Latest Accounting Articles

Marginal Cost

Definition and Explanation: Marginal means Extra. Marginal cost is defined by CIMA as “the cost of one unit of a product or service which would…
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Limitations of Ratio Analysis

Financial ratio analysis faces some limitations, which are given below: (1) Ratio analysis requires a proper comparison i.e., one ratio its own is of no…
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Liquid Ratio

Liquid Ratio or Acid Test Ratio or Quick Ratio – Definition, Explanation and Use: Current ratio (which takes all current assets into account) may give…
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Current Ratio

Current Ratio or Working Capital Ratio – Definition, Explanation and Use: The current or working capital ratio is determined by dividing the total current assets…
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Liquidity Ratios

Definition, Explanation and Use: Liquidity ratios determine the ability of a business to finance, its day to day operations, or in other words, to pay…
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Non Current Asset Turnover

Definition, Explanation and Use: Non-current asset turnover ratio determines the efficiency with which a business uses its non-current assets to generate revenue for the business….
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Trade Payable Payment Period

Definition, Explanation and Use: The trade payables’ payment period ratio represents the time lag between a credit purchase and making payment to the supplier. As…
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Trade Receivable Collection Period

Definition, Explanation and Use: The trade receivables’ collection period ratio represents the time lag between a credit sale and receiving payment from the customer. As…
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Inventory Turnover Ratio

Definition, Explanation and Use: Inventory turnover ratio is often linked with the measurement of profitability. Though this ratio does not in itself measure profitability, but…
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Activity Ratios

Activity Ratios or Turnover Ratios – Definition,  Explanation and Use: The activity ratios or turnover ratios (which are sometimes referred to as efficiency ratios or…
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Return on Equity

Return on Equity (ROE) Ratio – Definition, Explanation and Use: Return on equity ratio (ROE) is one of the most widely used financial ratio. This…
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Return on Capital Employed

Definition, Explanation and Use of ROCE Ratio: Return on capital employed (ROCE) ratio is used to determine the returns that a company is generating from…
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Return on Assets

Definition, Explanation and Use of Return on Asset Ratio: The return on assets percentage determines the performance of business’ assets in terms of profitability. This…
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Operating Expenses Ratio

Definition and Explanation: Operating expenses ratio shows operating expenses as a percentage of sales. Operating expenses relate to the operations of a business entity. In other…
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Inventory Valuation Methods

Records of inventories are not normally included in the double entry system. Most organizations keep a separate record of inventories, outside the ledger, by maintaining…
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Items in the Balance Sheet

Balance sheet is a financial statement so it should give much information as possible to the users of the balance sheet. The items in the…
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Drawings

Drawings in Accounting – Definition and Explanation: Drawings are the amounts taken by the owner of a business for his personal use in anticipation of…
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Accounting Period

What is an Accounting Period/Reporting Period?  Definition and Explanation: Accounting period (reporting period) is that period for which the organization ascertains its profit or loss. It…
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Closing of Incomes and Expenses

As mentioned in the accounting for inventories chapter, businesses close the accounts for all its incomes and expenses by transferring their balances to incomes statement…
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Calculation of Net Profit

Definition and Procedure to Explain Net Profit: We have already learnt in the accounting for inventories chapter that how profits and losses may be determined…
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Net Profit Ratio

Net Profit Ratio or Net Profit Margin or Operating Profit Ratio – Definition and Explanation: The net profit ratio (net profit margin or operating profit)…
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Gross Profit Ratio

Gross Profit (GP) Ratio or Gross Profit Margin – Definition and Explanation: Gross profit ratio (GP ratio or gross profit margin) tells us how much…
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Profitability Ratios

Profit is as essential for a business as blood for life of a human being. A business running in continuous losses finds it dubious to…
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Bookkeeping for Incomes and Expenses

The mechanism of recording incomes and expenses transactions/entries are given below: Explanation with Example Entries and T-Accounts: Transaction 1: Capital Injection by Owner: Transaction 2:…
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Incomes and Expenses

Definition of Income: The most important and possibly the only source of revenue for most businesses is the income derived from the sale of goods…
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Opening Inventory

Definition: Businesses may inventory of unsold goods at the beginning of the period called opening inventory. Normally, an assumption is made that this inventory is…
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Closing Inventory

Definition: This is very unlikely that a business sells all the goods that it purchased during the current period. Therefor cost of purchases is not…
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Closing of Incomes and Expenses

At the end of an accounting period businesses close  the nominal accounts (accounts for all incomes and expenses) by transferring their balances to the income…
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Explains financial and managerial accounting. Exercises, problems, calculators and more.

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