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Accounts Receivable Turnover Ratio | Formula | Analysis

Accounts receivable turnover is an efficiency ratio or activity ratio that measures how many times a business can turn its accounts receivable into cash during a period. In other words, the accounts receivable turnover ratio measures how many times a business can collect its average accounts receivable during the year.

Actived: Wednesday Dec 11, 2019

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Weighted Average Cost of Capital (WACC) Formula | Example

The weighted average cost of capital (WACC) is a financial ratio that calculates a company’s cost of financing and acquiring assets by comparing the debt and equity structure of the business. This 10-cent value can be distributed to shareholders or used to pay off debt.

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What is a Write Off? - Definition | Meaning | Example

Example. The best example of a write-off is a bad debt.A bad debt is an account receivable that can no longer be collected. In other words, the company or customer that owes you money either refuses to pay or is unable to pay back the money it owes.

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Cash Ratio | Analysis | Formula | Example

The cash ratio or cash coverage ratio is a liquidity ratio that measures a firm's ability to pay off its current liabilities with only cash and cash equivalents. The cash ratio is much more restrictive than the current ratio or quick ratio because no other current assets can be used.

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Quick Ratio | Acid Test | Formula | Example | Calculation

The acid test ratio measures the liquidity of a company by showing its ability to pay off its current liabilities with quick assets. If a firm has enough quick assets to cover its total current liabilities, the firm will be able to pay off its obligations without having to sell off any long-term or capital assets. Since most businesses use their long-term assets to generate revenues, selling

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Reversing Entries | Accounting | Example | Requirements

Reversing entries are made because previous year accruals and prepayments will be paid off or used during the new year and no longer need to be recorded as liabilities and assets. These entries are optional depending on whether or not there are adjusting journal entries that need to be reversed.

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Current Ratio | Formula | Example | Calculator | Analysis

The current ratio is a liquidity and efficiency ratio that measures a firm’s ability to pay off its short-term liabilities with its current assets. The current ratio is an important measure of liquidity because short-term liabilities are due within the next year. This means that a company has a limited amount of time in order to raise the funds to pay for these liabilities.

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Types of Equity Accounts | List of Examples | Explanations

Equity is defined as the owner's interest in the company assets. Upon liquidation after all the liabilities are paid off, the shareholders own the remaining assets. This is why equity is often referred to as net assets or assets minus liabilities.

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Net Income Formula | Calculator | Definition

Net income, also called net profit, is a calculation that measures the amount of total revenues that exceed total expenses. It shows how much revenues are left over after all expenses have been paid. This is the amount of money that the company can save for a rainy day, use to pay off debt, invest in new projects, or distribute to shareholders.

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Days Sales Outstanding (DSO) Ratio | Formula | Calculation

The days sales outstanding calculation, also called the average collection period or days’ sales in receivables, measures the number of days it takes a company to collect cash from its credit sales. This calculation shows the liquidity and efficiency of a company’s collections department.

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What is a Sales Discount? - Definition | Meaning | Example

Definition: A sales discount is a cash discount that manufacturers often give retailers for paying off accounts during the discount period. A sales discount is useful for both the retailer and the manufacturer. The retailer can pay less for its inventory while the manufacturer can receive its cash sooner.

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What is a Trade Discount? - Definition | Meaning | Example

Definition: A trade discount is the reduction in price a manufacturer or wholesaler gives a wholesaler or retail when they buy a product or group of products. In other words, a trade discount is a certain percentage a manufacturer is willing to reduce its list price for wholesalers or retailers.

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What are SUTA Taxes? - Definition | Meaning | Example

Home » Accounting Dictionary » What are SUTA Taxes (State Unemployment Tax Act)? Definition: The state unemployment tax act, also called SUTA, imposes a tax on the wages that employers pay to their employees. This tax is used by the state to fund the unemployment insurance programs to benefit fired or laid off employees.

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Debt Ratio | Formula | Analysis | Example | My Accounting

Debt ratio is a solvency ratio that measures a firm’s total liabilities as a percentage of its total assets. In a sense, the debt ratio shows a company’s ability to pay off its liabilities with its assets. In other words, this shows how many assets the company must sell in order to pay off all of its liabilities.

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Debt to Capital Ratio Formula | Example | Calculation

Eventually, the new company sales could level off or simply decrease leaving fewer funds to service its debt. A high debt to capital ratio for this company would indicate risk. If the debt-to-capital ratio is greater than 1, the company has more debt than capital. This company is extremely risky.

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Return on Investment (ROI) Calculator | Formula | Example

Return on investment or ROI is a profitability ratio that calculates the profits of an investment as a percentage of the original cost. In other words, it measures how much money was made on the investment as a percentage of the purchase price.

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Net Debt Formula | Example | Calculation | Analysis

Net debt is a financial liquidity metric used to measure a company’s ability to pay its obligations by comparing its total debt with its liquid assets. In other words, this calculation shows how much debt a company has relative to its liquid assets. Thus, demonstrating its ability to pay off the debt immediately if it were called.

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Journal Entries | Examples | Format | How to Explanation

What is a Journal Entry? Journal entries are the first step in the accounting cycle and are used to record all business transactions and events in the accounting system. As business events occur throughout the accounting period, journal entries are recorded in the general journal to show how the event changed in the accounting equation.

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What is Off Balance Sheet Financing? - Definition

Definition: Off balance sheet financing happens when a company purchases an asset with a loan and doesn’t report the loan on its balance sheet. I know this sounds contradictory from what I just said, but there are exceptions to the rules. What Does Off-Balance Sheet Financing Mean?

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What is Insolvency? - Definition | Meaning | Example

Definition: Insolvency can be defined as the situation in which any organization or individual is unable to meet its short-term or immediate debt obligations. It can also be easily explained as the inability of a person or organization to pay its creditors. What Does Insolvency Mean? What is the definition of insolvency? Insolvency is also an accounting

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Closing Entries | Types | Example | My Accounting Course

Closing entries, also called closing journal entries, are entries made at the end of an accounting period to zero out all temporary accounts and transfer their balances to permanent accounts. The books are closed by reseting the temporary accounts for the year.

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What is a Extraordinary Gain or Loss? - Definition

What is a Extraordinary Gain or Loss? Home » Accounting Dictionary » What is a Extraordinary Gain or Loss? Definition: Extraordinary gains or losses are economic events coming from continuing operations that are both infrequent and unusual. In other words, these gains and losses stem from the normal business activities of the company, do not

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What is a Deferral? - Definition | Meaning | Example

Definition: A deferral, in accounting, is to put off recognizing income or expenses on the financial statements until they are incurred. What Does Deferral Mean? What is the definition of deferral? Generally, deferral refers to prepaid expenses or revenues that a firm makes. For instance, the insurance payments that a firm makes precede the coverage period.

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Payback Period (PBP) Formula | Example | Calculation Method

Payback period is a financial or capital budgeting method that calculates the number of days required for an investment to produce cash flows equal to the original investment cost. In other words, it’s the amount of time it takes an investment to earn enough money to pay for itself or breakeven. This time-based measurement is particularly important to management for analyzing risk.

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Other Comprehensive Income Statement | Example | Explanation

Other comprehensive income includes many adjustments that haven’t been realized yet. These are events that have occurred but haven’t been monetarily recorded in the accounting system because they haven’t been earned or incurred. You can think of it like adjusting the balance sheet accounts to their fair value.

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What is Allowance for Doubtful Accounts? - Definition

Definition: Allowance for doubtful accounts, also called the allowance for uncollectible accounts, is a contra asset account that records an estimate of the accounts receivable that will not be collected. In other words, it’s an account used to discount the accounts receivablea ccount and keep track of the customers who will probably not pay their current balances.

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Accounts Payable Turnover Ratio | Analysis | Formula | Example

The accounts payable turnover ratio, or simply the payable turnover, is a liquidity ratio that shows a company's ability to pay off its accounts payable by comparing net credit purchases to the average accounts payable during a period.

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What are Long-Term Liabilities? - Definition | Meaning

Definition: A long-term liability, often called a non-current liability, is an obligation that will not be paid off in the current year or accounting period. In other words, its debt that is not due within a year. Some common examples of long-term liabilities are notes payable, bonds payable, mortgages, and leases. What Does Long Term Liabilities Mean?

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Cash Flow Coverage Ratio | Formula | Example | Calculation

The cash flow coverage ratio is a liquidity ratio that measures a company’s ability to pay off its obligations with its operating cash flows. In other words, this calculation shows how easily a firm’s cash flow from operations can pay off its debt or current expenses.

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Debt to Income Ratio Formula | Example | Mortgage

The debt to income ratio is a personal finance measurement that calculates what percentage of income debt payments make up by comparing monthly payments to monthly revenues. In other words, it shows us what percentage of your income is being paid out in monthly debt payments for credit cards, loans, and mortgages.

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Long Term Debt to Total Asset Ratio | Formula | Example

The long-term debt to total asset ratio is a solvency or coverage ratio that calculates a company’s leverage by comparing total debt to assets. In other words, it measures the percentage of assets that a business would need to liquidate to pay off its long-term debt.

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Return on Retained Earnings (RORE) | Formula | Example

Return on Retained Earnings (RORE) is a financial ratio that calculates how much a company earns for its shareholders by reinvesting its profits back into the company. The ratio is expressed as a percentage, with a larger number meaning, of course, a higher return.

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What is Gross Sales? - Definition | Meaning | Example

Definition: Gross sales, also called top line sales, are the total of all product and service sales reported by an organization during a period not including any returns, discounts, or rebates. What Does Gross Sales Mean? What is the definition of gross sales? The gross sales are simply the total amount of sales made during a period.

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Best Reasons Why You Should Sit for REG (CPA Exam Section

We know the exam is stressful, and by taking REG before the updates, you can take a little bit of the pressure off. When it all boils down, you’re going to have to learn about the Tax Cuts and Jobs Act. You’re an accounting professionals, and the new laws are going to affect your work whether you’re in public accounting, industry or

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What is a Merit Rating? - Definition | Meaning | Example

For example, a company with 5 employees that hasn’t laid off an employee for 10 years is rewarded with a merit rating of 1%. This means the total unemployment taxes each year will only be $350 ($7,000 x 1% x 5 employees). Compare that with a company of the same size with the base tax rate of 5.4%.

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Average Payment Period Formula | Example | Calculation

Average payment period (APP) is a solvency ratio that measures the average number of days it takes a business to pay its vendors for purchases made on credit. Average payment period is the average amount of time it takes a company to pay off credit accounts payable.

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What is a Principal Payment? - Definition | Meaning | Example

Definition: A principal payment is a disbursement that is directly amortized to the principal owed on a given loan. Simply put, it is a payment that reduces the outstanding debt. What Does Principal Payment Mean? What is the definition of principal payment? A principal payment can be made in different situations. An individual or corporation paying the minimum payment

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Accounting Equation - Example | Concept | How to Use

Accounting Equation Components Assets. An asset is a resource that is owned or controlled by the company to be used for future benefits. Some assets are tangible like cash while others are theoretical or intangible like goodwill or copyrights.

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Operating Income Formula | Definition | Calculator | Example

Remember, the operating income definition states that it measures the profits from the core business activities without taking into account extraordinary items. The higher the operating income, the more likely the company will be profitable and able to pay off its debt.

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Contribution Margin Ratio | Formula | Per Unit Example

What is Contribution Margin? Definition: The contribution margin, sometimes used as a ratio, is the difference between a company’s total sales revenue and variable costs. In other words, the contribution margin equals the amount that sales exceed variable costs. This is the sales amount that can be used to, or contributed to, pay off fixed costs.

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What is Stockholder’s Equity? - Definition | Meaning | Example

Definition: Stockholder’s equity, also called shareholder’s equity or corporate capital, consists of the paid-in capital and retained earnings of a corporation and equals the amount of assets the shareholders own outright. In other words, this is the amount of assets that the investors own after all of the debts are paid off. What Does Stockholder’s

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What are Homemade Dividends? - Definition | Meaning | Example

Home » Accounting Dictionary » What are Homemade Dividends? Definition: he is reinvesting the amount in the firm’s stock or he sells off a portion of the stocks he owns to generate the cash flow he needs. In fact, the homemade dividend theory suggests that investors are indifferent to the firm’s dividend policy because by selling off

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What is a Rebate? - Definition | Meaning | Example

After registering, clients are able to enjoy 10% rebates on all their purchases of $100 or more. In order to get the rebate, they must go online, register on the website with their VIP Cards and complete a brief survey. After the survey is completed an instant 10% percent-off coupon will be issued, which can be used to buy new items from the store.

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Cost of Goods Sold (COGS) Formula | Calculation

Cost of goods sold, often abbreviated COGS, is a managerial calculation that measures the direct costs incurred in producing products that were sold during a period. In other words, this is the amount of money the company spent on labor, materials, and overhead to manufacture or purchase products that were sold to customers during the year.

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What is Accounts Receivable? - Definition | Meaning | A/R

What is Accounts Receivable? Definition: Accounts receivable, often abbreviated A/R, is the amount of money that customers currently owe to the company for goods or services that were purchased on credit. Many companies offer credit programs to customers who frequent the business or suppliers who regularly order products.

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What is the Adjusted Allocation Rate Approach

Definition: The adjusted allocation-rate approach restates or corrects estimated overhead costs booked throughout the year, so that the actual overhead costs are recorded properly. It’s basically like a reconciliation of the estimated overhead costs booked and the actual overhead costs incurred. What Does Adjusted Allocation Rate Mean?

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Financial Accounting - Examples | Users | Purpose

Financial accounting is a subsection of the general field of accounting that focuses on gathering and compiling data in order to present financial statements to external users in a usable form. use financial statements to base the decisions on because they want to know if a company is creditworthy enough to pay off its current loans or

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Compound Annual Growth Rate (CAGR) | Formula | Example

CAGR Formula. The CAGR formula is calculated by first dividing the ending value of the investment by the beginning value to find the total growth rate. This is then taken to the Nth root where the N is the number of years money has been invested. Finally, one is subtracted from product to arrive at the compound annual growth rate percentage.

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What is a Materials Requisition? - Definition | Meaning

Definition: A materials requisition form is a source document that the production department uses to request materials for manufacturing process. The production manager usually fills out the materials requisition form and delivers it to the materials or storage department where all of the raw materials are stored. Once the materials manager signs off on the request,

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Historical Cost Principle | Examples | My Accounting Course

The historical cost principle is a trade off between reliability and usefulness. The historical cost of an asset is completely reliable. After all, that’s how much the company paid for the asset. It might not be very useful however.

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What is an Invoice Approval? - Definition | Meaning | Example

This list includes a purchase requisition, purchase order, receiving report, invoice price, date, payment terms, and approval payment personnel. Each one of these items is listed next to a date and initial column, so the person receiving the document can sign off and write the date. Let’s take a look at an example. Example

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