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A ccruals Accruals are earned revenues and incurred expenses that have an overall impact on an income statement. They also affect the balance sheet, which represents liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liabilities and future interest expenses. The use of accrual accounts has greatly increased the amount of information on accounting statements. Before the use of accruals, accountants only recorded cash transactions on these statements. But cash transactions don't give information about other important business activities, such as revenue based on credit and future liabilities. By recording accruals, a company can measure what it owes in the short-term and also what cash revenue it expects to receive. It also allows a company to show assets that do not have a cash value, such as goodwill . Using the accrual method , an accountant...

Definition and Explanation of Double Entry System: Every business transaction causes at least two changes in the financial position of a business concern at the same time - hence, both the changes must be recorded in the books of accounts. This concept is explained on Analysis of Business Transaction page. Otherwise, the books of accounts will remain incomplete and the result ascertained therefore will be inaccurate. For example, we buy machinery for $100,000. Obviously, it is a business transaction. It has brought two changes - machinery increases by $100,000 and cash decreases by an equal amount. While recording this transaction in the books of accounts, both the changes must be recorded. In accounting language these two changes are termed as "a debit change" and "a credit change" The detail about these terms is given under the topic account. Thus we see that for every transaction there will be two entries - one debit entry and another credit entry. For each de...

LIFO versus FIFO LIFO method The last in first out (LIFO) method first matches against revenue the cost of the last goods purchased. It a periodic inventory system is used, then it would be assumed that the cost of the total quantity sold or issued during the month have come from the most recent purchases. The ending inventory would be priced by using the total units as a basis of computation and disregarding the exact dates involved. Example: Assume that a company had the following transactions in the first month of operations. Date Purchases Sold or Issued Balance March 2 2,000 @ $4.00 2,000 units March 15 6,000 @ $4.40 8,000 units March 19 4,000 units 4,000 units March 30 2,000 @ $4.75 6,000 units Periodic Inventory System: Assume that the cost of the 4,000 units withdrawn on absorbed the 2,000 units purchased on March 30 and 2,000 units of the 6,000 units purchased on March 15. The inventory and related cost of goods sold would then be computed as shown be...

BLUE-CHIP STOCKS. 1.Blue-chip stock stability and benefits. The term “Blue-chip” is originated from the game of poker, which holds the highest value in this game. Therefore, “Blue-chip Stocks” are stocks of well-known and well-established organizations and numerous of advantages of this kind of stocks are observed in global stock market. Most of the investors know that “Blue-chip Stocks” have stable earnings and during economic downturn, they can choose these “safe-havens” because of their secure nature. Blue-chip companies offer security during the period of slowed growth due to their intelligent management teams and ability to generate stable profits. If investors face with “bear market”, there is no need for any concern about their investments in blue-chips, generally, they recover. 2.World-wide examples of this kind of organizations for 2019. In this section well-known examples of this kind of organizations will be listed: J ohnson & Johnson (ticker: ...

CASH FLOW Think of cash as the lifeblood of every business. Without cash flow, no business can function and without an accurate picture of cash flow, no investor can have a complete picture of a company. Cash Flow From Operations A company's statement of cash flows reflects how readily the business can pay its bills, and it provides important information about a company's sources and uses of cash. But measuring cash flow solely from a balance sheet or an income statement is difficult and potentially misleading. That's because not all revenue is received when a company earns it, and not all expenses are paid when incurred. The difference between an income statement and a statement of cash flows is roughly analogous to the difference between a credit card statement and a checkbook ledger. A credit card statement includes charges that haven't been paid off yet, while an updated checkbook ledger indicates where cash has been spent and whether there's enough ...

INCOME STATEMENT An income statement is one of the three important financial statements  used for reporting a company's financial performance  over a specific accounting period, with the other two key statements being the balance sheet  and the statement of cash flows . Also known as the profit and loss statement  or the statement of revenue and expense, the income statement primarily focuses on company’s revenues and expenses during a particular period . The income statement focuses on the four key items - revenue, expenses, gains, and loses.   It does not cover receipts  (money received by the business) or the cash payments/disbursements (money paid by the business). It starts with the details of sales, and then works down to compute the net income   and eventually the earnings per share . Essentially, it gives an account of how the net revenue realized by the company gets transformed into net earnings     ...