Investing Glossary

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

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

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

Straight-line depreciation is a method for calculating yearly depreciation expense for a long-lived fixed asset where an equal amount of depreciation is recognized each year of the asset’s useful life.  To calculate straight-line depreciation, we need three pieces of information. First, we need to know the asset’s cost. Second, we need an estimate of the

The specific identification method is a method of accounting for inventory and cost of sales where the exact item is matched to the sale.  The specific identification method can be used when companies sell high priced items that can be easily identified and tracked. For example, the specific identification method would be appropriate for firms