Inventory reserve is contra account in the business’s balance sheet, and it’s recorded in line with the prudence concept of accounting. Let’s understand the concept in detail. Ideally, the closing balance of the inventory should be equal to sales minus purchases. However, that’s not the case with most businesses around the globe. So, there is […]

An insurance policy is purchased to cover the risk on the assets and operations of the business. In case of a loss, an insurance claim is filed. In other words, insurance claims are received when a policyholder faces an unfortunate circumstance and requests the insurance company to compensate for his loss provided that the loss

Repair and maintenance expense is incurred to keep business assets operational, it’s a routine expenditure, and this amount is expected to be significant for the companies with intensive machinery and equipment. On the other hand, repair and maintenance are limited for the companies operating in the trading and service sectors. This expense must not be

Companies are complex structures that represent a separate legal entity. Primarily, they issue shares that allow shareholders to become part-owners. Being a separate legal entity, companies have all the rights that other legal entities have. Therefore, companies can also buy shares from other companies as a part of their investment policies. The accounting for investments

In most jurisdictions, transacting in cash may be acceptable. While paying and receiving cash is the primary source of compensation for most transactions, some may prefer other options. The most prominent of these are bank accounts and transfers. For most individuals and companies, banks have taken over cash transactions. Some jurisdictions even require entities to

Meaning of Nominal Cost of Capital The nominal Cost of Capital is inclusive of Inflation. It means the Nominal cost of capital calculation is without adjustment of general Inflation. In comparison to the real cost of capital, it comes after the adjustment of general inflation. The cost of Capital is important for reviewing the organization’s

Meaning of Gross and Net Gross means the total of something while net means part of any whole item after certain deductions. Gross represents whole structure while net reflects balancing figure. For example, a company had revenue of $100 million while the expenses are $70 million so in that case, $100 million is known as

Meaning of controllable profits For managerial evaluation, there are different responsibility centers inside any organization. These include revenue center, profit center, cost center, and investment center. Controllable profits are a concept wherein the performance of divisional managers is evaluated based upon the responsibility center in which they have been assigned. Controllable profits mean revenue minus

Meaning It means inflating the amount in a budget so that any unexpected cost of the project can be recovered in the future while executing the projects. It is a method of artificially increasing the amount in expected project cost. It’s a deliberate process where the actual forecast by the budget preparer differs from the