For companies in the manufacturing or retail industry, inventory is the primary tool to generate revenues. These companies acquire or create goods they can sell further for a profit. Usually, the process begins with obtaining the required goods that the company can put for sale. Sometimes, it may also involve …

Debt instruments may come with a fixed or variable interest rate. With the former, the lender charges a fixed interest rate on the loaned amount. However, variable interest instruments may involve complex calculations. With these instruments, the lender adds a margin to a benchmark interest rate or index to calculate …

Gross profit or GP is a simple yet important concept that is integral to understanding a company’s financial health. It measures the total revenue generated by a company minus the cost of goods sold, providing insight into how much money was made after expenses have been paid. Gross Profit (GP) …

An interest rate cap is a derivative instrument that involves an agreement between two parties. In this agreement, one party assumes the responsibility to pay the other if the interest rate on a variable loan exceeds an agreed limit. The initial contract between both parties sets the timeframe, interest rate …

Investors invest in a company or business to receive returns in exchange. For companies, these returns come from dividends paid to shareholders. However, other business entities may not use these. For example, sole proprietorships, partnerships, etc., do not pay dividends. Instead, they allow owners to withdraw their profits through a …

Companies may encounter bad debts as a part of their credit policy toward customers. These bad debts result in an expense that can lead to losses. Over the years, companies accumulate experience that helps them forecast future balances that may go bad. Companies can also create an allowance for bad …

Companies use fixed assets to operate and generate revenues. Usually, these assets have a limited life beyond which companies don’t consider them useful. At this point, companies may either write it off or sell it for its scrap value. In some cases, companies may also be required to restore an …

Cost allocation requires companies to identify, accumulate and allocate costs to various cost objects. This process is crucial to assigning costs to departments, projects, segments, and other units within a company. Usually, the first step in this process is identifying cost objects to which companies can allocate costs. Therefore, it …

A bond is a debt instrument that allows the issuer to obtain debt from third parties. Usually, companies and government bodies issue these instruments. When a buyer acquires a bond, they pay its market value to the issuer. After that, the buyer holds the bond for a period during which …

Gross income is an important aspect when it comes to finances and taxes. It’s the amount that an individual earns in a year from all sources before any taxes or deductions are taken out. This includes income from wages, salaries, tips, interest, and other forms of income. Gross income is …