Cost of Debt Capital

Cost of Debt Capital Definition The cost of debt capital is the interest to be paid to its owner.

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Final Accounts of Sole Proprietorship: Practical Problem and Solution

Practical Problem Using the balances extracted from the books of John Enterprises (run by Mr. John), prepare the final accounts (i.e., manufacturing trading and profit and loss account) for the year ended 31 March 2020. Also, prepare a balance sheet as on 31 March 2020. Stock on 31 March 2020 is as follows: $ Raw materials 35,600 Work-in-pr0gress 17,400 Finished goods 96,500 Packing materials 1,25…

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Classification of Assets and Liabilities

What Are Assets and Liabilities? A balance sheet is a statement that outlines the financial position of an enterprise. It is necessary for the balance sheet to show the enterprise’s assets and liabilities based on their characteristic features. If assets are the property and possessions of the business, liabilities are its legal obligations (i.e., the claim by outsiders on the assets of a business…

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Financial Reporting

What Does Financial Reporting Mean? The scope of financial reporting is broader than just reporting information through income statements, balance sheets, authoritative pronouncements, and regulatory rules. Financial reporting concerns not only monetary information but also non-monetary information. Financial reporting does not mean reporting information only through income statements and balance…

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Inventory Control System

What Is an Inventory Control System? Inventory control systems are critical for businesses due to the importance of the inventory, which is a major asset. It is through the inventory that most of a business’s operating activities take place. Therefore, it is crucial to establish effective control systems to safeguard the inventory (e.g., to minimize costs and to prevent fraud, theft, damages to ph…

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Computerized Accounting

To understand what computerized accounting is, it’s essential to know how accounting systems can be represented. So, let’s examine the figure below. The purpose of accounting is to provide financial information that is useful for decision-making. Accounting can be viewed as a system (or a process) that converts data into useful information. The information processes include recording, maintaining,…

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Adjusting Entry for Accrued Income

What Is Accrued Income? Accrued income is money that’s been earned but that isn’t received during the accounting period. Examples of accrued income include interest on deposits, rent, commissions, and discounts. Since accrued income accumulates in the current year, it should be credited to the income statement (trading and profit and loss account), and the accrued income account should be debited,…

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Accounting Conventions

What Are Accounting Conventions? Accounting conventions are general rules of practice arising from customs, usages, and traditions. These conventions serve as the guiding principles for accounting. Accountants follow these rules based on the widely accepted idea that accounting practices should be consistent, that financial statements should be prepared on a conservative basis to mitigate the risk…

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Economic Value Added (EVA) Concept

What Is Economic Value Added (EVA)? Economic value added (EVA) is a new concept that companies and their consultants use as a performance measure. In generic terms, “value-added” refers to the additional or incremental value created by an activity or business venture. Economic value added, or EVA, is also known as economic rent. It is a widely-recognized tool for measuring the efficiency of a comp…

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Creative Accounting

What Is Creative Accounting? Creative accounting or aggressive accounting is a method used to manipulate financial figures. It does not violate the letter of the law or accounting standards but it is very much against their spirit. Moreover, creative accounting certainly does not provide the true and fair view of an enterprise that accounts are meant to project. Areas of Creative Accounting Creati…

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