Matching principle is the accounting principle that expenses must be recognized when the associated revenue is recognized. The aim is to present accurately net income for the accounting period and avoid revenue misstatements during the period.For
Financial Statement Analysis
Materiality concept
The materiality concept requires to incorporate significant items in decision making into financial statements. This principle is to ensure reliable economic decisions by users of financial statements. It not only protects the interests of
Marketable securities
Marketable securities are securities that can be sold in a short time without losing the principal or initial investment. The maturity is usually more than 90 days but less than one year. In the financial balance sheet, the company reports them as a
Minority Interests: Definition, Reporting In Financial Statements
What's it: Minority interest or non-controlling interest refers to a small proportion of shareholders in companies where more than 50% control is held by holding company. Hence, ownership is less than 50%.Minority interest in accounting and the
Fixed Charge Coverage Ratio: Calculation and Interpretation
What's it: The fixed charge coverage ratio is a financial ratio to measure how well a company can cover interest and lease payments. Both represent fixed costs, which the company has to pay regardless of whether the company generates
Straight-line method
Straight-line method is a method of depreciating fixed assets that recognizes depreciation equally over the periods of an asset's estimated useful life. Examples of fixed assets are property, plants, and equipment.Straight-line depreciation
Prepaid expense
Prepaid expense is typical operating cost that have been paid before maturity. In other words, the company has made a cash payment but has not recognized it as an expense in the income statement. Such recognition is possible in accrual accounting in
Fixed Asset Turnover: Meaning, Formula and Calculation
Fixed asset turnover is the financial ratio of revenue to total fixed assets. It shows how efficient the company utilizes its fixed assets to generate sales. A higher ratio is preferable.Fixed asset turnover formula and its calculationWe
Pretax Profit Margin: Its Calculation and Interpretation
What's it: Pretax profit margin is a profitability ratio to measure how successfully a company converts revenue into profit before part of it is paid out as tax. We calculate it by dividing profit before tax (pretax profit) divided by
Profitability Ratio: Formulas, Types, and Examples
What's it: Profitability ratio is a financial ratio to measure the company's ability to generate profit. Profitability ratios are a key driver of a firm's value and hence, an important factor for valuing its share price. As a result,
Asset Turnover Ratio: Calculation and Interpretation
What's it: The asset turnover ratio is a financial ratio to measure the overall efficiency of business operations. It shows how well the company utilizes its resources to generate revenue. We divide revenue by the average total assets
Defensive Interval Ratio: Importance, Calculation, and Interpretation
What's it: The defensive interval ratio is a financial ratio to measure how long a company can continue to meet daily expenses using existing liquid assets without obtaining additional financing. We calculate it by adding up liquid