What is a Capital Expenditure? A capital expenditure (“capex” for short) is the payment with either cash or credit to purchase long-term physical or fixed assets used in a business’s operations. The expenditures are capitalized on the balance sheet (i.e., not expensed directly on a company’s income statement) and are considered an investment by a…
What is the Cost Recovery Method? The cost recovery method of revenue recognition is a concept in accounting that refers to a method in which a business does not recognize profit related to a sale until the cash collected exceeds the cost of the good or service sold. In other words, using this method, profits…
What is JAJO (January, April, July, and October)? JAJO is one of the three option cycles that comprise multiple options contracts with a successive expiration date in the months of January, April, July, and October. Options contracts come with expiration dates that fit in a cycle, which averages nine months. Each cycle comprises two near-term…
What is Allowed Depreciation? Allowed depreciation refers to the depreciation that a business is allowed to deduct from its tax liabilities. The annual depreciation of assets needs to be considered while calculating an individual’s or company’s taxable income. It is because depreciation decreases the ordinary income of the taxpayer (which may be a company or…
What is a Reporting Period? A reporting period, also known as an accounting period, is a discrete and uniform span of time for which the financial performance and financial position of a company are reported and analyzed. In other words, the data contained in the financial statements are generated by the company’s finance professionals from…
Understanding Revenue: Meaning and Why It Matters Revenue is the value of all sales of goods and services recognized by a company in a period. Revenue (also known as sales) forms the beginning of a company’s income statement and is often considered the “Top Line” of a business. Expenses are deducted from a company’s revenue…
What is the Full Disclosure Principle? The Full Disclosure Principle states that all relevant and necessary information for the understanding of a company’s financial statements must be included in public company filings. For example, financial analysts who read financial statements need to know what inventory valuation method has been used, if there have been any…
What is Forensic Accounting? Forensic accounting is the investigation of fraud or financial manipulation by performing extremely detailed research and analysis of financial information. Forensic accountants are often hired to prepare for litigation related to insurance claims, insolvency, divorces, embezzlement, fraud, skimming, and any type of financial theft. Preparing for Litigation You might have heard…
What is the Operating Cash Flow Formula? The Operating Cash Flow Formula is used to calculate how much cash a company generated (or consumed) from its operating activities in a period, and is displayed on the Cash Flow Statement. The formula for each company will be different, but the basic structure always includes three components:…
What is Accounting Income? Accounting income is the profit a company retains after paying off all relevant expenses from sales revenue earned. It is synonymous with net income, which is most often found at the end of the income statement. The metric differs from gross income in that the latter accounts only for direct expenses,…
