Cash (asset) will reduce by $10 due to Anushka using the cash belonging to the business to pay for her own personal expense. As this is not really an expense of the business, Anushka is effectively being paid amounts owed to her as the owner of the business (drawings). $10,000 of cash (asset) will be […]
An organization’s operating cycle is the period of time it takes to purchase goods, sell them, and receive payment for those sales. Alternatively put, it measures how long it takes a business to convert its inventories into cash. By providing an idea of whether or not they’ll be able to pay off any liabilities, an […]
To get your margin dollar amount, multiply your sales margin percentage by your total sales revenue. Gross profit margins can also be a helpful tool for managing inventory. For example, if you know that your gross profit margin on a product is 50%, you can use that information to help you make decisions about how […]
Break-even analysis involves a calculation of the break-even point (BEP). The break-even point formula divides the total fixed production costs by the price per individual unit less the variable cost per unit. For options trading, the breakeven point is the market price that an underlying asset must reach for an option buyer to avoid a […]
Our hypothetical company’s annual interest expense is forecasted as $990k in 2022, followed by an interest expense of $970k in 2023. The mandatory repayment reduces the ending debt balance, resulting in an ending balance of $19.6 million at the end of 2022. Therefore, the principal amortization is calculated by multiplying the $20 million debt balance […]
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Only selling price, variable cost per unit, and total fixed costs are known and constant. A key relationship in CVP analysis is the level of activity at which total revenue equals total costs (both fixed and variable). In a business, the “activity” is frequently production volume, with sales volume being another likely triggering event. Thus, […]
A drawing account is maintained to keep a record of such withdrawals. This account is used primarily by sole proprietorship and partnership firms. Maintaining drawings account is important because if the owner’s withdrawals are overlooked, then it can lead to discrepancies in the business’s financial statements. The drawings account acts as a counter account for […]
It may be done, however, if management believes that it will help the stockholders accept the non-payment of dividends. Yes, retained earnings carry over to the next year if they have not been used up by the company from paying down debt or investing back in the company. Beginning retained earnings are then included on […]
A business with insufficient working capital will be unable to meet obligations as they fall due, leading to late payments to employees, suppliers and other providers of credit. Late payments can result in lost employee loyalty, lost supplier discounts and a damaged credit rating. Non-payment (default) can lead to the compulsory liquidation of assets to […]
If you acquired property in this or some other way, see Pub. You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). If you make that choice, you cannot include those sales taxes as part of your cost […]
As we have discussed, the operating section of the statement of cash flows can be shown using either the direct method or the indirect method. With either method, the investing and financing sections are identical; the only difference is in the operating section. The direct method shows the major classes of gross cash receipts and […]