What are the Objectives in Accounting for Income Taxes? Tax accounting is one of the largest subsets or specializations within the field of accounting. In terms of corporate finance, there are several objectives when it comes to accounting for income taxes and optimizing a company’s valuation. Main Objectives The three main objectives in accounting for…
What is Net Income? Net income is the amount of accounting profit a company has left over after paying off all its expenses. It is found by taking sales revenue and subtracting COGS, SG&A, depreciation and amortization, interest expense, taxes, and any other expenses. Net income is the last line item on the income statement…
What is Earnings Before Tax (EBT)? Earnings before tax, or pre-tax income, is the last subtotal found in the income statement before the net income line item. The EBT metric is found after all deductions – except taxes – that have been made against sales revenue. These deductions include COGS, SG&A, depreciation and amortization, and…
What is Gross Profit? The Gross Profit (GP) of a business is the accounting result obtained after deducting the cost of goods sold and sales returns/allowances from total sales revenue. GP is located on the income statement (sometimes referred to as the statement of profit and loss) produced by a company and used to determine a…
What is Sales Revenue? Sales revenue is the income received by a company from its sales of goods or the provision of services. In accounting, the terms “sales” and “revenue” can be, and often are, used interchangeably to mean the same thing. It is important to note that revenue does not necessarily mean cash received….
What are Long Term Assets? Long term assets are assets that a company uses in its production process and with a useful life of more than one year. Such assets are also called “fixed assets,” as they can contribute to a big portion of the company’s fixed costs associated with production. For example, an automobile…
What is an Inventory Write Down? An inventory write down is an accounting process used to record the reduction of an inventory’s value and is required when the inventory’s market value drops below its book value on the balance sheet. Why Do Write Downs Happen? A business cannot avoid having stocked inventory unless the company…
What is Days Sales Outstanding (DSO)? Days Sales Outstanding (DSO) represents the average number of days it takes credit sales to be converted into cash or how long it takes a company to collect its account receivables. DSO can be calculated by dividing the total accounts receivable during a certain time frame by the total…
What is Inventory Valuation? Inventory valuation refers to the practice of accounting for the value of a business’ inventory. Business inventories refer to all the supplies that a business requires to operate, and that are either utilized in the production process or sold off to customers. For example, a bakery would consider inputs such as…
What is Inventory? Inventory is a current asset account found on the balance sheet, consisting of all raw materials, work-in-progress, and finished goods that a company has accumulated. It is often deemed the most illiquid of all current assets and, thus, it is excluded from the numerator in the quick ratio calculation. There is an interplay between…
