Companies use various costing methods to establish the unit cost of manufacturing a product. Determining these costs is highly crucial in understanding how a company’s production process works. On top of that, it provides a base for measuring the price to charge for the underlying product. One of the methods …

Net sales and gross sales are important financial metrics for businesses to track. Both metrics provide valuable insight into a business’s performance, thereby painting a picture of where a business is going. If you’re not sure what these metrics are and how they differ from each other, you’re in the …

Companies that manufacture products and services may offer sales returns or allowance policies. These are a normal part of the business that these companies conduct. Usually, customers return goods sold to them for various reasons. For companies, these sales returns are a reduction in sales. First, however, it is crucial …

Companies incur various expenses that are crucial for their operations. One of these includes purchases, which are direct costs. Usually, they involve expenses incurred on purchasing raw materials or products. Companies report these costs in the income statement as a part of the cost of goods sold. However, most companies …

For profit-based companies and organizations, revenues are highly critical. These represent the income they make during an accounting period. However, some items may also adversely impact these revenues. According to accounting standards, companies must record and report these items separately. This process is crucial in calculating a company’s net sales, …

The cost of goods sold represents all direct costs incurred on manufacturing a product or acquiring it. Usually, it includes a company’s purchases and other similar expenses that directly contribute to the products. This figure is crucial in calculating gross profits. For service-based firms and companies, however, the cost of …

A company’s book value is basically the net worth of its assets as found on the balance sheet, and it’s usually about equal to the amount that all shareholders will receive if the company liquidates and pays off all of its liabilities. Book value has been one of the most …

Most companies use the historical value method of deriving their asset’s value. This process includes taking the asset’s cost and deducting any impairment and depreciation to reach the book value. The same method applies to deriving the value of liabilities. However, some accounting standards also require or allow companies to …

The accrual principle in accounting is a concept that requires entities to record transactions in the period in which they occur. This concept goes against the cash accounting method in which entities only account for cash transactions. However, the accrual principle does not consider the timing of the cash flows. …

What is Amortization? Amortization is a method through which businesses lower the book value of their loans or intangible assets. It is similar to depreciation for assets. Both of these techniques help companies record the gradual decrease in an asset’s book value. However, depreciation only applies to property, plant, and …