A credit entry is an accounting entry that increases the balance of certain accounts and decreases the balance of others. Credit Entries in Double-Entry Bookkeeping In a double-entry bookkeeping system, all transactions are recorded into an accounting journal. All transactions are posted to individual accounts. The accounting entries are made in accordance with the double-entry […]
The adjusted trial balance is a key step in the accounting cycle. It is a report run at the end of an accounting period after adjusting entries have been made in the company’s books. Where the Adjusted Trial Balance Fits in the Accounting Cycle In the process of preparing period-end financial statements, a company follows
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Compounding refers to the growth in the value of an investment where the return is being reinvested. Compounding is the inverse operation to discounting. Compound growth is exponential rather than linear. This means that the value of a compounded investment becomes disproportionally larger as time passes. Suppose that an account earns 5% per year. We
Discounting refers to calculating the present value of a future sum. Discounting is the inverse operation to compounding. For example, suppose we invest $1,000 into an account that earns 10% per year for five years. We can find the value of the investment at the end of year five by calculating the compounding factor and
In finance, the discount rate is the rate used in present value calculations. The concept of present value is one of the most foundational concepts in finance, as it allows investors to quantify a future payment in today’s dollars (or euros, yen, etc.). Investors use present value calculations (called discounting) to estimate the value of
Fundamental investing is an investment philosophy centered on analyzing the core financial and operational health of an asset before making a decision to buy. This disciplined approach relies on three foundational pillars: 1. Investing in Cash-Flow Producing Assets Fundamental investors seek to purchase assets that generate income, such as: These assets are chosen for their
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Working capital is the difference between a company’s current assets and current liabilities. Working capital is calculated by subtracting current liabilities from current assets. Working capital is a liquidity measure in that it indicates the amount of resources available to satisfy short-term obligations. Financial managers and investors often distinguish between total working capital and operating
Unearned revenue is a current liability account that represents money collected from customers before goods have been delivered or services have been performed. When a company receives payment from customers for goods or services not yet delivered, the company will initially record the payment on the balance sheet as a current liability. The payment is
Treasury stock represents stock shares that a company had issued and then later repurchased. Treasury stock reduces the number of shares a company has outstanding. Companies often repurchase outstanding shares for three primary reasons. First, a company’s management may believe that the shares are undervalued and thus represent a good investment. Second, a company that
A subsidiary company is a company that is majority owned by another entity. The entity which owns the subsidiary company is called the parent company. A subsidiary may be wholly owned or partially owned. A wholly owned subsidiary is a subsidiary company where all of the outstanding shares are owned by the parent company. A
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