Understanding gross profit is key to tracking business growth, assessing overall financial health, and developing strategies to increase profitability. We’ll explore the formula for calculating gross profit and how gross profit compares to profit margin. We’ll also look at why gross profit is important to help you develop this essential business metric. Sometimes the source of the depreciation expense determines…

As the inventory has been disposed of, the inventory and the allowance accounts have now been cleared. These materials were downloaded from PwC’s Viewpoint (viewpoint.pwc.com) under license. For instance, inventory with a cost of $20 today may have a lower cost in the future due to internal and external factors. This is the reason that one formula does not fit…

Examples of equity contra accounts are Owner Draws and Repurchased Treasury Stock Shares. Discount on Bonds Payable is a contra liability account with a debit balance that reduces the normal credit balance of its parent Bonds Payable liability account in order to present the net value of payables on a company’s balance sheet. Contra revenue is a general ledger account…

Net operating income and the entity’s overall debt servicing are two requirements for the debt-service coverage ratio formula. Investors may see whether a company’s DSCR generates enough revenue to cover its debts. The ratio is frequently utilized when a business has debt on its balance sheet through bonds, loans, or credit lines. By dividing the property’s NOI by the annual…

Maintaining a small amount of excess inventory is preferable to running out of inventory. Budgeting is a powerful tool that is widely used for planning, executing, and evaluating organizational operations. Most organizations use historical data and current operating plans to estimate budgeted amounts. In an established organization, an effective manager can make these estimates with remarkable accuracy. For example, if…