What is Pretax Income? Pretax income, also known as earnings before tax or pretax earnings, is the net income earned by a business before taxes are subtracted/accounted for. Pretax income, however, accounts for deductions related to operating expenses, depreciation, and interest expenses. Formula for Pretax Income The formula for calculating pretax income is as follows:…
What is Franking Credit? Also known as imputation credit, franking credit is a type of tax credit that enables a company to pass on the tax paid at the corporate level to its shareholders. The idea behind the tax credit is to help avoid double taxation of dividends. Alternatively, shareholders can receive franking credits as…
What is Utilities Expense? Utilities expense is the cost incurred by using utilities such as electricity, water, waste disposal, heating, and sewage. The expenses are incurred over the course of the reporting period, calculated, and accrued for, or payment is rendered. With the accrual basis of accounting, the total amount recorded as utilities expense reflects…
What is Enterprise Resource Planning (ERP)? Enterprise resource planning – more commonly referred to as ERP – is a software system used to manage and maintain the functions of a business. The tasks are typically done in real-time. Components of ERP Software ERP programs are commonly known as business management software. They involve a host…
What is Sales per Square Foot? Sales per square foot is a metric commonly used by retail companies to determine the amount of revenue generated per square foot of retail space. Sales per square foot can be used to determine the sales efficiency of retail stores. Formula for Sales per Square Foot Where: Revenues refer…
What is Market Value vs Book Value? In this article, we will discuss market value vs book value and determine the key similarities and differences between them. Market value and book value are fundamental concepts in accounting and finance. They represent different aspects of the value of an asset. Market value is the price currently…
What is the Fraud Triangle? The fraud triangle is a framework commonly used in auditing to explain the reason behind an individual’s decision to commit fraud. The fraud triangle outlines three components that contribute to increasing the risk of fraud: (1) opportunity, (2) incentive, and (3) rationalization. What is Fraud? The fraud triangle is used…
What are Period Costs? Period costs are costs that cannot be capitalized on a company’s balance sheet. In other words, they are expensed in the period incurred and appear on the income statement. Period costs are also called period expenses. Understanding Period Costs In managerial and cost accounting, period costs refer to costs that are…
What are Step Costs? Step costs, also called stair-step costs, are costs that do not change in direct proportion to increasing levels of activity. In other words, step costs are constant at a certain activity level but increase or decrease when an activity threshold is met. Understanding Step Costs Step costs are extremely important to…
What is Same-Store Sales? Same-store sales, also known as comparable-store sales, is a financial metric commonly used by companies in the retail industry to evaluate the performance of existing stores. Importance of Same-Store Sales To understand why the same-store sales metric is disclosed, consider the following example: Although the company’s revenues increased year-over-year, the company…
