Doubtful debt It is an estimate of how many debtors will not be able to pay in the future. The “Matching concept” requires that revenue be matched against related expenses for a specific accounting period. If there is a doubt about the recoverability of debt, it should logically become an expense. Then it should be … Read more
The accounting rate of return (ARR) of an investment project is the profit (usually before interest and tax) expressed as a percentage of the capital invested. It is similar to return on capital employed (ROCE), except that whereas Return on Capital Employed is a measure of financial return for a company or business as a … Read more
The internal rate of return method (IRR method) is another method of investment evaluation with discounted cash flow. It is an alternate method to net present value but is closely related to it2. The internal rate of return of a project is the discounted rate of return on the investment. A company might establish the … Read more
A business is generally split up into several departments when it sells different types of goods or carries on several activities under the same roof. Such departments are found in businesses of all sizes (particularly in urban areas). A department is generally a physical part of the rest of the business. It should not be … Read more
To reconcile the sum recorded in its accounting records with the balance in its bank account, a corporation creates a bank reconciliation statement. The statement describes the reasons for any differences between the two. A bank reconciliation statement is an important internal tool that has an effect on tax and financial reporting and can be … Read more
When at least two persons jointly own a business, that business is said to be in a partnership. The maximum number of partners is typically 20, however, there are occasional exceptions, such as accountants and lawyers. A business that is co-owned by two or more people is referred to as a partnership. The co-owners of … Read more
A main feature of a limited company is that it has a legal identity that is separate from that of its owners. The liability of all business owners is limited. They cannot be compelled to use personal funds to settle commercial debts in the case of a company collapse. They simply suffer a loss equal … Read more
A sole proprietorship is a business that can be controlled and owned by an individual. Starting up as a sole proprietor requires no legal processes. Any profit made after-tax belongs to the owner. The owner has all authority and decision-making freedom. One of the key advantages of operating a firm as a sole proprietor is … Read more
The Chart of Account is a list of accounts created by a business to be used to organize its financial transactions into identified categories of assets, liabilities, income, and expenses. Unique coding and arrangement The Chart of AccountEach general ledger account is identified by a unique code and heading. This allows a business to generate … Read more
An ordinary annuity is a series of equal payments paid over a predetermined amount of time at the end of each period. In reality, payments under an ordinary annuity are often made monthly, quarterly, semi-annually, or yearly, however, they might be made as frequently as once per week. Despite being connected, these two schedules of … Read more