Meaning, Benefits and Drawbacks of ABC Analysis
ABC analysis is a widely used inventory management technique that categorizes inventory into three groups: A, B, and C, based on relative importance. This method helps businesses prioritize their inventory based on its importance and significance, leading to several benefits. Also referred to as “Selective Inventory Control.” Strategies based on an ABC analysis: The ABC […]
What is an Income Statement? Components and Elements
An income statement is a financial statement that shows a company’s revenues and expenses for a specific period of time. The Income Statement analyses the success of a company’s activities; it provides investors and creditors with the information they need to determine a business’s profitability and creditworthiness. When total sales surpass total expenses, a business […]
What is the Statement of Retained Earnings?
Statement of Retained Earnings The Statement of Retained Earnings reconciles the Retained Earnings account from the beginning to the finish of the fiscal year. Retained earnings represent the amount of profit a business reinvests in itself (i.e., the profit that is not used to pay back debt or distributed to shareholders as a dividend). It […]
Some Basic Accounting Questions You Should Be Aware of
General Accounting Concepts If you are an accounting student, these questions must be helpful in ensuring that you know basic accounting concepts. 1. In business terminology, what does the term assets mean? Assets are resources. They are things that a business can put to good use. Cash, commodities, and even entire buildings are some examples. […]
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 […]