What is Accrued Interest vs Regular Interest? When investing in stocks and bonds, investors are paid either an accrued interest vs regular interest at an agreed period. The interest payments are not paid immediately, and security issuers will owe investors some money at any particular time, depending on the time that has elapsed since the…
What is Risk Shifting? Risk shifting is a risk strategy that involves transferring the responsibility for risk or liability to another party. The risk can be transferred in full or partially, and it ensures that the third party will deal with the risk as and when it materializes. Risk shifting is a popular…
What is Interest Income? Interest income is the amount paid to an entity for lending its money or letting another entity use its funds. On a larger scale, interest income is the amount earned by an investor’s money that he places in an investment or project. A very simple way to compute it is to multiply…
What is Acquisition Premium? Acquisition premium is the difference between the price paid for a target company in a merger or acquisition and the target’s assessed market value. It represents the excess amount over the fair value of all identifiable assets paid by an acquiring company. The acquisition premium is also known as goodwill and…
What is Active Management? Active management is the use of human capital to manage a portfolio of funds. Active managers rely on analytical research, personal judgment, and forecasts to make decisions on what securities to buy, hold, or sell. Theory of Active Management Investors who do not follow the Efficient Markets Hypothesis believe in active…
What is Project Sequencing? Project sequencing refers to the evaluation and selection of capital projects wherein the finance manager decides whether or not to invest in a future project based on the outcome of one or more current projects. It may also simply refer to the necessity of completing a number of projects in a…
What is a Tax Deductible? A tax deductible expense is any expense that is considered “ordinary, necessary, and reasonable” and that helps a business to generate income. It is usually deducted from the company’s income before taxation. According to the U.S. Internal Revenue Service (IRS), in Publication 535, Business Expenses, “An ordinary expense is one…
What is a Bank Account Overdraft? A bank account overdraft happens when an individual’s bank account balance goes down to below zero, resulting in a negative balance. It usually happens when there are no more funds in the account in question, but an outstanding transaction is processed through the account, leading to the account holder…
What is Income Tax Payable? Income tax payable is a term given to a business organization’s tax liability to the government where it operates. The amount of liability will be based on its profitability during a given period and the applicable tax rates. Tax payable is not considered a long-term liability, but rather a current…
