Credits: Mr Mike Wheeler, RIL and IIMM handbook.
Accrual Basis: at the time transaction occurs, not at the time cash changes
Amortize: charge a fixed portion of expenditure over a period of time
Current Assets: that can be expected to turn into cash within year or less
Fixed Assets cannot be quickly turned into cash.
Assets = Liabilities + Capital
Capitalize: to record an expenditure on the balance sheet as an asset, to be amortized over the future. The opposite is to expense.
Contingent Liabilities: Liabilities not recorded on a company’s financial reports, but which might become due. If a company is being sued, it has a contingent liability that will become a real liability if the company loses the suit.
Deferred income: a liability that arises when a company is paid in advance for goods or services that will be provided later.
Straight line depreciation: same each year
Accelerated Depreciation: more in early years
Discounted cash flow: takes present value of future cash flows .. based on inflation and interest
80-20 rule: 20% of product makes 80% profit etc.
Fixed Cost: does not change with sales volume
Overhead: a cost that that does not vary with level of production/ sales
Goodwill: difference between what companies pay and book value, when it buys an asset
Marginal Cost/ Revenue: additional cost incurred by adding one more item. Economic theory says that maximum profit comes at a point where marginal revenue exactly matches marginal cost.
Gross Profit – tax = net profit
Sunk cost: money already spent and gone, which will not be recovered.
Write down: reduction in value of asset
Write off: total reduction in value of an asset