What are the different ways to calculate depreciation?

July 9, 2024 No Comments

A: In the United States, accountants have to follow generally accepted accounting principles (GAAP) to calculate and report depreciation in financial statements. GAAP has several separate allowable methods of depreciation. Straight-Line Depreciation This method uses the estimated salvage value (scrap value) of an asset at

What are the drawbacks of using the Dividend Discount Model (DDM) to value a stock?

July 9, 2024 No Comments

A: Drawbacks of using the dividend discount model (DDM) include the difficulty of accurate projections, the fact that it does not factor in buybacks and its fundamental assumption of income only from dividends. The DDM assigns value to a stock by essentially using a type

What are the key differences between pro forma statements and GAAP statements?

July 9, 2024 No Comments

A: The U.S. generally accepted accounting principles (GAAP) require companies to adhere to uniform reporting standards that govern accounting in the United States. However, companies increasingly supplement their GAAP reporting with pro forma financial statements. Management argues that GAAP statements do not provide a true

What are the main advantages and disadvantages to the cost accounting method?

July 9, 2024 No Comments

A: Contrasted with general accounting or financial accounting, the cost accounting method is an internally focused, firm-specific system used to estimate cost control, inventory and profitability. Cost accounting can be much more flexible and specific, particularly when it comes to subdivision of costs and inventory

What are the main benefits of a JIT (just in time) production strategy?

July 9, 2024 No Comments

A: The chief benefit of the just-in-time production (JIT) strategy is that it allows businesses to ensure that there is always a buyer for any item produced, keeping inventories low. Using the JIT business strategy means that a business manufactures each item as it is

What are the main differences and similitudes between Money Flow & Real Flow?

July 9, 2024 No Comments

A: Money flow and real flow are the two main aspects of the circular flow of income economic model. Both refer to exchanges of goods and services for money, but the two concepts differ in how they refer to the opposite sides of these exchanges

What are the main differences between compound annual growth rate (CAGR) and internal rate of return (IRR)?

July 9, 2024 No Comments

A: The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. The internal rate of return, or IRR, also measures investment performance but is more flexible than CAGR. CAGR The concept of CAGR is relatively straightforward and requires only three

What are the main differences between return on equity (ROE) and return on assets (ROA)?

July 9, 2024 No Comments

A: Return on equity (ROE) and return on assets (ROA) are two of the most important measures for evaluating how effectively a company’s management team is managing the capital that shareholders entrust to it. Below is an overview of the main differences between ROE and

What are the main differences between single step and multiple step income statements?

July 9, 2024 No Comments

A: An income statement is a financial summary of a company’s financial operations over a set period of time. However, not all companies have the same reporting requirements for their respective income statements. Smaller companies that have simple structures can get away with single-step income

What are the differences between percentage of completion and the completed contract method?

July 9, 2024 No Comments

A: Each business is required to choose an accounting method to report income and expenses. It is important to fully understand the chosen method, as each differs, especially concerning taxes. Once selected, the method cannot be changed without special permission from the Internal Revenue Service.

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