Business Accounting Blog

In short, the average collection period shows how fast the company can collect the money owed to them by the clients. Lower ACP means it doesn’t take long for the specific business to receive money from the sales done on credit, while higher AC…

The credit risk is, simply put, a risk associated with the borrower’s inability to pay back what they owe. Naturally, if that’s the case, the lending party won’t just lose whatever it is they are owed, but also the potential revenue…

Free on board (or FOB) refers to the order at which the transition of goods from one owner to the other happens in relation to their overseas delivery. In short, who owns the goods while they are being transported via waterways? That’s a critic…

This account includes both direct costs and indirect costs. Direct costs are pretty straightforward – they include money you had to pay for materials and money you had to pay your workers to work. All the indirect costs for the production process its…

For instance, say you paid $10,000 for marketing during one particular month. Accordingly, the ‘marketing expenses’ will be listed as ‘-$10,000’ for that month’s balance. There are more financial transactions you’ll have to write up that may or may n…

Cash disbursement accounts for every expenditure payment done by the company. When one of these cash transfers occurs, it’s immediately added to the disbursement journal, including information such as:…

The debt-to-asset ratio estimates precisely that – a portion of the company’s value owned by creditors as opposed to stockholders. This ratio is usually represented by leverage, with debt on one side and asset value on the other. Divide total debt by…

It is easy to remember the meaning of the term debit memo because it has the word debit in it, which just means the amount on the left-hand side of a ledger (when there is no other meaning to the debit). When it comes to the whole phase debit memo, i…

Simply put, when you have interest on a loan, you are getting charged based on the principal. When it accrues and you are not paying on the loan, that means it is accumulating. Thus, the word accrue simply means accumulate and accrued interest can be…

You can see the formula for computing this ratio above. Let’s use it to find the interest coverage ratio for Leaf Company. The business owner wants to buy new equipment and for this, she needs to apply for a loan. Not surprisingly, the bank looks at …