Not all businesses operate on a cash basis. Many businesses extend credit to their customers and clients, which means they may be owed money in the form of receivables. When a business is owed money, it’s said to have an accounts receivable balance. Accounts receivable (A/R) represents the credit sales …

When a bank makes a loan, it is not just giving away money. It is also taking on the risk because there is always the possibility that the borrower will default on the loan. To protect itself against this risk, a bank sets aside money to cover potential losses. This …

Shareholders, investors, and other stakeholders decide on their relationship with a company based on financial information. Usually, this information comes from financial statements. Companies ensure they provide the necessary disclosures for these users to satisfy their needs. This requirement also falls under the full disclosure principle in accounting. What is …

Insurance is a prevalent expense for businesses and individuals. It is a contract between two parties, including a policyholder and the insurer. Essentially, the policyholder receives a form of protection against a specific event or loss. In exchange, they must pay a premium to the insurance company. Both parties benefit …

When it comes to the world of business, there are a lot of important terms and concepts that one needs to be familiar with. Two of these are consignors and consignees. Though consignor and consignee may sound similar, they have very different meanings. Both of them are a huge part …

Costs are a significant part of the operations of companies and businesses. Usually, these costs help generate revenues which help in making profits. Companies analyze and classify these costs to understand them better and report them accordingly. In this regard, the concept of cost pools is highly crucial. Before discussing …

When it comes to financial analysis, the compound annual growth rate (CAGR) is one of the most important metrics to understand. If you are in the investment world, you will need to have some understanding of this concept to be successful. The way your investments grow over time depends on …

Financial statements are a set of records that present a company’s financial position and performance. While most investors focus on the income or cash flow statement, the balance sheet is also crucial. It shows various accounting balances classified into three categories. Usually, these balances have a specific classification known as …

Hedging allows investors to cover their risks by investing in derivatives and other instruments. Some of these derivatives help them mitigate the risks associated with interest payments. While interest rate swaps are the most prevalent type, interest rate caps can also provide similar features. It is also crucial to understand …

Understanding profitability and sales revenue are not only important for business owners and managers but investors as well. After all, a company that does not generate revenue cannot be profitable. Most investors look closely at a company’s revenue before making any decisions about investing in that company. So it’s important …