What are Retained Earnings? Retained Earnings (RE) are the accumulated portion of a business’s profits that are not distributed as dividends to shareholders but instead are reserved for reinvestment back into the business. Normally, these funds are used for working capital and fixed asset purchases (capital expenditures) or allotted for paying off debt obligations. Retained…
What is the Income Statement? The Income Statement is one of a company’s core financial statements that shows their profit and loss over a period of time. The profit or loss is determined by taking all revenues and subtracting all expenses from both operating and non-operating activities. The income statement is one of three statements used…
What is the Profit and Loss Statement (P&L)? A profit and loss statement (P&L), or income statement or statement of operations, is a financial report that provides a summary of a company’s revenues, expenses, and profits/losses over a given period of time. The P&L statement shows a company’s ability to generate sales, manage expenses, and create…
What is the Statement of Cash Flows? The statement of cash flows (also referred to as the cash flow statement) is one of the three key financial statements. The cash flow statement reports the cash generated and spent during a specific period of time (e.g., a month, quarter, or year). The statement of cash flows…
What is Gross Annual Income? Annual income is the total value of income earned during a fiscal year. Gross annual income refers to all earnings before any deductions are made, and net annual income refers to the amount that remains after all deductions are made. The concept applies to both individuals and businesses in preparing…
What is Straight Line Depreciation? With the straight line depreciation method, the value of an asset is reduced uniformly over each period until it reaches its salvage value. Straight line depreciation is the most commonly used and straightforward depreciation method for allocating the cost of a capital asset. It is calculated by simply dividing the cost of…
What is the Fortune 500? The Fortune 500 is an annual list of the top 500 United States companies by total revenues – public and private included. The Fortune 500 list is compiled and published annually every spring by Fortune Magazine, which is based in New York City. Edgar Smith, a Fortune editor, created the…
What are the Main Types of Depreciation Methods? There are several types of depreciation expense and different formulas for determining the book value of an asset. The most common depreciation methods include: Straight-line Double declining balance Units of production Sum of years digits Depreciation expense is used in accounting to allocate the cost of a…
What is Marginal Cost? Marginal cost represents the incremental costs incurred when producing additional units of a good or service. It is calculated by taking the total change in the cost of producing more goods and dividing that by the change in the number of goods produced. The usual variable costs included in the calculation…
