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 …

Income statements are very important parts of any company’s financial statements. It is a summary of a company’s revenues and expenses over a particular period, usually one fiscal year. The statement of comprehensive income is also a part of the income statement, but it includes both standard net income and …

Most business entities prepare financial statements that focus on profitability. The accounting systems these businesses use also reflect this focus. However, the same does not apply to nonprofits and government organizations where profitability is not the emphasis. For these entities, other accounting systems exist, including fund accounting. What is Fund …

In accounting, expenses refer to the outflow of economic benefits during a financial period. This definition is crucial in setting apart various spending during that period. Usually, companies write off an expense in the same period as the settlement occurs. However, it may not apply in every case, like for …

Costs are crucial to the operations and business of a company. They help create assets that help in generating revenues. However, not all expenditure falls under costs. On top of that, companies may also categorize these costs to understand their operations better. One such categorization includes the cost of sales, …