Cost of Goods Sold (COGS) is a fundamental accounting metric that represents the direct costs associated with the production or acquisition of goods that a company sells during a specific accounting period. It encompasses various expenses directly tied to the manufacturing or purchase of products, such as raw materials, labor, and manufacturing overhead costs. COGS is a pivotal component of a company’s income statement, reflecting the costs incurred in creating the goods sold and serving as a crucial indicator of a company’s operational efficiency and profitability. Essentially, COGS is subtracted from the total revenue (Sales) to calculate the gross profit, providing insight into the profitability of a company’s core business activities....
Goodwill is an intangible asset that is either self-generated or purchased. It is the value of benefits that a business has because of the factors that help in increasing its profitability, say its location, favourable contracts, access to supplies and customer loyalty, etc. Goodwill is the reputation earned by the business through hard work, honesty and quality, and satisfactory services to customers. The efforts and hard work done by the existing partners frame the goodwill of the firm....
The American Institute of Certified Public Accountants(AICPA) defines accounting as an art of recording, classifying, and summarising the transactions and events that are in monetary terms efficiently and effectively and interpreting the results. The main aim of the accounting process is the ascertainment of an organization’s operation’s net results and financial position so that the firm can communicate the same with the interest parties or users of Accounting Information. The nature of Accounting is dynamic and analytical and hence, requires special abilities and skills in an individual to interpret the information better and effectively....
Total Assets to Debt Ratio is the ratio, through which the total assets of a company are expressed in relation to its long-term debts. It is a variation of the debt-equity ratio and gives the same indication as the debt-equity ratio....
Credit in finance is the act of borrowing money or getting access to goods & services with a promise to pay you back in the future. It plays an essential role in economic activity by facilitating transactions & and allowing people & companies to make investment decisions that they may not otherwise be able to make. When you get a loan from a lender, they lend you money. You agree to pay back the loan amount plus interest within a certain period. Credit can be in the form of a credit card, a loan, a mortgage, or a trade credit. It is the financial instrument that helps people and businesses manage cash flow, reduce financial volatility, and invest in new opportunities....
Joint Life Policy is a life policy that gives coverage against the death of the policyholder, under which the coverage is of a minimum of two persons and the pay-out is on a first-death basis. Since the Partnership firm is a business run by at least two people, the partners may hold the Joint Life Policy in order to reduce the burden of paying a considerably large amount in the event of retirement or death of the partner or Dissolution of the partnership. If any partner dies before the maturity date of the policy, the other partners are eligible to receive the policy amount (Full Claim)....
Chart of Accounts (COA) is a systematic listing of all the financial accounts within an organisation’s accounting system. It serves as a comprehensive and organised framework that categorizes and classifies various financial transactions, providing a clear and structured overview of the company’s financial activities. COA typically consists of several main categories, such as assets, liabilities, equity, revenue, and expenses, each further subdivided into specific accounts tailored to the organisation’s needs. These accounts are assigned unique codes or numbers for easy identification and reference....
Accrued expenses are costs that have been incurred but not yet paid for by the business. These are expenses that are recognized in the financial statements before the actual payment is made. The journal entry for an accrued expense typically involves increasing the expense account and recognizing a liability....
Tangible Assets can be described as assets that can be touched, seen, and felt. Tangible Assets have a physical appearance and need space. Assets like buildings, plants, furniture, cash, and inventory comprise tangible assets. Tangible Assets are of two types, Current Assets and Non-Current Assets. Current Assets are assets that are very liquid and can be converted into cash within 12 months. For example, Cash, Marketable Securities, Inventory, etc. However, Non-current Assets are assets that are not liquid and can be converted into cash during a longer period of time. For example, Buildings, Plants, Machinery, etc....
A computerised accounting system is an accounting information system that records and analyses financial transactions and events as per Generally Accepted Accounting Principles (GAAP) to produce reports as per user requirements. An accounting system either manual or computerised has two aspects. It should work under well-defined accounting principles and there should be a user-defined framework for the maintenance of records and preparation of reports. In a computerised accounting system, the structure of storage and processing of data is called an operating environment which includes hardware as well as software in which the accounting system works....
The Interest Coverage rate( ICR) is a fiscal rate that measures a company’s capability to pay interest charges on its outstanding debts. It is a key indicator of a company’s financial health and its ability to generate profits to cover its interest payments. The ratio tells us how many times the company’s earnings (before interest and taxes) can cover its interest payments....
Working capital turnover ratio establishes a relationship between the working capital and the turnover(sales) of a firm. In other words, this ratio measures the efficiency of a firm in utilising its working capital in order to support its annual turnover. A high working capital turnover ratio implies that the company is very efficient in using its current assets and liabilities to support its sales. In other words, for every rupee employed or used in the business, it is able to generate a higher amount of sales. However, a lower working capital ratio means that the amount employed in working capital is higher and that the turnover is not up to the mark. In other words, the turnover is lower than the minimum levels as per the given amount of working capital employed....
