A company may accumulate several liabilities throughout its operations. Accounting standards require companies to classify these liabilities into non-current and current portions. While non-current liabilities are long-term, current obligations last for a year. Trade payable is one of the most prevalent items in current liabilities. These are a common occurrence …

Let’s say you are an investor and you are looking to invest your money in certain companies. What would be the first thing you look at? Most people would look at the company’s financial statements to get an idea of its profitability. More specifically, they would look at the net …

When it comes to the financial health of a company, the current ratio is one of the most important indicators to look at. This ratio measures a company’s ability to pay its short-term obligations with its current assets. In other words, it shows how well a company can pay off …

The income statement is a valuable indicator of how a company has performed for a period. Investors use it to determine whether a company has been profitable during that period. However, it reports the accounting profits only. While these profits are highly crucial, investors can also use other types of …

Impairment refers to the loss of value of a fixed asset. In accounting, impairment loss quantifies this loss. Several factors may contribute to a fixed asset losing its value. These factors may be external or internal. Usually, companies conduct an impairment test to determine if a fixed asset has suffered …

Most companies prefer conducting their cash transactions through banks. However, they also need small sums of money in cash form to pay for insignificant transactions. Companies manage this cash through the petty cash system. This system is prevalent in most companies and businesses. The accounting for the petty cash system …

Assets are resources owned or controlled by companies and used in operations to generate revenues. They are a part of the balance sheet and appear as a separate section. Since assets are crucial in running a business, they also contribute to various financial metrics. However, they may not be a …

Shareholder’s equity is a part of the balance sheet. It represents the equity portion of the accounting equation presented in the financial statement. In most cases, it includes prevalent items such as ordinary stock, retained earnings, and other reserves. Some people may wonder how shareholder’s equity is different from retained …

Understanding business fundamentals are not as simple as it may first seem. If we only consider income there are different types that we must take into account when trying to get a clear picture of a company’s finances. In this article, we will be discussing operating income, also known as …

Companies write off debts that they deem as uncollectible. This write-off is often called bad debt. In most cases, it occurs when a debtor fails to repay their debt. When companies consider the repayment chances to be virtually low, they can write it off as a bad debt. Usually, it …