What is a Bond? Why are they issued?
A bond is a financial instrument representing a loan by an investor to a borrower. The borrower may be a corporation, government, or any other entity. When you purchase a bond, you are lending money to the issuer, and he/she undertakes to repay you the amount of principal (the initial amount of the loan) on […]
What are Flexible Budget and Flexible Budget Variance?
A budget is a future-oriented strategy. Therefore, budgets are planning tools, and they are often produced prior to the beginning of the budgeted period. However, comparing the budget to the actual results offers useful performance information. Budgets are, therefore, both planning and performance evaluation instruments. Typically, the single most significant budget input is a measure […]
What are the Fixed Costs in Management Accounting?
Fixed costs are expenses that remain constant or unchanged regardless of changes in the level of production or sales within a relevant range. They are often time-related, meaning they are incurred over a specific period, such as a month or a year. The cost of rent and leasing space, wages, energy bills, insurance premiums, and […]
What is the Profitability Index?
The Profitability Index is simply the profitability of an investment expressed as a percentage of the total return of the investment. The profitability index assists in assessing investments and determining the optimal investment to make. PI larger than one shows that the present value of future cash flows from the investment exceeds the initial investment, […]
What are Contingent Assets and Contingent Liabilities?
Contingent Assets Contingent assets are those in which the likelihood of economic profit depends completely on future occurrences that cannot be controlled by the company. These assets are not included in the balance sheet due to the unpredictability of future events. However, they are presented in the financial statement notes of the company. Typically, these […]
What is the Current Ratio and Current Ratio Formula?
What is the Current Ratio? The current ratio is a measure of the short-term financial liquidity of a business. It is the ratio of current assets to current liabilities. It is necessary to understand current assets and current liabilities’ meanings to find out the current ratio of a business entity. Current Assets Current assets are […]
What are Debentures and Why Are They Issued?
Debentures are a type of corporate bond that is created by companies. The money borrowed to create debentures is called the face value. In exchange for the money, the company agrees to pay interest on debentures over a fixed period of time. Once the debenture matures, the company has to pay back the face value […]
What is Change in the Profit Sharing Ratio in Partnership Accounts?
A change in the profit-sharing ratio in partnership accounts refers to the alteration in the distribution of profits among the partners. This can occur for several reasons, such as: Any change in the profit-sharing ratio must be agreed upon by all of the partners and documented in a written agreement. Here is an example of […]
Straight Line Method of Depreciation – Benefits and Limitations
Under Straight Line Depreciation, a fixed proportion of the original cost of the asset (less residual value) is written off each year so that the asset account may be reduced to its residual value at the end of its estimated economic life. This method is often used for assets such as machinery and equipment, buildings, […]
Differences Between Accounting Concepts and Conventions
Although to a layman, both accounting concepts and accounting conventions may sound similar, there are some fundamental differences between them. There are a few different schools of thought when it comes to keeping track of your finances. Some people prefer to follow accounting concepts, while others prefer conventions. What’s the difference between the two? Basically, […]