Why does accumulated depreciation have a credit balance on the balance sheet?

July 9, 2024 No Comments

A: Accumulated depreciation is increased with a credit entry, although it is shown on the asset side of the balance sheet. Following the accounting equation, which is the basis for a balance sheet, assets must always be equal to liabilities plus equity. Assets, on the

Why is Average Collection Period important to a company?

July 9, 2024 No Comments

A: An average collection period shows the average number of days necessary to convert business receivables into cash. The degree to which this is useful for a business depends on the business’s relative reliance on credit sales to generate revenue; a high balance in accounts

Why is deferred revenue listed as a liability on the balance sheet?

July 9, 2024 No Comments

A: Deferred revenue, which is also referred to as unearned revenue, is listed as a liability on the balance sheet, because under accrual accounting, the revenue recognition process has not been completed, and the company’s product or service is still due to the buyer. When

Why is EBITDA commonly used as a valuation metric for telecommunications companies?

July 9, 2024 No Comments

A: Earnings before interest, taxes, depreciation and amortization, or EBITDA, is a popular equity evaluation metric for analyzing companies in the telecommunications sector mainly because of what the metric excludes, such as depreciation. The Nature of the Telecommunications Sector To understand the usefulness of EBITDA

Why is it sometimes better to use an average inventory figure when calculating the inventory turnover ratio?

July 9, 2024 No Comments

A: Inventory turnover is an important metric for evaluating how efficiently a firm turns its inventory into sales. For a couple of key reasons, average inventory can be a better and more accurate measure when calculating the inventory turnover ratio. Inventory Turnover Inventory turnover details

Why is purchasing stocks on margin considered more risky than traditional investing?

July 9, 2024 No Comments

A: Buying on margin involves borrowing money from a broker to purchase stock. A margin account increases your purchasing power and allows you to use someone else’s money to increase financial leverage. Margin trading confers a higher profit potential than traditional trading but also greater

Why is social responsibility important in marketing?

July 9, 2024 No Comments

A: Social responsibility in marketing is important because the practice involves focusing efforts on attracting consumers who want to make a positive difference with their purchases. Recyclable packaging, promotions that spread social awareness and portions of profits that benefit charitable groups are examples of social

Why is the capital adequacy ratio important to shareholders?

July 9, 2024 No Comments

A: The capital adequacy ratio (CAR) measures the amount of capital a bank retains compared to its risk. National regulators must track the CAR of banks to determine how effectively it can sustain a reasonable amount of loss. National regulators must also determine if a

Why is the TTM (trailing twelve months) important in finance?

July 9, 2024 No Comments

A: Using trailing 12-month (TTM) figures is an effective way to analyze the most recent financial data in an annualized format. Annualized data is important because it helps neutralize the effects of seasonality and dilutes the impact of non-recurring abnormalities in financial results, such as

Why is work in progress (WIP) considered a current asset in accounting?

July 9, 2024 No Comments

A: Accountants consider work in progress (WIP) to be a current asset because it is a type of inventory asset. Accountants consider inventory assets to be current, because they are reasonably expected to be converted into cash within one year’s time. Some accountants distinguish between

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