Each financial statement focuses on specific financial information. Often, stakeholders prioritize profitability when analyzing a company’s performance. The primary source of information related to that comes from the income statement. What is the Income Statement? The income statement, or the profit and loss statement (P&L), is a fundamental financial document …

Landlords often demand tenants pay them rent in advance. For the tenant, it is a prepayment or asset. However, the landlord must recognize it as unearned rent. Before understanding the accounting treatment, it is crucial to know what unearned rent is. What is Unearned Rent? Unearned rent, or deferred rent …

Companies follow a strategy that ensures profitability and future growth. As a part of this strategy, they decide how to run their operations. Usually, it also entails assessing the assets required to run those operations. If needed, companies can go through capital addition to support activities. What is Capital Addition? …

Understanding the world of taxes can often seem like a daunting task. The term “Value Added Tax” or VAT may have been heard so many times. It’s a critical piece of tax in the financial puzzle, affecting both businesses and consumers. Understanding how it works can offer clarity on its …

Investors invest in a company or business to get returns. Usually, these returns come from the entity distributing its resources to those investors. In accounting, it falls under distribution to owners. What is Distribution to Owners? Distribution to owners, commonly known as dividends or drawings, refers to the allocation of …

Navigating the world of taxes can be a challenge. Among these, one term often stands out – Ad Valorem Tax. It’s a key player in many financial circles, influencing decisions in businesses and personal finances alike. Understanding this tax type can help in better financial planning. Most people get confused …

Companies obtain finance from various sources. Each source comes with its costs. For debt, companies must incur expenses, such as underwriting, legal and professional, and credit rating agency fees. These expenses fall under debt issuance costs. What are Debt Issuance Costs? Debt issuance costs, also known as debt issuance fees …

Money factor is a lesser-known term in the finance world. However, when it comes to financing and leases, it’s an important concept to understand. Money factor affects how much is paid in total on any loan or lease, so knowing about the money factor can help save money over time. …

When a sale transaction occurs, companies must document it in their records. Usually, the bill or receipt provided to a customer during a cash sale serves as that document. However, the same does not apply to credit purchases. In this case, companies issue a billing statement. What is a Billing …

Every head in the financial statements has underlying accounts that constitute the sum. These accounts come from the financial system where companies accumulate their business transactions. However, companies need a proper structure to organize these accounts. Therefore, they use various titles to establish the names of these accounts. What is …