Accounting Basics

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Should You Use Activity-Based Costing in a Small Business?

Activity-based costing (ABC) lets you better allocate overhead costs and, as an added bonus, also often gives you unique insights into what "drives" your overhead costs. With this information in hand, [more…]

How to Implement a Simple Activity-Based Costing System

Activity-based costing (ABC) systems don't have to be that complicated, particularly if you just want better allocation of your overhead costs rather than a system to look at the cost drivers or the activities [more…]

Understanding Liquidity Ratios in Bookkeeping

Liquidity ratios measure how easily and comfortably a firm can pay its immediate financial obligations and exploit immediate short-term financial opportunities. For example, everything else being equal [more…]

Understanding Leverage Ratios in Bookkeeping

Leverage ratios measure how much debt a firm carries and how easily a firm pays the interest expenses of carrying that debt. Leverage ratios are important for an obvious reason. Typically, a firm mostly [more…]

How to Use Economic Value Added When Your Business Has Debt

In very large businesses, economic value added (EVA) analysis gets really computationally burdensome. Although there are multiple potential problems, you should be familiar with one common complication [more…]

3 Steps for Calculating Rate of Return on Capital Expenditure

Capital budgeting boils down to the idea that you should look at capital investments (machinery, vehicles, real estate, entire businesses, yard art, and so on) just as you look at the CDs [more…]

Thinking about Risk with Capital Investments

Risk is an issue even with simple investments like bank CDs. But with capital investments, no government agency is looking out for your interest and picking up the pieces if things do a Humpty Dumpty and [more…]

How Profit-Volume-Cost Analysis Works

Profit-volume-cost analysis is a powerful tool that estimates how a business's profits change as the sales volumes change as well as breakeven points. [more…]

Calculate Breakeven Points in Your Business

Profit-volume-cost analysis is a powerful tool that estimates how a business's profits change as the sales volumes change. It can also help estimate the breakeven point. A [more…]

Finding Market Equilibrium Price and Quantity

Buyers and sellers interact in markets. Market equilibrium occurs when the desires of buyers and sellers align exactly so that neither group has reason to change its behavior. The market equilibrium price [more…]

Identifying Market Failures

Sometimes markets fail to generate the socially optimal output level of goods and services. Several prerequisites must be fulfilled before perfect competition can work properly and generate that output [more…]

Financial Formulas

Formulas are an important part of business. A formula qualifies as such when it consistently gives you correct results and answers to questions thus providing organization and structure. The most common [more…]

Common Business and Financial Acronyms

The business world is packed with terms and acronyms. Take a look through the following list, learn the terms, and you’ll be speaking like a financial pro in no time. [more…]

How to Keep Tabs on Your Business Cash

Cash is the lifeblood of any business, whether it’s a multi-billion dollar empire or a tiny independent company. Refer to these handy bullets when delegating the handling of cash within your business to [more…]

The Key Terms of Profit and Cash Flow Analysis

Understanding the terminology used in profit and cash flow analysis is essential to managing the finances of your business. Here are some key terms you should commit to memory: [more…]

Types of Cash Accounts for Your Business

The cash you use to run your business resides in different accounts. To manage your cash flows effectively, you generally need to have cash in the following types of accounts: [more…]

The Relationship between Cash Flow and Profit in Business

Making profit generates cash flow. Any business owner knows that. But the actual increase in cash during a given period is invariably lower or higher than the profit number. The following points illustrate [more…]

Tax Traps for Nonprofits

Don't assume that since the federal government doesn't tax most nonprofit income that it doesn't require nonprofits to comply with tax-reporting requirements. Just like for-profit businesses, nonprofits [more…]

What Does an Accountant Do?

Most people don’t realize the importance of the accounting department in keeping a business operating without hitches and delays. That’s probably because accountants oversee many of the back-office functions [more…]

Transactions and Balance Sheets in Accounting

A balance sheet is a snapshot of the financial condition of a business at an instant in time — the most important moment in time being at the end of the last day of the income statement period. The balance [more…]

Building Blocks of a Bookkeeping System

Your bookkeeping system is built on a few key elements fundamental to keeping your books in order. With these building blocks, any bookkeeper can set up a solid system for tracking all the business’s transactions [more…]

Key Steps for Keeping the Books

Bookkeeping is, among other things, a step-by-step process that lets you methodically track the transactions in your company’s books. Monitoring a transaction every step of the way helps bookkeepers keep [more…]

Tips for Controlling Your Business Cash

Although bookkeepers are the ones who record what happens to your business’s cash, they aren’t the only ones who control where that cash goes. Controlling your company’s money is important; a business’s [more…]

Calculating Cash Flow with the Current Ratio

In bookkeeping, the current ratio compares your current assets to your current liabilities. This ratio provides a quick glimpse of your company’s cash flow — its ability to pay its bills. The formula for [more…]

Testing Cash Flow with the Acid Test or Quick Ratio

In bookkeeping, the acid test or quick ratioevaluates your company’s current assets and liabilities, but it’s a stricter test of cash flow than the similar current ratio. Many lenders prefer the acid test [more…]


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