## Line of Credit

The line of credit is a kind of loan agreement between a bank or any financial institution and a customer. A customer can be an individual person, a business entity, non-financial institute, Government etc.

## Incremental Revenue

Incremental revenue is the additional revenue incurred from the selling of additional units. Incremental revenue occurs in the below-mentioned situation:

## Holding Gain

A holding gain is a gain of value that incurred after holding an asset. This gain happens over a period of time and the owner can sell it at any time in exchange for cash or other assets.

## Flexible Budget

A flexible budget changes with production volume. For example, if the production increases then the budget will increase and vice versa.

## FIFO

FIFO stands for “First in First out”. FIFO is an asset & stock management and valuation method. This method is widely accepted by businesses.

Pharmacy stores mainly use this method to manage stock and to check which one needs to be ordered on urgent basis.

## Capital Expenditure

Capital expenditure is the total amount of money a business bears in buy and maintain fixed assets like building, furniture, machinery etc.

## Debit Note

A debit note issued by a buyer to a seller at the time of returning purchased goods in credit. Debit note is a type of invoice whereas; it’s not a regular invoice.

## Deferred Expense

A deferred expense is a cost that has been incurred but not yet consumed. This cost is termed as an asset until and unless underlying goods & services are consumed.

## Demand Deposit

Demand deposit and term deposit are two different types of deposit accounts either in the bank or any financial institution.

Let’s find out the definition of Demand deposit …

## Effective Annual Interest Rate

The total amount of interest earned or paid in a year on any financial products, loans etc. is called as the effective annual interest rate. The effective annual interest rate is also known as an effective interest rate.

So, how to calculate effective interest rate? Here is the formula: r = (1+i/n) n -1

r= effective interest rate   n = no. of periods   i= annual interest rate

Effective annual interest rate calculates while considering compound rates instead of static interest rates.

## Cash Receipts Journal

Cash receipts journal is a special type of ledger which records details of only cash receipts. This ledger reflects in the journal under the category “Cash Sales”.  Debit and credit both columns need to be recorded simultaneously. In debit side cash should be debited and in credit side sales need to be entered.

## Capital Budgeting

Capital Budgeting is a process which analyzes the frequency of return on long-term & short-term investments to be made by a business. Capital Budgeting is same as Investment appraisal.

Capital Budgeting is an important & complex task as the analysis needs to be accurate to determine the return value of investments.

## Carrying cost of Inventory

Carrying cost of Inventory or carry cost is the total cost of managing inventory. It includes tax, opportunity cost, salary, insurance, inventory hold cost etc.

## Break-even point

Break-even point is a point where a company faces a win-win situation; Means Company’s all debts are paid and gain no income. There is loss or profit at this point.  Break-even point is a term used in financial analysis. A company can have a lower or higher break-even point.

## Accounting Rate of Return

Accounting rate of return also called as Average rate return. Accounting rate return calculates the amount of profit company/entity incurred from the money invested. Accounting rate of return never considers the time value of money.

The formula to calculate accounting rate of return is: Average return during period / Average investment

Average Investment = Book value at the beginning of 1st year + Book value at the end of useful life /2

Average return during period = Profit after tax/ Life of investment

## Asset Turnover Ratio

Asset turnover ratio generally used to evaluate company’s performance in a financial year. Asset turnover ratio shows or indicates a company’s efficiency to generate revenues in the form of sales by using available assets.

## Accelerated Depreciation

Accelerated depreciation is a method to calculate the book value of a fixed asset over the years. In this method, the relative asset incurred higher expenses than last remaining years, unlike straight-line method.

There are two methods two calculate accelerated depreciation i.e. double declining balance method and Sum of the years’ digits method.

Double declining balance method formula

Annual Depreciation Expenses = Net Book Value x 2/Useful life in years

Sum of the years’ digits method formula

Depreciation Expense = Remaining useful life of asset / Sum of the years digits x Depreciable Cost

## Accounts Receivable Turnover Ratio

Accounts receivable turnover ratio defines the efficiency and capacity of a business entity in collecting its payments on the credits it rendered.

## Accounting Equation

The accounting equation is a rule or you can say formula to calculate the total asset of a company/entity. There are there accounting equations.

• Assets = Liabilities + Owner’s Equity
• Assets = Liabilities + Shareholder’s Equity (For Corporation )
• Assets = Liabilities + Net assets (For Non-Profit Organizations like NGO)

The Balance sheet prepared using this rule. Double entry bookkeeping system formed on the basis of the accounting equation.

## Accrued Liabilities

Accrued liabilities usually referred to those transactions which are incurred by an entity but yet not have been paid or receive an invoice.

There are two types of accrued liabilities i.e. short-term accrued liability and long-term accrued liability. Short term accrued liabilities are daily basis transactions which happen on a regular basis. Long-term accrued liabilities which happen very rarely but for a longer period of time.

Examples: Accrued wages, accrued pension liability, accrued interest on loan payable etc.

## Balance Sheet

A balance sheet is an important financial statement prepared by a company at a specific date on a regular basis to showcase its financial situation.

The balance sheet includes cash-flow statement, income & expense statement, asset and liability details. In short, it shows all transaction details.

A balance sheet is the main point interest for a shareholder, company advisor, business partner etc.

The Balance sheet abides by the following rule:

Assets = Liability + Shareholder’s Equity

## Financial Accounting

Financial accounting is the process of preparing financial reports for both internal and external use of a business. Financial report includes balance sheet, cash flow & income & expense, equity & liability statement.

This kind of report needs at the time of tax filing, company valuation etc.

## Trial Balance

Trial balance is a way of bookkeeping to ensure all ledger inputs are correct. In trail balance all credit balances entry under credit balance head and debit inputs under ledger balance head. If credit and debit balance found to be identical then we could conclude that there is no error in accounting entries.

Trail balance prepared in a regular period to minimise accounting error. In companies point of view, it’s an important task needs to do regularly. It would help to prepare company’s financial statements with zero error.