What is an Auditor’s Report? An independent Auditor’s Report is an official opinion issued by an external or internal auditor as to the quality and accuracy of the financial statements prepared by a company. The report is a primary source of communication between the auditor and users of financial statements. The users include equity holders,…
What is Zero-Based Budgeting (ZBB)? Zero-based budgeting (ZBB) is a budgeting technique that allocates funding based on efficiency and necessity rather than budget history. Management starts from scratch and develops a budget that only includes operations and expenses essential to running the business; there are no expenses that are automatically added to the budget. All…
What is the Revenue Recognition Principle? The revenue recognition principle dictates the process and timing by which revenue is recorded and recognized as an item in a company’s financial statements. Theoretically, there are multiple points in time at which revenue could be recognized by companies. Generally speaking, the earlier revenue is recognized, it is said…
What are Source Documents? Every time a business is involved in a financial transaction, a paper trail is generated. This paper trail is referred to in accounting as source documents. Whether checks are written to be paid out, sales are made to generate receipts, billing invoices are sent by suppliers, or work hours are recorded on an…
What is Petty Cash? Petty cash refers to a small amount of hard currency that a businesses will keep on hand to pay for miscellaneous and unexpected items, such as team lunches, birthday cakes, or office snacks. Petty cash is usually a relatively small amount, and is grouped with the general cash account on the…
What is Revenue Variance Analysis? Revenue Variance Analysis is used to measure differences between actual sales and expected sales, based on sales volume metrics, sales mix metrics, and contribution margin calculations. Information obtained from Revenue Variance Analysis is important to organizations because it enables management to determine actual sales performance in relation to the projected…
What is Marginal Revenue? Marginal Revenue is the revenue that is gained from the sale of an additional unit. It is the revenue that a company can generate for each additional unit sold; there is a marginal cost attached to it, which must be accounted for. A business can examine its marginal revenue to determine…
What are Tangible Assets? Tangible assets are assets with a physical form and that hold value. Examples include property, plant, and equipment. Tangible assets are seen and felt and can be destroyed by fire, natural disaster, or an accident. On the other hand, intangible assets lack a physical form and consist of things such as…
What is Accumulated Depreciation? Accumulated depreciation is the total amount of depreciation expense allocated to a specific asset since the asset was put into use. It is a contra-asset account – a negative asset account that offsets the balance in the asset account it is normally associated with. Unlike a normal asset account, a credit…
