A balance sheet is a financial statement that includes account balances from accounting systems. It classifies those balances under three categories, assets, liabilities, and equity. Primarily, it follows the accounting equation. This equation states the total of assets should equal the total of liabilities and equity. Therefore, the balance sheet …

The accounting process involves various stages. The starting point within this process is a transaction. Once a company participates in this transaction, it must record it in the books of prime entry. Consequently, it reaches the general ledger, which helps prepare the trial balance and financial statements. The general ledger …

Most companies offer credit sales allowing customers to purchase goods and pay later. This process also involves a credit term that defines the time limit for the customer to repay their debt. Usually, customers settle these debts before that term. However, some customers may delay their payments. Companies may use …

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 …

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 …

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 …

Project management can be a hassle when using both full-time and part-time employees. For that reason, companies may need to calculate the full-time equivalent. It is crucial in project management and federal programs. It allows companies to determine the number of full-time employees they employ. Before discussing how to calculate …