Tag Archives: Featured

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Basics of Inventory Valuation

For merchandisers, manufacturers and wholesalers, inventory is often times the largest asset item represented on the balance sheet as a current asset. It is considered one of the more liquid assets because the basic assumption is that inventory owned by a company will be sold in the near future and converted to cash (the most liquid of any asset type). Inventory includes items that are ready for sale (finished goods), items in the process of being produced (work in progress) and raw materials that will be used to produce the final goods.

Relationship Between Financial Statements

Relationship Between Financial Statements

Understanding the relationship between financial statements enable you to manage business operations better. The end products of an accounting information system are the four basic financial statements that can be produced. They are :

(1) The Income Statement (2) Statement of Owner’s (Shareholder’s) Equity (3) The Balance Sheet (4) The Statement of Cash Flows

While each statement tells its own story, all four of them are connected to each other directly or indirectly. Understanding the relationship between financial statements will allow you to validate the integrity of the information provided as well as allowing you to build a better foundation for more complicated financial analysis.

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Cost Volume Profit – Breakeven Analysis

Cost-Volume-Profit analysis is used in the planning process by looking at the effects caused by varying levels of units sold, unit pricing, fixed costs and variable costs on bottom line profit. The primary objective from a managerial perspective is to maximize contribution margin (revenue less variable costs) and minimize fixed costs. In the process of planning, key stakeholders within an organization are likely to ask some very important questions such as “What’s the effect on profit if units sold decreased 3%?” “How much of an impact will a 10% price hike have on profit?” or “what’s the impact to the bottom line if variable cost per unit increased 8%?”

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How To Calculate Depreciation

Looking for a step by step tutorial on how to calculate depreciation? You’ve come to the right place! In this tutorial, we will explore how to calculate depreciation using [1] the straight line method, [2] double declining balance method, [3] units of production method and finally [4] sum of the years digits method. Not only that, you will also see how accounting journal entries correspond to each method also.

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The Accounting Equation

Under U.S. GAAP (generally accepted accounting principles) financial accounting revolves more or less around one very important but simple equation. And that is: