What is Lessor vs Lessee? There are two main parties in a lease agreement, and every finance professional needs to know how to differentiate between the lessor vs lessee. A lease is a contractual arrangement where one party, called the lessor, provides an asset for use by the other party, referred to as the lessee,…
What is Ancillary Revenue? Ancillary revenue is income a company generates from selling goods and services that are not a primary revenue stream or core business operation. For example, a sporting arena is known for selling tickets to games and any other events being hosted in the space. In this case, ancillary revenue would come…
What is Differential Cost? Differential cost refers to the difference between the cost of two alternative decisions. The cost occurs when a business faces several similar options, and a choice must be made by picking one option and dropping the other. When business executives face such situations, they must select the most viable option by…
What are the Main Types of Assets? An asset is a resource owned or controlled by an individual, corporation, or government with the expectation that it will generate a positive economic benefit. Common types of assets include current, non-current, physical, intangible, operating, and non-operating. Correctly identifying and classifying the types of assets is critical to…
What are Net Tangible Assets? Net Tangible Assets (NTA) is the value of all physical (“tangible”) assets minus all liabilities in a business. In other words, NTA is the total assets of a company minus intangible assets and total liabilities. The total value of net tangible assets is sometimes referred to as the company’s “book…
What is PP&E (Property, Plant, and Equipment)? Property, Plant, and Equipment (PP&E) is a non-current, tangible capital asset shown on the balance sheet of a business and is used to generate revenues and profits. PP&E plays a key part in the financial planning and analysis of a company’s operations and future expenditures, especially with regards to capital…
What is Cost of Goods Manufactured (COGM)? Cost of Goods Manufactured (COGM) represents the total production costs incurred by a company to produce goods during a specific accounting period. This includes direct materials, direct labor, and manufacturing overhead. COGM is essential in inventory management and is used to calculate the cost of goods sold (COGS)…
What is Days Inventory Outstanding (DIO)? Days inventory outstanding (DIO) is the average number of days that a company holds its inventory before selling it. The days inventory outstanding calculation shows how quickly a company can turn inventory into cash. It is a liquidity metric and also an indicator of a company’s operational and financial…
What is Accrual Accounting? In financial accounting, accruals refer to the recording of revenues a company has earned but has yet to receive payment for, and expenses that have been incurred but the company has yet to pay. This method also aligns with the matching principle, which says revenues should be recognized when earned and…
What is Absorption Costing? Absorption costing is a costing system that is used in valuing inventory. It not only includes the cost of materials and labor, but also both variable and fixed manufacturing overhead costs. Absorption costing is also referred to as full costing. This guide will show you what’s included, how to calculate it,…
