Cost-volume-profit (CVP) analysis is a tool frequently related to variable costing. It helps businesses understand how changes in sales volume will affect their profits. Variable costs stand in contrast with fixed costs since fixed costs do not change directly based on production volume. Although direct and variable costs are tied to the production of goods and services, they can have some distinct differences. Variable costs can fall under the category of direct costs, but direct […]

However, there might be subtle differences in some specific accounting or financial reporting contexts. For instance, “net revenue” might encompass not only sales revenue but also other sources of income, such as interest income or revenue from investments. On the other hand, “net sales” might specifically refer to revenue generated from the sale of goods or services, excluding other income sources. This article will break down the net sales formula, explain its components, and guide […]

This result shows the final amount of revenue that the company effectively earns after accounting for all applicable reductions. Calculating net sales in this manner clearly and accurately measures the business’s actual sales performance. Simply put, “net sales” is what remains after you deduct all sales allowances, returns, and discounts from your gross sales figure. However, things you would learn directly from your accounting textbooks have their places. Knowing how to calculate net sales help […]

The fundamental accounting equation, also called the balance sheet equation, is the foundation for the double-entry bookkeeping system and the cornerstone of the entire accounting science. In the accounting equation, every transaction will have a debit and credit entry, and the total debits (left side) will equal the total credits (right side). In other words, the accounting equation will always be “in balance”. For a company keeping accurate accounts, every business transaction will be represented […]

The accounting equation shows the amount of resources available to a business on the left side (Assets) and those who have a claim on those resources on the right side (Liabilities + Equity). However, due to the fact that accounting is kept on a historical basis, the equity is typically not the net worth of the organization. Often, a company may depreciate capital assets in 5–7 years, meaning that the assets will show on the books as […]

For example, if a company takes on a bank loan to be paid off in 5-years, this account will include the portion of that loan due in the next year. The accounting equation is a concise expression of the complex, expanded, and multi-item display of a balance sheet. By combining these two equations, businesses can ensure that thir books are balanced and they can accurately report their financial position and performance. If an accounting equation […]

Its liabilities (specifically, the long-term debt account) will also increase by $4,000, balancing the two sides of the equation. If the company takes $8,000 from investors, its assets will increase by that amount, as will its shareholder equity. All revenues the company generates in excess of its expenses will go into the shareholder equity account. These revenues will be balanced on the assets side, appearing as cash, investments, inventory, or other assets. The assets section […]

While they may seem similar, the current portion of long-term debt is specifically the portion due within this year of a piece of debt that has a maturity of more than one year. For example, if a company takes on a bank loan to be paid off in 5-years, this account will include the portion of that loan due in the next year. Explore our online finance and accounting courses, which can teach you the […]

The balance sheet is one of the three main financial statements, along with the income statement and cash flow statement. The balance sheet previews the total assets, liabilities, and shareholders’ equity of a company on a specific date, referred to as the reporting date. A balance sheet is a financial statement that shows the relationship between assets, liabilities, and shareholders’ equity of a company at a specific point in time. The left side of the […]