Accounting Basics

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Diversification Can’t Completely Eliminate Risk Exposure

Diversifying your investments means buying stock in several different companies. In an ideal world, if one of those companies did poorly, then the others would help mitigate your losses. But even this [more…]

Cross-Listing Allows Companies to Tap the World’s Resources

The process of having shares listed in more than one equity market is called cross-listing. As companies reach out in search of capital to fund start-ups and expansion, they often look beyond their own [more…]

Outsourcing Is a Taxing Issue

The decision to outsource (or transfer certain operations to an outside company) is a financial one that many companies have to deal with at some point. Basically, a company has to decide whether another [more…]

Politics Complicate the Financial Life of Your Company

Governments and politicians seem to have an uncanny way of knowing exactly how to make your life as complicated as possible. When you’re dealing with international finance, you have to be aware of not [more…]

Cultural Understanding Is Vital to Corporate Finance

Not all financial infrastructures work the same way. Culture plays a big role in how a nation’s government, companies, and even individual transactions operate, so if you’re dealing with a company involved [more…]

Making Financial Decisions Is Rarely Entirely Rational

Studies in corporate finance make the assumption that people are rational decision makers. In fact, most economic models, financial and otherwise, assume that people act unemotionally and with a certain [more…]

Making Sound Financial Decisions Involves Identifying Logical Fallacies

Logic can be really complicated. Common sense may get you through the day in one piece, but when you’re dealing with finances, what you really want is good sense. The problem is that human brains have [more…]

Getting Emotional about Financial Decisions Can Leave You Crying

Your financial decisions can be some of the most emotionally charged decisions you make in your life, which is why many people prefer to let professionals handle their money. They believe that professionals [more…]

Financial Stampeding Can Get You Trampled

Investors have a tendency to get caught up in a stampede of other investors, believing that they’re running like the bulls on Wall Street when, in reality, they were just lemmings jumping off a cliff. [more…]

Letting Relationships Influence Finances Can Be Ruinous

The idea that whom you know is more important than what you know holds weight all over the world. In Chinese, it’s called guanxi, in Arabic, it’s called [more…]

Satisficing Can Optimize Your Time and Energy

In corporate finance, the application and measurement of what’s “good enough” is called satisficing.Remember that old saying “time is money”? Well, come to find out that people naturally apply a value [more…]

Prospect Theory Explains Life in the Improbable

People prefer to live their lives in a fantasy. They fear what they don’t understand and dream of what they (probably) can’t attain. You shouldn’t be surprised, then, to find out that this same view influences [more…]

People Are Subject to Behavioral Biases

When you’re dealing with corporate finance, you rely on the collection and analysis of data to help you answer questions and make decisions. Even though all the data you need to make the best decision [more…]

Analyzing and Presenting Financial Information Can Be an Erroneous Process

How a person processes available financial data is subject to behavioral errors based on the context in which the data are presented. For instance, when some expression of judgment makes its way into the [more…]

Measuring Irrationality in Finance Is Rational Behavioral Finance

Understanding how irrational financial behavior works is only half the job. You also have to determine the value of irrationality. That is to say, you must figure out how much your own inherent irrationality [more…]

What Managerial Accountants Do

Managerial accounting plays a critical role in running a business because it provides valuable information about the business to help managers make educated decisions. The process of gathering information [more…]

How to Set Up a Master Budget

To prepare a master budget, managerial accountants collaborate with managers throughout the organization to develop a realistic plan, in numbers, for what will happen during the next period. The master [more…]

The Differences between Managerial and Financial Accounting

Managerial accounting provides internal reports tailored to the needs of managers and officers inside the company. On the other hand, financial accounting provides external financial statements for general [more…]

Classify Companies by Their Output

You can separate businesses into three basic categories: Service companies, retailers, and manufacturers. Because companies provide many different services and products to their customers, some companies [more…]

How Profits Are Measured

To earn money and succeed, a business — whether it’s a service company, a retailer, or a manufacturer — needs to create profits. To generate profits, companies must make sales to customers that exceed [more…]

How to Distinguish between Efficiency and Productivity

Efficiency measures how little waste is created when producing and selling a product. Productivity,on the other hand, considers how to maximize sales and profits while using as few assets as possible. [more…]

How Asset Turnover Is Measured

Asset turnover measures a company’s productivity. The higher the asset turnover, the more productive the company. To calculate asset turnover, divide sales revenue by average assets: [more…]

How to Distinguish Direct from Indirect Manufacturing Costs

When manufacturing a product, you can easily trace certain costs to individual products that you make. Call these expenses direct costs. On the other hand, certain costs don’t easily trace to an individual [more…]

The Difference between Product and Period Costs

Accountants split all costs into two categories — product costs and period costs — depending on whether these costs go toward making products. Product costs [more…]

Incremental Costs in Managerial Accounting

When you need to choose between two alternatives, incremental costs change depending on which alternative you choose. Managerial accountants sometimes refer to incremental costs as [more…]

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