoices or sees a decline in their credit rating.
The first step considers it as a gross charge-off; if any amount is recovered, it’s subtracted to arrive at net charge-offs. If businesses can recover a percentage of what’s been charged off, the recovered monies can be net against the gross charge-offs to realize net charge-offs. A business’ loan loss provision is lowered by the net charge-off amount at the end of the accounting time frame and then refilled for the next accounting time frame based on new estimates for loan losses. This is part of a business’ provision for credit losses (PCL) that projects a certain percentage of accounts unable to be collected.
Accounting in Detail
The following formula calculates net charge-offs (NCO). This assumes a gross charge-off booking of 6 percent of all outstanding loans, with 1 percent ultimately being recovered during a particular accounting time frame.
Net Charge-Offs = Gross Charge-Offs – Amount of Recovered Debt
= 6 percent – 1 percent = 5 percent
Once the figure is calculated, the 1 percent collected adjusts the loan loss provision in the accounting statements.
Banks’ business models and financials demonstrate their ability to pay their depositors competitive interest rates while also being able to make loans. Since banks earn profits via net interest margin, earning a spread between what banks pay depositors on interest rates and what borrowers are charged on loans, the spread is integral to measuring profitability. To generate the total value of a bank’s balance sheet, it’s imperative for banks to estimate and project their charge-offs as accurately as possible.
Financial institutions determine credit loss provisions by analyzing their balance sheets and the level of risk represented by outstanding loans. They look at the ratio of loan losses to overall losses, which is their net charge-off rate. The net charge-off rate is used to evaluate a loan’s book quality against other banks.
How Different Risks Impact Net Charge-Off Levels
Banks that have different loan mixes will see different risk and reward payoffs. If one bank offers primarily secured loans, while it may have lower net interest margins, it will also have lower charge-offs because the collateral backing them is less risky overall. This is compared to other lenders that have a higher level of unsecured loans, such as credit cards and commercial loans. This scenario, in the case of riskier loans, may result in higher net interest margins, but also greater potential for higher losses.
Journal Entry Examples
The following journal entries illustrate how to account for bad debts. Using the direct write-off method, when debt collection efforts have been exhausted, bad debts are recorded as follows:
Expenses for bad debt: Debit $750
Accounts Receivable: Credit $750
If, however, the business recovers anything from the customer’s outstanding invoices, the following journal entries would be added if $200 were received:
Cash: Debit $200
Accounts Receivable: Credit $200
Conclusion
While this is primarily for early-stage companies with a low percentage of credit sales, it illustrates how businesses can update their books when projecting their numbers to account for net charge-offs.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
If you’re tired of the 9-to-5 grind, then passive income could be for you. While not a get-rich-quick scheme, it’s a way to build systems that contribute to financial stability and extra money. It can even support long-term goals like early retirement. Here’s a high-level look at what it is and how it works.
Types of Passive Income Sources
Investment Income This includes individual stocks or mutual funds, interest payments from corporate bonds, or capital gains from selling securities at a profit. While they all involve risk, these types of investments can compound and grow over time.
Rental Income Depending on where your property is, this could be a cash cow. The money you earn can cover the mortgage, taxes, maintenance, and other miscellaneous expenses. The best part? You could earn a sweet sum of money.
REITs and Crowdfunded Real Estate REITs (real estate investment trusts) and crowdfunded real estate platforms allow you to invest in properties without having to buy them yourself. You earn net rental income in the form of dividends without the headache of managing the property. Not bad, right?
Business Income You earn this money by not actually participating in the operations. For example, you might invest in a restaurant. Others run the daily business while you receive a percentage of the profits. Sweet.
Intellectual Property Royalties Pen a book. Write a song. Create an online course. You’ll reap the rewards long after the work is completed.
High-Yield Savings Accounts Yes, this might yield small returns, but it’s a great way to put your money to work.
What are the benefits? There are many.
Wealth Building When you reinvest your dividends, save and invest your rental profits and royalties, you’ll steadily create a nest egg that will compound and grow, grow, grow.
Financial Freedom While this type of capital building takes time, it can supplement, if not replace, your day job.
Time Flexibility You don’t have to work on this revenue stream every day, which is the beauty of it. It clears up time for you to live your life.
Diversification When you have more than one income source, it can act as somewhat of a safety net, should your main way of earning a living dry up.
Risks and Taxes
While passive income can and does build wealth, it’s not without risks. Markets may fluctuate. Property values might decrease. Companies that are part of third-party crowdfunding could shut down. You’ll also have to pay taxes, as you must report your earnings. Selling stocks or properties can trigger capital gains.
Passive income has pros and cons. Only you can decide how risk-averse or tolerant you are. If this type of investing is for you, the sooner you start, the sooner you’ll create financial security – and freedom.
Sources
https://www.crediful.com/what-is-passive-income/
Passive Income 101
January 1, 2026 · Blog, Tip of the Month, Uncategorized
⏱ 3 min read
If you’re tired of the 9-to-5 grind, then passive income could be for you. While not a get-rich-quick scheme, it’s a way to build systems that contribute to financial stability and extra money. It can even support long-term goals like early retirement. Here’s a high-level look at what it is and how it works.
Types of Passive Income Sources
Investment Income This includes individual stocks or mutual funds, interest payments from corporate bonds, or capital gains from selling securities at a profit. While they all involve risk, these types of investments can compound and grow over time.
Rental Income Depending on where your property is, this could be a cash cow. The money you earn can cover the mortgage, taxes, maintenance, and other miscellaneous expenses. The best part? You could earn a sweet sum of money.
REITs and Crowdfunded Real Estate REITs (real estate investment trusts) and crowdfunded real estate platforms allow you to invest in properties without having to buy them yourself. You earn net rental income in the form of dividends without the headache of managing the property. Not bad, right?
Business Income You earn this money by not actually participating in the operations. For example, you might invest in a restaurant. Others run the daily business while you receive a percentage of the profits. Sweet.
Intellectual Property Royalties Pen a book. Write a song. Create an online course. You’ll reap the rewards long after the work is completed.
High-Yield Savings Accounts Yes, this might yield small returns, but it’s a great way to put your money to work.
What are the benefits? There are many.
Wealth Building When you reinvest your dividends, save and invest your rental profits and royalties, you’ll steadily create a nest egg that will compound and grow, grow, grow.
Financial Freedom While this type of capital building takes time, it can supplement, if not replace, your day job.
Time Flexibility You don’t have to work on this revenue stream every day, which is the beauty of it. It clears up time for you to live your life.
Diversification When you have more than one income source, it can act as somewhat of a safety net, should your main way of earning a living dry up.
Risks and Taxes
While passive income can and does build wealth, it’s not without risks. Markets may fluctuate. Property values might decrease. Companies that are part of third-party crowdfunding could shut down. You’ll also have to pay taxes, as you must report your earnings. Selling stocks or properties can trigger capital gains.
Passive income has pros and cons. Only you can decide how risk-averse or tolerant you are. If this type of investing is for you, the sooner you start, the sooner you’ll create financial security – and freedom.
Sources
https://www.crediful.com/what-is-passive-income/
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
An activity cost driver is anything that causes a company’s variable costs to either reduce or grow. Since measuring an activity cost driver is a way to streamline the administration of managing production costs, it’s an integral part of activity-based costing.
Examples of activity-cost drivers are warehouse expenses, modifying engineering designs, and retooling, setup, and maintenance costs for machining needs. This can include higher warehouse expenses due to increased rents or leases, which add to the final amount of the product or service’s sales price. Machining costs include initial setups for initial production and ongoing maintenance costs for continued runs. If production needs to be re-engineered to different production parameters, those professional revision costs need to be added to the ultimate product or service cost calculations.
These cost drivers are used as a starting point to project the business’ operational and profitability goals through the use of activity-based costing (ABC), a type of managerial accounting.
ABC accounting is a way to determine the expenses of each output by looking at the inputs used during the company’s operations, be it power for the machinery, Information Technology (IT) needs, or labor.
It’s important to know that one variable expense can impact multiple single activity cost drivers. For example, wage costs and machining expenses can be identified as activity cost drivers in connection with production. The first step is looking at how ABC accounting can determine indirect costs.
Activity-Based Costing Illustration
A business wants to look at how its production space and its lease or real estate and property tax costs are attributable to individual widgets or services, based on the percentage dedicated to the respective product or service. If it’s not allocated properly, determining sales prices and profitability can be negatively impacted.
If a company has two product lines with the same retail prices and production quotas, with direct costs of $700 and $250, it’s important to see how the production area for each product impacts the company’s overall operations. If the first item uses 40 percent of the production area and the second item uses 60 percent of the production area, and the rent is $1,500, the rent needs to be factored in. The first item would see an additional cost of $600 plus the original $700, or a total of $1,300. The second item’s cost would be $900 for the rent and $250 for the item, or a total of $1,150. While the initial direct cost for the first item seems higher than the second item, when factoring in all costs, this time it’s still true – but that’s not always the case.
Once this has been established, and then a company receives a new order, the following illustrates how measuring an activity cost driver, such as performing maintenance on machines after a production run, will cost the company to have it ready for their next order. If it costs a company $200 for machine maintenance and it produces 1,000 widgets, a $0.20/widget cost would be factored into margins and retail pricing.
While this provides an overview of how activity cost drivers work, it is part of a comprehensive approach to how businesses measure their margins and ultimately profitability.
Defining An Activity Cost Driver
January 1, 2026 · Blog, General Business News, Uncategorized
⏱ 3 min read
An activity cost driver is anything that causes a company’s variable costs to either reduce or grow. Since measuring an activity cost driver is a way to streamline the administration of managing production costs, it’s an integral part of activity-based costing.
Examples of activity-cost drivers are warehouse expenses, modifying engineering designs, and retooling, setup, and maintenance costs for machining needs. This can include higher warehouse expenses due to increased rents or leases, which add to the final amount of the product or service’s sales price. Machining costs include initial setups for initial production and ongoing maintenance costs for continued runs. If production needs to be re-engineered to different production parameters, those professional revision costs need to be added to the ultimate product or service cost calculations.
These cost drivers are used as a starting point to project the business’ operational and profitability goals through the use of activity-based costing (ABC), a type of managerial accounting.
ABC accounting is a way to determine the expenses of each output by looking at the inputs used during the company’s operations, be it power for the machinery, Information Technology (IT) needs, or labor.
It’s important to know that one variable expense can impact multiple single activity cost drivers. For example, wage costs and machining expenses can be identified as activity cost drivers in connection with production. The first step is looking at how ABC accounting can determine indirect costs.
Activity-Based Costing Illustration
A business wants to look at how its production space and its lease or real estate and property tax costs are attributable to individual widgets or services, based on the percentage dedicated to the respective product or service. If it’s not allocated properly, determining sales prices and profitability can be negatively impacted.
If a company has two product lines with the same retail prices and production quotas, with direct costs of $700 and $250, it’s important to see how the production area for each product impacts the company’s overall operations. If the first item uses 40 percent of the production area and the second item uses 60 percent of the production area, and the rent is $1,500, the rent needs to be factored in. The first item would see an additional cost of $600 plus the original $700, or a total of $1,300. The second item’s cost would be $900 for the rent and $250 for the item, or a total of $1,150. While the initial direct cost for the first item seems higher than the second item, when factoring in all costs, this time it’s still true – but that’s not always the case.
Once this has been established, and then a company receives a new order, the following illustrates how measuring an activity cost driver, such as performing maintenance on machines after a production run, will cost the company to have it ready for their next order. If it costs a company $200 for machine maintenance and it produces 1,000 widgets, a $0.20/widget cost would be factored into margins and retail pricing.
While this provides an overview of how activity cost drivers work, it is part of a comprehensive approach to how businesses measure their margins and ultimately profitability.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
Commerce, Justice, Science; Energy and Water Development; and Interior and Environment Appropriations Act, 2026 (HR 6938) – This Act is one of the remaining budget bills to fund the government through Sept. 30, 2026. It includes funding for several agencies, including the Department of Commerce, the Department of Justice, the U.S. Army Corps of Engineers, the Department of Energy, and the Environmental Protection Agency. The bill was introduced by Rep. Tom Cole (R-OK) on Jan. 6. It passed in the House on Jan. 8, the Senate on Jan. 15, and was signed into law on Jan. 23.
Campaign messaging would have you believe retirees just scored a major victory. The talking point is everywhere: Social Security benefits are now tax-free. But anyone who reads the One Big Beautiful Bill Act will discover something different. The legislation contains nothing that removes Social Security from federal taxation. Zero provisions. The tax structure that has applied to benefits for over four decades remains fully intact.
When it comes it understanding a net charge-off (NCO), it’s the difference between any recovery of delinquent debt and gross charge-offs a business sees in a defined accounting time frame. NCOs are debts a company projects with a low likelihood of being collected. It can happen when a customer stops paying outstanding invoices or sees a decline in their credit rating. 
If you’re tired of the 9-to-5 grind, then passive income could be for you. While not a get-rich-quick scheme, it’s a way to build systems that contribute to financial stability and extra money. It can even support long-term goals like early retirement. Here’s a high-level look at what it is and how it works.
An activity cost driver is anything that causes a company’s variable costs to either reduce or grow. Since measuring an activity cost driver is a way to streamline the administration of managing production costs, it’s an integral part of activity-based costing.