Fiscal Quarter: Definition, Meaning, Example, What It Is, Usage

It's no secret that managing a business's finances is key to its success and well-being. But creating order from the chaos of financial data can be an intimidating task for any entrepreneur or a small business owner.

One way to simplify this process is by using fiscal quarters, which are three-month periods during which companies track and review their financial performance.

By understanding what a fiscal quarter is and how to use it, businesses can make better-informed decisions about their financial health.

What is a Fiscal Quarter?

A fiscal quarter is a specific time frame that a business or organization uses to measure and analyze its financial performance. Typically, a fiscal quarter consists of three consecutive months, and there are four fiscal quarters in a fiscal year.

Many companies use fiscal quarters to stay on top of their

• Financial health
• Forecast business growth
• Project expenses
• Determine budgets, etc…

Fiscal quarters also serve as a crucial tool for investors who track financial information for the companies they invest in. Essentially, a fiscal quarter provides a snapshot of how a company is doing financially within a specific period.

How Fiscal Quarter Works

A fiscal quarter consists of four different quarters for the year, typically starting in January and ending in December.

Each quarter covers three months of the calendar year as follows

• Q1 – January, February, March
• Q2 – April, May, June
• Q3 – July, August September
• Q4 – October, November, and December

At the end of each quarter, businesses need to review and analyze their financial performance. This can help them determine if they are still achieving their goals or if adjustments need to be made.

Uses of Fiscal Quarters

Here are a few of the key uses for fiscal quarters

1. Organize Budgeting

By breaking up the year into smaller periods, it becomes easier to analyze financial data, identify trends, and adjust budgets accordingly.

For example, if a business sees lower sales during the first quarter, it may choose to adjust its budget for the second and third quarters to account for the slow start.

2. Managing Quarterly Dividends

By breaking down the year into four equal parts or quarters, companies can establish an organized system for distributing dividends to shareholders.

This also allows for better planning and forecasting of financial objectives, as well as providing insight into the company's financial health every quarter.

3. Improving Cash Flow

By tracking revenue and expenses every quarter, businesses can better identify areas where cash flow needs to be improved or managed. This allows them to adjust their spending patterns and make smarter financial decisions.

4. Future Growth Plans

One of the crucial elements of a successful business is its ability to plan for the future. By regularly tracking their financial performance every quarter, companies can develop strategies and make plans to ensure sustainable growth.

5. Improved Decision Making

By understanding the financial performance of their business every quarter, businesses can make better decisions to ensure they stay on track and achieve their goals.

Decision-making is a huge part of running a successful business, and understanding the financial performance of their business in each quarter can help them make better decisions.

Conclusion

Fiscal quarters are very important for businesses to track and analyze their financial performance. By understanding what a fiscal quarter is and how to use it, companies can manage their budgeting, cash flow, and future growth plans more effectively.

Article Source Here: Fiscal Quarter: Definition, Meaning, Example, What It Is, Usage

Purchase of Merchandise: What It Is, Accounting, Journal Entry, Example, Definition, Cash or Account

Merchandise refers to goods a company purchases or produces for selling to customers. It includes tangible products bought, stored, and sold in the operations. Examples of merchandise include finished goods, raw materials, or inventory items a company acquires to resell for a profit.

The above process starts when a company purchases any of those goods. Companies treat it as the purchase of merchandise in accounting.

What is Purchase of Merchandise?

Purchase of merchandise is the acquisition of inventory or goods that a company intends to sell to customers to generate revenue. Companies may also use other terms, such as "merchandise purchases" or "cost of goods purchased”, to describe it. However, the merchandise can vary greatly depending on the type of business and industry.

When a business purchases goods, it typically involves negotiating with suppliers, placing orders, receiving goods, and verifying the accuracy of purchase invoices or receipts. The purchase cost of merchandise includes the actual cost of the goods and also any other costs directly attributable to bringing the merchandise to the place of sale. For example, the additional expenses may include transportation costs, customs duties, and other related items.

What is the accounting for the Purchase of Merchandise?

Accounting for the purchase of merchandise involves recording the cost of the merchandise, along with any applicable costs like freight or taxes, as an expense or asset. The classification will depend on the accounting method used. Usually, the cost gets recorded in a specific account, such as "Purchases" or "Inventory", on the general ledger. Taxes and discounts associated with the purchase are not a part of this cost.

It is crucial to reconcile and verify invoices received from suppliers against recorded purchase transactions for accuracy. Returns or allowances for damaged or defective merchandise get recorded separately and reflected in the financial statements. If the business maintains inventory, periodic inventory valuation may be necessary using methods like FIFO, LIFO, or weighted average cost.

What is the journal entry for the Purchase of Merchandise?

The journal entry for the purchase of merchandise is straightforward. Companies must record the acquisition as an inventory item until sold to a customer. On the other hand, it also entails recognizing the applicable compensation method to the supplier. Overall, the journal entry for the purchase of merchandise is as below.

Dr	Purchase of merchandise
Cr	Bank or Cash or Accounts payable

As stated above, the journal entry records the cost of the merchandise and any applicable expenses in bringing it to its location.

Example

A company, Green Co., purchases goods from a supplier for $10,000. The company pays its suppliers 30 days after acquiring the items. Based on the above information, Green Co. records the transaction using the following journal entry.

Dr	Purchase of merchandise	$10,000
Cr	Accounts payable	$10,000

These goods will become a part of the inventory for Green Co. until they get processed or sold to a customer.

Conclusion

Purchase of merchandise refers to the process of acquiring goods from suppliers. These goods may include raw materials or finished goods that a company can process or sell to customers. However, merchandise will differ for companies based on where they operate. The accounting for the purchase of merchandise is straightforward, as discussed above.

Originally Published Here: Purchase of Merchandise: What It Is, Accounting, Journal Entry, Example, Definition, Cash or Account

DuPont Formula: Definition, Analysis, Calculation, ROE, Equation, Example

Understanding the factors contributing to a company's financial performance is crucial for assessing its profitability and efficiency. Financial managers, investors, and analysts often analyze various components that impact a company's financial health. Usually, these components are a part of the DuPont formula.

What is the DuPont Formula?

The DuPont formula is a financial analysis tool that breaks down a company’s return on equity (ROE) into its components. The primary objective is to provide insights into the factors driving a company's profitability. Initially, this formula came from the DuPont Corporation in the 1920s. Since then, it has become a widely used approach to assess a company's financial performance. Another name used for it is DuPont Analysis.

The Dupont formula offers several advantages for evaluating a company's financial performance. Firstly, it provides a comprehensive and holistic view of the critical drivers of return on equity. Secondly, this formula enables meaningful benchmarking and comparison with industry peers. The DuPont formula can also be valuable for financial planning and forecasting.

How does the DuPont Formula work?

The DuPont formula helps analyze the return on equity and breaks it down into three components. These include profit margin, asset turnover, and equity multiplier. Additionally, the DuPont formula helps in financial analysis, benchmarking, and decision-making, making it a crucial tool for companies. This formula equates the return on equity as follows.

Return on Equity (ROE) = Profit Margin × Asset Turnover × Equity Multiplier

Each component provides insights into different aspects of a company's financial performance. By analyzing these components, the DuPont formula helps identify the drivers of a company's ROE, a key measure of profitability and shareholder value. Similarly, it provides insights into how well the company manages its profitability, asset utilization, and financial leverage.

Profit Margin

Profit margin measures a company's profitability by calculating the net profit as a percentage of total revenue. A higher profit margin indicates that the company is generating more profit from each dollar of revenue, which is a positive sign of profitability. In contrast, a lower profit margin may indicate lower profitability or higher costs and [glossary_exclude]warrant [/glossary_exclude]further investigation.

The formula for profit margin is as below.

Profit Margin = Net Income / Total Revenue

Asset Turnover

Asset turnover measures how efficiently a company utilizes its assets to generate income. Companies can calculate it by dividing total revenue by average total assets. Usually, a higher asset turnover ratio suggests that the company is generating more income from its resources, which implies higher operational efficiency. A lower asset turnover ratio may indicate underutilization of assets or lower sales volume and may require further analysis.

The formula for asset turnover is as below.

Asset Turnover = Total Revenue / Average Total Assets

Equity Multiplier

The equity multiplier reflects the financial leverage or the degree of debt financing. Companies can calculate it by dividing the average total assets by the average shareholders' equity. Usually, a higher equity multiplier indicates that the company has a higher level of debt in its capital structure, which may result in higher financial risk. A lower equity multiplier may indicate lower debt levels or higher equity financing.

The formula for equity multiplier is as below.

Equity Multiplier = Average Total Assets / Average Shareholders' Equity

Conclusion

DuPont formula is a financial analysis technique that provides insights into the critical drivers of a company's return on equity. It allows for meaningful benchmarking, financial planning, and forecasting and aids in identifying areas of strength and weakness in a company's financials. Overall, the DuPont formula is a valuable tool for users to assess a company's financial health and make informed decisions.

Originally Published Here: DuPont Formula: Definition, Analysis, Calculation, ROE, Equation, Example

Portfolio at Risk: Definition, Formula, Example, Calculation, Meaning, Analysis

A Portfolio at Risk (PAR) is a way to measure how much credit risk there is with loans. It looks at how many loans are not getting paid back on time - this tells us if those loans will be repaid or not.

By understanding the PAR, lenders can get a better picture of the credit risk their portfolio carries.

It is calculated by dividing the total amount of loans with arrears (those overdue for more than 30 days) and restructured loans, by the outstanding gross portfolio (the original loan balance).

What is Portfolio at Risk

Portfolio at Risk (PAR) measures the percentage of microfinance loans outstanding in a lender's total loan portfolio that are at risk of default, typically defined as loans that are 30 days or more past due.

It is commonly used as a standard measure of credit risk in the microfinance industry and is an important metric used by lenders to manage their loan portfolios and assess their overall credit risk. A higher PAR indicates a higher level of credit risk in the portfolio.

PAR is the ratio of loans affected by arrears (those overdue for more than a certain number of days) divided by the total outstanding balance of loans.

It’s used to assess the credit risk in a loan portfolio and is an important tool for lenders when making decisions on loan origination, servicing, and collections. PAR typically looks at loans overdue for more than 30, 60, 90, 120, and 180 days.

The higher the PAR of a portfolio, the greater the risk that many of the loans will not be repaid in full.

How PAR Works

To understand how PAR works, it's helpful to break down its components.

First, lenders need to identify the total balance of loans that are in arrears (overdue for more than 30 days) and any restructured loans - this is known as the "at risk" portion of the portfolio.

Next, they need to identify the total gross loan portfolio, which is the original balance of all loans issued by the lender.

Finally, they need to divide the at-risk portion of their portfolio by the total gross loan portfolio to calculate the PAR. The higher the ratio, the greater the risk that many of these loans will not be repaid in full.

The PAR helps lenders to identify potential problem loans and take proactive steps to mitigate the credit risk in their portfolio. It is a helpful tool for making better lending decisions and can be used as a benchmark by other lenders in the microfinance industry.

The Formula of Portfolio at Risk

Calculating the PAR is quite simple - it is the ratio of loans affected by arrears (those overdue for more than a certain number of days) divided by the total outstanding balance of loans.

PAR = Total Balance of Loans in Arrears/Total Outstanding Gross Loan Portfolio

For example, if a lender has 5,000 loans outstanding with a total balance of $2,000,000 and 100,000 of those loans are overdue for more than 30 days, the PAR would be calculated as follows

PAR = ($100,000/$2,000,000) x 100% = 5%

5% is considered a low PAR, indicating that the lender’s portfolio has a low level of credit risk.

Conclusion

Portfolio at Risk (PAR) is an important tool for lenders to manage their loan portfolios and assess overall credit risk. It looks at how much of the loan portfolio is overdue for more than 30 days or restructured, which gives lenders an indication of how securely their loans are being repaid.

Originally Published Here: Portfolio at Risk: Definition, Formula, Example, Calculation, Meaning, Analysis

Influencing the Markets: The Motivation of Social Media Influencers

Social media influencers have become an increasingly important presence in the financial markets in recent years. These individuals have amassed large followings on platforms such as Reddit, Twitter, Instagram, and YouTube, and they use their influence to provide investment advice and insights to their followers. Some social media influencers specialize in specific areas of the financial markets, such as options trading or cryptocurrency investing, while others offer more general advice and market commentary.

While social media influencers are supposed to provide valuable information and insights to investors, it is important for investors to approach their advice with a critical eye. Not all social media influencers are experts in the financial markets, and some may have conflicting interests that could bias their advice. Additionally, social media influencers may not have access to the same level of research and analysis as professional investors, which could limit the effectiveness of their strategies.

Reference [1] discussed the motivation of the social media influencers in the financial markets, i.e. the so-called “finfluencers”. The authors pointed out,

First, finfluencers are not solely motivated to seek out fundamental value information and trade to profit off of it. Instead, they try to maximize popularity, be entertaining, and “grow their brand,” among other motivations. Because they mediate the information that reaches retail investors and provide powerful coordination mechanisms across those investors, finfluencers’ influence shapes the types of “information” and motivations that are reflected in stock price movements. Second, the more influence finfluencers wield, the more they can predict and even control trading patterns among their followers. From a finfluencer’s perspective, stock price movements can become more predictable,which can weaken finfluencers’ incentives to provide valuable information to their followers and make profiting at the expense of their followers more tempting.

In short, social media influencers in the financial markets are mostly motivated to maximize their popularity, be entertaining, and grow their brand.

The article's conclusion is consistent with our experience. We have observed that many financial service providers on Twitter are focused on amassing large followings. These providers often use social media as a platform to advertise their services and promote their products, rather than sharing insights about the financial markets.

The article also concluded that social media influencers can limit the effectiveness of the non-arbitrage principle,

Finfluencers can make it harder for other traders to eliminate price differentials caused by nonfinancial trading reasons, which they could otherwise do through arbitrage. As it becomes more difficult for other traders to arbitrage prices because finfluencing makes those prices more resistant to informed trading, prices reflect even more nonfinancial, finfluencer-driven value. As others have noted, impact is greatest when coordinated.

Let us know what you think in the comments below or in the discussion forum.

References

[1] Guan Sue, The Rise of the Finfluencer (2022). New York University Journal of Law and Business, Forthcoming, Santa Clara Univ. Legal Studies Research Paper No. 4400042, https://ssrn.com/abstract=4400042

Originally Published Here: Influencing the Markets: The Motivation of Social Media Influencers

Process Costing: Definition, System, Importance, Example, When It Is Used, Formula, Accounting

Accurate cost allocation and determination of the cost per unit are crucial in industries where continuous processes occur. Costing techniques enable companies to accumulate and allocate costs, determine the cost per unit, and report cost information for each production process. Companies in these industries can use process costing to achieve that.

What is Process Costing?

Process costing is a managerial accounting method of calculating the cost of producing large quantities of identical or similar products or services. It is prevalent in industries where production occurs through continuous or repetitive processes. Usually, it involves accumulating and allocating costs to determine the cost per unit used for valuation and accounting purposes.

In process costing, the costs incurred during each production process get accumulated and allocated to the units produced. The total costs incurred in each step are then get divided by the total units produced to determine the cost per unit. Consequently, this cost per unit helps in valuation and accounting purposes, such as determining the cost of goods sold and valuing inventory.

How does Process Costing work?

There are several steps involved in process costing, as listed below.

1. Collecting costs: All costs incurred during each production process get accumulated and recorded in appropriate cost accounts.
2. Assigning costs: The accumulated costs in each production process get allotted to the units produced during that process. It occurs by using a predetermined allocation method, such as using the average cost per unit or allocating costs based on the physical units produced.
3. Determining cost per unit: The total costs incurred in each production process get divided by the total units produced during that process to determine the cost per unit.
4. Reporting: The cost per unit determined in each process gets used for valuation and reporting purposes, such as determining the cost of goods sold and valuing inventory.

Some companies may have more than one production process. Therefore, they must repeat these steps individually.

What is the importance of Process Costing?

Process costing is essential for businesses with continuous or repetitive production processes. It enables accurate cost determination, as costs get tracked and allocated to each production process. Consequently, it helps determine the cost per unit and valuing inventory and cost of goods sold. This information is crucial for financial reporting and decision-making.

Process costing also allows for effective cost monitoring, as costs get systematically tracked at each stage of the production process. Therefore, it helps companies identify cost variances, analyze cost trends, and take corrective actions to manage costs efficiently. Process costing also helps in production planning by providing cost information that allows businesses to optimize production levels, adjust production schedules, and ensure efficient resource utilization.

What are the limitations of Process Costing?

Process costing, like any costing method, has its limitations. One limitation is the lack of accuracy in cost allocation, as costs get estimated, assumed, or averaged across production processes, which may not reflect the actual resource utilization. Consequently, it can result in distorted cost information, affecting decision-making and financial reporting.

Process costing may also face challenges in tracking individual product costs, as costs get allocated to production processes rather than single products. It can make it difficult to determine the cost of each product. Similarly, process costing may not accurately capture unique costs, such as specific labour or overhead costs, which can result in incomplete cost information.

Conclusion

Process costing is a prevalent method applying industries involving continuous or repetitive production processes. It offers benefits, for example, simplicity, ease of use, and the ability to provide cost information for mass-produced or similar products. However, it may also have some limitations, as listed above.

Article Source Here: Process Costing: Definition, System, Importance, Example, When It Is Used, Formula, Accounting

NSF (Non-Sufficient Funds) Check: Meaning, Definition, Charge, Fee, Reconciliation

NSF checks can disrupt any business, no matter how big or small. Also known as non-sufficient funds checks, these occur when a customer writes a check for an amount greater than what they have in their account.

This can cause significant headaches for business owners, leading to lost revenue, extra administrative work, and damaged customer relationships.

NFS checks are very common so it's important to understand how they work and how to avoid them.

What is an NSF Check

An NSF check is a bounced check, which stands for "non-sufficient funds". This means that the person who wrote the check did not have enough money in their bank account to cover the amount of the check - so the bank cannot process the payment.

This results in the check being returned to the recipient and the account being charged a fee.

In simple terms, an NSF check has been refused by the bank due to insufficient funds in the customer’s account.

Identifying NSF Checks

Identifying an NSF (non-sufficient funds) check is important to prevent financial losses. Here are the steps to identify an NSF check:

1. Check the account number and bank routing number on the check to ensure they are correct.
2. Verify the account holder’s name and address on the check.
3. Look for signs of tampering, such as erased or altered information.
4. Check the amount of the check to confirm it matches the written and numerical amounts.
5. Check the signature on the check to ensure it matches the account holder’s signature on file.
6. Deposit the check and wait for it to clear. If the check bounces due to insufficient funds in the account, it is an NSF check.

By following these steps, businesses and individuals can avoid accepting NSF checks and facing financial losses.

Avoiding NFS fees

To avoid Non-sufficient Funds (NSF) fees when using a bank account, businesses and individuals can take the following steps:

1. Keep a buffer amount in the bank account: This means maintaining a minimum balance that acts as a cushion to cover any unexpected expenses. Make sure to factor in all the regular expenses to determine what the buffer should be.
2. Be mindful of the available balance: Check the account balance regularly, especially before making any large purchases or payments. This can help avoid overdrawing the account and incurring NSF fees.
3. Set up account alerts: Most banks have options to set up alerts that notify when the account balance falls below a certain threshold, or when a large transaction is made. This can help stay on top of the account balance and avoid NSF fees.
4. Link to a savings account: Consider linking a checking account to a savings account or overdraft protection to avoid incurring NSF fees. If someone overdraws from the account, funds will be automatically transferred from the linked account to cover the deficit.

By implementing these strategies, both businesses and individuals can avoid incurring NSF fees and keep their bank accounts in good standing.

Conclusion

NSF can be a frustrating thing for both customers and business owners. But by understanding the basics of NSF checks, businesses can identify them more quickly and avoid financial losses. In addition, individuals can take proactive steps to stay on top of their account balances and avoid incurring NSF fees.

Originally Published Here: NSF (Non-Sufficient Funds) Check: Meaning, Definition, Charge, Fee, Reconciliation

Current Cash Debt Coverage Ratio: Definition, Formula, Calculation, Example, Interpretation, Meaning

Solvency ratios are financial metrics that measure a company's ability to meet its long-term debt obligations. They provide insights into a company's financial strength and ability to repay debts over an extended period. Typically, solvency ratios assess the relationship between a company's total debt and its equity or assets and indicate the proportion of debt in capital structure.

Several solvency ratios are crucial for both companies and stakeholders. One includes the current cash debt coverage ratio, an extension of the cash debt coverage ratio.

What is the Current Cash Debt Coverage Ratio?

The cash debt coverage ratio is a financial metric used to evaluate a company's ability to repay its debt using its operating cash flow. Companies can calculate it by dividing the operating cash flow by the average total debt during a specific period. Similarly, they can extend this ratio to calculate the current cash debt coverage ratio. This ratio uses current cash and current liabilities in the formula instead.

The current cash debt coverage ratio measures how efficiently a company manages its cash resources. It gauges how much a company can cover its current liabilities using the cash it generates from its operations. Therefore, it is a crucial ratio in assessing a company's solvency in the short term. Both investors and companies can use this ratio.

How to calculate the Current Cash Debt Coverage Ratio?

Companies can use the following formula for cash debt coverage ratio to measure their cash management efficiency.

Cash debt coverage ratio = Operating cash flow / Total debt

However, the current cash debt coverage ratio focuses on a more short-term approach. As stated above, it modifies the above formula to achieve that. Therefore, the formula for the current cash debt coverage ratio becomes:

Current cash debt coverage ratio = Current cash flow / Current liabilities

Some companies may also use the average current liabilities in the above formula. This average comes from the opening and closing balances of these liabilities.

Example

A company, Red Co., has a current cash flow of $500,000. The company had current liabilities of $200,000 at the beginning of the year and closed the balance at $300,000. Therefore, the average current liabilities for Red Co. are $250,000. Based on the above information, the current cash debt coverage ratio for Red Co. will be as follows.

Current cash debt coverage ratio = Current cash flow / Current liabilities

Current cash debt coverage ratio = $500,000 / $250,000

Current cash debt coverage ratio = 2 times

How to interpret the Current Cash Debt Coverage Ratio?

The current cash debt coverage ratio can be above or below 1. If it is the former, it means the company has more cash than its current liabilities. Usually, the higher this ratio is, the better it is for the company. It means the company has significant cash resources to cover its current liabilities. However, too high of a current cash debt coverage ratio may also imply the company is not utilizing its cash resources properly.

Similarly, if the current cash debt coverage ratio is lower than 1, the company may suffer in paying its current liabilities. It is a concern as it might indicate inefficient cash management from the company. However, users must still view this ratio comparatively to understand the acceptable current cash debt coverage ratio range.

Conclusion

The current cash debt coverage ratio measures how efficiently a company uses its cash resources. A ratio of higher than 1 implies the company can cover its current liabilities and still have some cash left. However, it is crucial to view the current cash debt coverage ratio comparatively. This ratio is one of the critical solvency ratios for both companies and investors.

Originally Published Here: Current Cash Debt Coverage Ratio: Definition, Formula, Calculation, Example, Interpretation, Meaning

Budget Variance: Definition, Types, Formula, Analysis, Report

A budget is a financial plan that outlines the expected income and expenses for a specific period, typically a year. It is a crucial tool that helps individuals and organizations manage their finances effectively and achieve their monetary goals. Similarly, budgets can help these parties monitor their spending, identify areas where they can cut costs or increase income, and work towards achieving those goals.

A budget can be a helpful monitoring and control tool. However, it cannot predict the actual results. In most cases, differences will exist with the original plan. These differences often fall under the definition of a budget variance.

What is a Budget Variance?

A budget variance is a financial measure that compares the actual financial results with the budgeted amounts. It evaluates how well an organization, department, or project is performing in achieving its financial goals. Usually, the difference between the actual results and the budgeted amounts is known as the variance. Users can use tools such as variance analysis to determine the cause of these differences.

Budget variances can occur for various reasons, such as changes in market conditions, unexpected events, or poor budgeting practices. By analyzing budget variances, organizations can gain insight into their performance and adjust their plans accordingly. For example, if an organization's revenue is higher than expected, it might decide to invest in new projects or expand its services. Conversely, if expenses are higher than budgeted, it might reduce costs or revise its budget.

What are the types of Budget Variances?

Most budget variances fall into two broad categories, controllable and uncontrollable. A description of each of these is as below.

Controllable budget variances

Controllable budget variances are differences in a budget that the management can control. Usually, these occur in revenues and expenses or areas related to operations. For example, a business may have budgeted $10,000 in revenue for a particular period but only achieved $8,000 in actual sales. If the difference is due to poor marketing efforts or a lack of sales initiatives, the variance is controllable.

Uncontrollable budget variances

As the name suggests, uncontrollable budget variances are differences in a budget beyond the management's control. However, it is still crucial for managers to understand the reasons for the variances and adjust their plans accordingly. For example, if a business is facing a downturn in the economy, managers may need to change their budgets to reduce expenses and conserve cash until conditions improve.

What is the difference between a favorable and unfavorable Budget Variance?

A favorable budget variance means that the actual results of a business are better than the budgeted or planned results. This variance can come from better-than-expected sales, lower-than-expected expenses, or a combination. For example, if a business had budgeted $50,000 in revenue for a particular period, but generated $60,000 in revenue, then the variance is considered favorable.

An unfavorable or adverse budget variance means that the actual results of a business are worse than the budgeted or planned results. This variance can come from lower-than-expected sales, higher-than-expected expenses, or a combination. For example, if a business had budgeted $50,000 in revenue for a particular period, but generated only $40,000 in revenue, then the variance is considered unfavorable.

Conclusion

A budget variance is a difference between an amount budgeted for and the actual result. It occurs when an entity over- or underestimates items in a budget. Usually, these variances fall into two broad categories, controllable and uncontrollable. On top of that, they can be favorable or unfavorable to the entity.

Article Source Here: Budget Variance: Definition, Types, Formula, Analysis, Report

Withdrawal Slip: What It Is in Bank, Example, How to Fill Out, Definition

A withdrawal slip is a written order to the bank that instructs it to withdraw funds from a certain account. It is an important document that allows consumers to retrieve money from the bank, and it can be used for both business and personal purposes.

Withdrawal slips vary between banks, but they generally include information such as the amount of money being withdrawn, the date of withdrawal, and any additional instructions or notes regarding the transaction.

Understanding how withdrawal slips work is essential for anyone who wants to use this form of payment.

What is a Withdrawal Slip?

A withdrawal slip is a document used to request money from a bank account. It can be filled out by hand or electronically and is usually accepted at most banking institutions.

The information required on the form will vary depending on the particular bank but generally includes basic information such as

• The name
• Address
• Account number
• The amount someone wishes to withdraw
• Account holder's signature

Once the form has been completed and verified, the bank will process the request and release the funds following the instructions.

How Withdrawal Slips Work

Withdrawal slips are the simplest way to make a withdrawal from the account.

To complete the form, the account holder will need to provide basic information about themselves and their bank account, as well as the amount of money they wish to withdraw. Once this has been verified by the bank, it will process the request and release the funds from their accounts.

It is important to remember that withdrawal slips might have some limits when it comes to the amount of money someone can withdraw and the frequency. Be sure to check with the particular bank to understand any restrictions they may have in place.

If someone has a large number of withdrawals to make, it may be worth considering more convenient options such as check and debit cards.

How to Fill Out a Withdrawal Slip

When filling out the form, be sure to double-check all information for accuracy.

Most withdrawal slips require consumers to provide their name, account number, details of the branch, and the amount of money they wish to take out. It is also important to remember to sign the form, as this is a legal requirement.

It’s important to keep the receipt once it has been completed. It will help check that the withdrawal was successful.

As mentioned earlier, withdrawal slips are the simplest way to make a withdrawal from an account. It is important to understand the rules of the particular bank and ensure that all information provided on the form is correct to avoid any complications.

Conclusion

If someone wants to make a withdrawal from their bank account, the simplest way to do so is by filling out a withdrawal slip. This requires basic information and only takes a few minutes to complete. It is important to double-check all information and keep a receipt once the form has been completed, as this will provide proof that the withdrawal was successful.

Article Source Here: Withdrawal Slip: What It Is in Bank, Example, How to Fill Out, Definition

Lower of Cost or Market: Definition, Rule, Formula, Method, Example, Calculation

Inventory is a crucial aspect of the operations and activities conducted by many companies. Usually, it includes the acquisition cost and any additional expenses in bringing the goods to their current condition. Accounting standards require companies to record inventory at that cost. Sometimes, though, it may not reflect the value of those goods on the financial statements.

Companies must conduct regular checks to ensure the inventory's value reflects the actual value of those goods. If it does not, the lower of cost or market principle may apply.

What is Lower of Cost or Market (LCM)?

Lower of Cost or Market (LCM) is an accounting principle used to value inventory at the lower of its cost or market value. This method is necessary for situations where the stock's market value has decreased significantly. Similarly, companies must use it when there is a risk that the inventory may become obsolete. The LCM principle ensures that stock gets valued at a conservative estimate and is not overstated on financial statements.

Lower of cost or market is a crucial accounting concept that helps companies accurately reflect the value of their inventory on financial statements. On top of that, it protects investors by providing them with accurate information about a company's assets. Similarly, lower of cost or market ensures that companies are not overvaluing their inventory, which could lead to misleading financial statements.

How does the Lower of Cost or Market (LCM) method work?

Under the lower of cost or market method, a company must compare the cost of inventory to its current market value. If the stock's market value is less than its cost, the company must adjust the inventory's value to reflect the lower market value. Usually, it means that the goods get recorded on the financial statements at the lower of their cost or market value, ensuring they accurately reflect the value of the company's assets.

The lower of cost or market principle also conforms to the conservatism principle in accounting. The latter requires companies to record an increase in losses or liabilities at the earliest possible. When the market value of goods becomes lower than its cost, it implies the company has suffered a loss on them. In that case, the company must record them when there is any indication of such decreases in the market value.

Example

A company, Red Co., holds 100 units of an item that cost $50 at the time. Currently, the company has these goods recorded on its financial statements at $5,000 ($50 x $100 units). However, recent changes in market conditions show that these goods may not be worth that much. The current market value of these items is $40 per unit.

The lower of cost or market principle requires Red Co. to record these items at $4,000 ($40 x 100 units). The $1,000 difference in value is the loss suffered by the company for those goods. However, it does not imply that the goods will remain at this value in the future. Red Co. must assess further changes in market conditions and determine the lower of cost and market after regular intervals for all items.

Conclusion

Lower of cost or market is an accounting principle requiring companies to record inventory accurately. As the name suggests, it entails companies determining which of two is lower, the inventory's cost or market value. This principle is a part of the accounting standards associated with the stock. The lower of cost or market principle also conforms to the conservatism principle.

Post Source Here: Lower of Cost or Market: Definition, Rule, Formula, Method, Example, Calculation

Merchandise Inventory: Definition, Journal Entry, Formula, Accounting, Debit or Credit, What It Includes

Retailers and wholesalers may purchase inventory from various suppliers to sell further. These businesses exist to invest money in goods from other companies and market them as a part of their operations. However, these goods do not constitute their finished goods. Instead, they classify as merchandise inventory.

What is Merchandise Inventory?

Merchandise inventory refers to the goods a company possesses and is available for sale to its customers. This type of inventory is prevalent in the retail and wholesale sectors, where products get purchased from manufacturers or distributors and then sold to consumers at a profit. This inventory can include several items, such as electronics, clothing, furniture, food products, etc.

Companies may categorize merchandise inventory by product type, supplier, or location, depending on its needs. It is a fundamental element in the operations of many businesses. However, accurate record-keeping of merchandise inventory is critical for businesses that rely on it. This way, companies can minimize the risks associated with under or over-stocking and can make informed decisions about their inventory management processes.

How to calculate Merchandise Inventory?

Companies can calculate merchandise inventory by adding up the cost of all goods in their possession and available for sale to customers. This calculation includes the cost of the products and any additional expenses incurred in obtaining and preparing them for sale. For example, the latter category may consist of shipping or labour costs.

A common method of calculating merchandise inventory is with the help of the cost of goods sold (COGS) formula. This formula involves subtracting the cost of goods sold during a specified period from the cost of goods available for sale during the same period. Therefore, companies can calculate merchandise inventory as follows.

Merchandise inventory = Opening inventory + Purchases - Closing inventory

The formula for merchandise inventory can provide the value of goods a company possesses and can sell to customers. However, the valuation for inventory may differ over time based on the technique used to determine the cost of goods sold.

What is the accounting for Merchandise Inventory?

The accounting for merchandise inventory involves tracking the value of goods that a company purchases or produces for sale to customers. Several steps may be a part of this process.

Firstly, companies purchase goods from different suppliers. They must account for these goods under the relevant accounting standards for inventory. As mentioned above, it may involve adding additional costs to the purchase price of the goods obtained from various suppliers. Over time, these purchases build up to constitute merchandise inventory for a company.

Once companies have merchandise inventory, they can sell it to their customers. This process involves using one of the accepted inventory valuation methods to determine the cost of the goods sold. Usually, these include FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and weighted average methods. Companies must also choose between perpetual or periodic approaches to evaluating inventory.

Conclusion

Merchandise inventory includes products that retailers or wholesalers purchase from suppliers and make available for sale. Essentially, it is the same as a typical inventory with similar implications. However, the name differs, meaning that these are goods that the company has acquired from suppliers for resale. Companies can calculate merchandise inventory through the COGS formula and various inventory valuation techniques.

Originally Published Here: Merchandise Inventory: Definition, Journal Entry, Formula, Accounting, Debit or Credit, What It Includes

Product Diversification: Definition, Example, Strategies, Types, Advantages, Risks

In a rapidly changing and increasingly competitive business environment, companies are always seeking ways to stay ahead of the curve. One strategy that companies often rely on to maintain their competitive advantage is product diversification.

If done correctly, product diversification can help a company grow its customer base, increase revenues, and reduce costs.

By expanding the products and services it offers to customers, a business is better able to meet its needs and capitalize on new market opportunities.

What is Product Diversification?

Product diversification is a business strategy where a company introduces new products or services that are distinct from its existing offerings.

This can involve expanding into new markets or creating new products that complement or replace the company's current offerings.

The main goal of product diversification is to reduce a company's reliance on a single product or market and to create new opportunities for growth and revenue.

Product diversification can be an effective way for businesses to increase their revenues and expand their customer base. By implementing a product diversification strategy, companies can expand their offerings and stay competitive in an ever-changing market.

How Product Diversification Works

Product diversification is a strategy that involves expanding a company's portfolio of products or services.

This can be achieved by creating new products that are different from the company's existing products or by acquiring other companies that offer complementary products or services.

This strategy can help a company reduce its reliance on a single product or market, and can also increase its revenue and profits.

One way that product diversification works is by spreading risk across multiple products or markets. By offering a range of products or services, a company can reduce its exposure to the risks associated with any single product or market.

In simple terms, product diversification can help a company become more resilient in the face of changing customer needs and market conditions.

By expanding its portfolio, a company can create new revenue opportunities while reducing its reliance on any single product or service.

Diversification Strategies

There are mainly three types of diversification strategies, namely concentric diversification, horizontal diversification, and conglomerate diversification.

1. Concentric diversification

Concentric diversification is a diversification strategy where a company expands its product offerings by developing new products that are related to its existing or current products.

For example, a company that makes mobile phone parts may introduce a related product such as chargers or cases.

2. Horizontal diversification

Horizontal diversification is a strategy where a company expands its product offerings by developing new products that are unrelated to its existing products. For example, a company that makes computer components may venture into the field of software development.

3. Conglomerate diversification

Conglomerate diversification is a strategy where a company expands its product and service offerings by producing different products that are unrelated to its existing offerings.

For example, a company that produces car parts may enter the food industry by opening a restaurant.

Risks of Product Diversification

While product diversification can be a valuable tool for businesses looking to expand their customer base and increase revenue, it carries some risks as well.

1. Cost of Developing New Products: Developing new products or services can be costly and time-consuming. Companies may need to invest in research and development, market testing, and other activities before launching a new product.
2. Uncertainty of Success: It is also difficult to predict whether or not a new product will be successful in the market. There is no guarantee that a new product will be accepted by customers or generate the desired revenues.
3. Market Fragmentation: Product diversification can also lead to market fragmentation, where competitors offer similar products and divide up the market share. This can make it difficult for companies to differentiate their offerings and increase their market share.

Conclusion

Product diversification is an important strategy for companies looking to stay competitive in an ever-changing market. By understanding how product diversification works, the risks it carries, and the different strategies available, companies can make informed decisions about their products and services and ensure that their investments pay off in the long run.

Article Source Here: Product Diversification: Definition, Example, Strategies, Types, Advantages, Risks

Lead-Lag Relationship Between VIX ETPs and VIX Futures

VIX ETPs, such as the VXX, are exchange-traded products designed to track the performance of the CBOE Volatility Index (VIX). The VIX is a measure of the expected volatility of the S&P 500 index over the next 30 days, and it is often referred to as the "fear index" because it tends to rise during periods of market stress and uncertainty. VIX ETPs enable investors to gain exposure to the spot VIX without having to trade futures contracts or options, which can be complex and require a high level of expertise.

Similarly, VIX futures also allow investors to trade the VIX index. They are listed on the CBOE Futures Exchange and can be used by investors for hedging against market volatility or for speculating on market movements. Like other futures contracts, VIX futures are settled in cash on the expiration date, and their value can fluctuate significantly based on market conditions and investor sentiment.

Reference [1] examined the lead-lag relationship between VIX ETPs, VIX futures, and the spot VIX. The authors pointed out,

Studies of high-frequency lead-lag relations reveal that all the 1x long, 1x inverse and 2x leveraged ETPs studied all lead VIX, regardless of whether markets are in contango or backwardation. As with VIX Futures, VIX ETPs also predict VIX. The lead-lag relations with VIX Futures are less obvious, similar to the findings of Bollenet al. (2017). However, we find that term structure of volatility has a significant impact on lead-lag relations between VIX Futures and ETPs. When the market is in backwardation, VIX ETPs tend to lead Futures more often, and particularly VXX and UVXY which lead in the majority of such days. Moreover, the duration of lead-lag relations can be 1–2 min when ETPs lead and lead-lag relations are statistically significant, suggesting that arbitrage opportunities might be possible.

In short, VIX ETPs, like VIX futures, also lead the spot VIX. The relationship between VIX ETPs and futures, on the other hand, is less obvious. VIX ETPs lead VIX futures only when the market is in backwardation.

Even though the authors suggested that VIX ETP-futures arbitrage is possible, we note that the opportunity is short-lived. Therefore, one would need to invest heavily in infrastructure to be able to exploit it.

Let us know what you think in the comments below or in the discussion forum.

References

[1] Michael O'Neill, GulasekaranRajaguru, Causality of price movements in VIX exchange-traded products and VIX futures contracts, Journal of Accounting Literature, April 2023

Originally Published Here: Lead-Lag Relationship Between VIX ETPs and VIX Futures

Bank for International Settlements (BIS): What It Is, Purposes, Role, Function, Definition

Bank for International Settlements (BIS) is a very important organization that facilitates international banking, finance, and monetary cooperation.

It is one of the oldest financial institutions in the world responsible for promoting global economic and financial stability.

It also serves as a forum for central banks to coordinate their policies and discuss common issues, such as the international monetary system, financial regulation, and payment systems.

What is the Bank for International Settlements (BIS)?

The Bank for International Settlements (BIS) is an international financial institution that works to promote global monetary and financial stability.

It is often called the "central bank for central banks" because it provides banking services and serves as a forum for central banks to cooperate and share information.

The BIS was founded in 1930 and is based in Basel, Switzerland. Its members consist of 60 central banks from around the world, including the Federal Reserve, European Central Bank, and Bank of Japan.

The BIS conducts research and provides analysis on various economic and financial issues, and also serves as a hub for international banking regulations and standards.

How The Bank for International Settlements (BIS) Works

At its core, the BIS operates as a forum for cooperation among central banks and other financial authorities. Its members include the central banks of 63 countries, representing most of the world's GDP.

One of the key functions of the BIS is to act as a hub for international financial coordination. It serves as a platform for central banks to share research and analysis, develop policy recommendations, and coordinate responses to global financial challenges.

The BIS also provides a range of banking services to its member central banks, including the management of foreign currency reserves, the provision of short-term loans, and the facilitation of international payments.

In addition to its role as a central bank for central banks, the BIS also hosts several international committees that focus on specific areas of financial regulation and supervision.

These committees provide guidance and recommendations to central banks and other financial authorities on issues such as banking supervision, financial stability, and payment systems.

Understanding the Settlements of The Bank for International Settlements (BIS)

One of the key functions of the BIS is to facilitate the settlements of transactions between central banks and other international organizations. Settlements involve the exchange of currencies and securities between parties, often across borders.

The BIS settles transactions using its electronic settlement system, known as the BIS Electronic Transfer System (BETS).

BETS facilitates the settlement of high-value cross-border transactions between central banks and other international organizations, such as the International Monetary Fund (IMF) and the Bank of International Settlements.

BETS is a secure and efficient platform that ensures timely settlements and reduced operational risk. It uses state-of-the-art technology and operates on a 24-hour basis, ensuring that settlements can be completed quickly and efficiently.

It's important to note that - BIS does not lend money to any governments or organizations, so it does not play a role in financing governments or international aid programs. It only facilitates the settlement of transactions between central banks.

Conclusion

The Bank for International Settlements (BIS) is a unique international financial institution that serves as a hub for global monetary and financial coordination. Its members include central banks from around the world, and it provides a range of banking services to its members, including the management of foreign currency reserves and the facilitation of international payments.

Article Source Here: Bank for International Settlements (BIS): What It Is, Purposes, Role, Function, Definition

Interim Reporting: Definition, Meaning, Requirements, Importance, Example

Companies prepare financial statements and other reports to present to their stakeholders. These reports provide details of the company’s financial position and performance for or over a period. Usually, companies prepare these reports for a whole fiscal year. However, they may also do it for shorter periods. This process falls under interim reporting.

What is Interim Reporting?

Interim reporting involves issuing financial reports covering a period shorter than a company's fiscal year. Typically, interim reports cover a period of three, six, or nine months. These provide stakeholders with updated information about a company's financial performance during the reporting period. Preparing and issuing interim reports may be mandatory for public companies. However, private companies may still do it voluntarily.

Interim reports contain critical financial statements, including income statements, balance sheets, and cash flow statements. Similarly, they provide insights into the company's financial position, operational performance, and any significant events or developments that may impact operations. The primary purpose of interim reporting is to provide stakeholders with timely and accurate information on a company's financial health and performance.

How often is Interim Reporting required?

Generally, the frequency of interim reporting requirements depends on the regulations of where the company operates. On top of that, the stock exchange on which it is listed plays a role in dictating the timeframe for these reports. Companies listed on major stock exchanges usually issue interim reports at least twice a year.

In the United States, the Securities and Exchange Commission (SEC) requires companies to file a Form 10-Q quarterly. It includes financial information for the first three quarters of the fiscal year. Additionally, some countries may require companies to issue interim reports every three, six, or nine months, depending on their local regulations.

What are the differences between Interim and Annual Reports?

The primary difference between interim and annual reports is the period they cover. Interim financial statements cover a shorter period, such as a quarter or a half-year, while annual reports cover a full fiscal year. Typically, interim reports provide stakeholders with up-to-date information on a company's operations during the year. However, annual reports focus on summarizing activities for a year.

Another difference between interim and annual reports is the level of detail they contain. Interim financial statements may not provide as much detail as annual because they cover a shorter period. In contrast, annual reports usually include several reports, such as income statements, balance sheets, and cash flow statements.

What are the importance and benefits of Interim Reporting?

Interim reports provide investors with up-to-date information on a company's financial performance, position, and cash flows during the year. This information is essential for making informed investment decisions and managing risks effectively. By having access to timely financial information, investors can decide about buying or selling stocks based on the most recent data available.

Interim reports also help companies to monitor their financial performance and identify any issues or opportunities that may arise throughout the year. Similarly, they can include other important information about a company's operations, such as significant events or changes that may impact the business. Interim reports also promote transparency and accountability in the financial markets.

Conclusion

Interim reporting covers a shorter period than the typical annual ones that cover a whole year. Sometimes, they may be mandatory to prepare based on the rules and regulations of the environment where a company operates. Interim reports differ from annual reports as they serve different purposes and provide different levels of detail.

Article Source Here: Interim Reporting: Definition, Meaning, Requirements, Importance, Example

Days Cash on Hand: Definition, Formula, Calculation, Example, Equation, Ratio, Meaning

Working capital ratios allow companies and stakeholders to gauge how liquid a company is. Usually, it uses figures from the income statement and balance sheet to show how long it takes to convert a company's resources to cash. One of the working capital ratios is the days cash on hand. Before understanding how to calculate it, it is crucial to discuss what it is.

What is Days Cash on Hand?

Days cash in hand is a financial ratio that measures the number of days a company can continue to operate using only its current cash balance. Essentially, it gauges how long a company can survive without additional cash inflows. It is a crucial ratio in determining how often a company needs cash inflows to run its operations smoothly.

The days cash on hand can provide an absolute ratio to users. However, it is crucial to use it comparatively instead to analyze it better. The situation in which a company operates significantly impacts this ratio. When users use this ratio comparatively, they can better understand how a company fairs based on its circumstances.

How to calculate the Days Cash on Hand ratio?

The days cash on hand is the ratio between cash on hand and average daily cash expenditure. Based on the above, the formula for the days cash on hand ratio is as below.

Days cash on hand = Cash on hand / Average daily cash expenditures

However, users outside a company may not have the information to calculate the average daily cash expenditures for a company. It is crucial to understand that it only includes expenses a company pays for in cash. Alternatively, users can calculate it by adding non-cash expenditures to operating expenses and averaging it over a year. The other days cash on hand formula based on the above becomes as follows.

Days cash on hand = Cash on hand / [(Operating expenses - Non-cash expenditures) / 365]

What does the Days Cash on Hand ratio mean?

The days cash on hand ratio differs for different companies. Usually, a high days cash on hand ratio indicates that a company has a significant cash reserve that can sustain its operations for a longer period. It provides a sense of security to investors, as it suggests that the company is financially healthy and has enough cash on hand to cover its short-term expenses and obligations.

On the other hand, a low days cash on hand ratio suggests that a company may have limited cash reserves and struggle to meet its short-term financial obligations. It may also imply that the company may need external funding sources. It can be a warning sign for investors, as it indicates that the company may be at risk of financial distress if it doesn't generate sufficient cash inflows in the short term.

Example

A company, Red Co., has cash on hand of $100,000. Its operating expenses for the period are $500,000, including non-cash expenditures of $100,000. Based on the above information, Red Co.'s days cash on hand is below.

Days cash on hand = Cash on hand / [(Operating expenses - Non-cash expenditures) / 365]

Days cash on hand = $100,000 / [(500,000 - $100,000) / 365]

Days cash on had = 91 days

Conclusion

Days cash in hand is a ratio that calculates how long a company can survive without cash inflows. It considers the relationship between cash on hand and average daily cash expenditure. Usually, companies strive to achieve a high days cash in hand. A low ratio means that the company may not be able to meet its financial obligations in the short term.

Post Source Here: Days Cash on Hand: Definition, Formula, Calculation, Example, Equation, Ratio, Meaning

Interim Chief Financial Officer: What He Does, Requirements, Duties, Responsibilities, Qualifications

An interim chief financial officer (CFO) is a temporary executive hired by a company to fulfill the duties and responsibilities of a CFO on an interim basis. This can be due to a variety of reasons, such as a sudden departure of the previous CFO, a period of transition or restructuring, or the need for additional financial expertise for a specific project or initiative. In this blog post, we will explore what an interim CFO is, what they do, and why companies may choose to hire one.

What is an interim chief financial officer?

An interim CFO is an experienced financial professional who is brought in to serve as the company's CFO on a temporary basis. Interim CFOs are typically hired by companies that need immediate financial expertise or support, but either cannot afford or do not want to commit to a permanent CFO. Interim CFOs are also sometimes hired to help with the transition period between permanent CFOs or to lead financial restructuring efforts within a company.

Interim CFOs are typically experienced financial executives who have a strong background in finance, accounting, and business operations. They are able to quickly assess the financial health of a company, identify areas of improvement, and provide strategic guidance and support to help the company meet its financial goals.

What does an interim chief financial officer do?

The responsibilities of an interim CFO are vast and varied, depending on the needs of the company. Typically, an interim CFO is responsible for financial reporting, budgeting, forecasting, financial analysis, cash management, and risk management. They may also be tasked with leading finance teams, overseeing financial systems and processes, and working with other executives to develop and implement business strategies.

One of the primary responsibilities of an interim CFO is financial reporting. They are responsible for ensuring that financial reports are accurate, timely, and compliant with regulatory requirements. This includes preparing financial statements, overseeing the audit process, and ensuring that financial records are kept up-to-date and organized.

Another key responsibility of an interim CFO is budgeting and forecasting. They work closely with other executives to develop budgets and financial forecasts and ensure that the company is on track to meet its financial goals. Interim CFOs also conduct financial analyses to identify areas of improvement, develop strategies to reduce costs and increase revenue and provide recommendations to senior management on how to improve the company's financial performance.

Conclusion

In conclusion, an interim CFO is an experienced financial executive who is brought in to provide temporary financial expertise and support to a company. They play a critical role in ensuring that a company's financial operations run smoothly, providing strategic guidance and support, and helping the company meet its financial goals. Interim CFOs are often hired during periods of transition or change within a company, and they are able to provide stability and leadership during these times. Overall, interim CFOs are a valuable resource for companies in need of financial expertise and support.

Post Source Here: Interim Chief Financial Officer: What He Does, Requirements, Duties, Responsibilities, Qualifications

What Does Being Coached Out Mean?

Coaching out is an approach to employee management where owners work with a staff member to come up with an agreement that it’s in the best interest of both parties for them to leave their role.

It is often used when there has been a lack of performance or misbehavior, but traditional progressive discipline processes won't lead to the desired improvement.

Coaching-out conversations are aimed at convincing the staff member that continued tenure in the role doesn't make sense and agreeing on a smooth transition plan.

What is Coaching Out?

Coaching out is defined as a process of working with an employee to transition out of their role in the most constructive and mutually beneficial way possible.

This can involve conversations on job performance, improvement opportunities, and developing plans for a smooth exit from the organization.

When handled effectively, coaching out conversations can help build better relationships and reduce potential conflict.

The aim is to help the employee find a better place in another team or organization that can better utilize their unique skill set, while also maintaining the integrity of the values, culture, and brand of the original business.

How Coaching Out Works

When it comes to coaching out, there are certain essential elements to consider.

First, the conversation should always be conducted with respect and empathy. The goal is to convince the employee that continuing their tenure does not make sense and agree on a transition plan — not to shame or guilt them in any way.

It is also important for the manager to create an environment of openness and trust. This allows for constructive dialogue and collaboration in finding the best solution.

Finally, it is important to keep in mind that coaching out conversations can be complicated and delicate, so adequate preparation and planning are essential.

Overall, when it comes to tackling difficult employee issues with respect and care, coaching out can be a successful alternative to the traditional progressive discipline process.

It is an approach that emphasizes collaboration and problem-solving while keeping in mind the best interests of both parties.

Benefits of Coaching Out

The benefits of coaching out conversations are many.

1. It Builds Better Relationships Between the Employer and Employee

One of the biggest advantages of a coaching-out conversation is that it can help build better relationships between the employer and employee.

This means more trust, collaboration, respect, and understanding. This will not only benefit the individuals involved but also the entire team.

2. Improves Productivity

One of the main reasons why coaching out is considered an effective approach is that it helps to improve employee productivity.

By having open and honest conversations about job performance and goals, an employee can better understand their role and responsibilities, leading to improved efficiency in the workplace.

3. Prevents Conflict

Coaching out conversations is also beneficial for preventing conflict between employer and employee. By engaging in constructive dialogue, the employee can better understand their role and how they can contribute to the success of the organization.

This reduces potential sources of conflict and helps maintain a healthy and successful work environment.

4. Reduces Cost

Additionally, coaching out conversations can help reduce costs for an organization, as it eliminates the need for costly disciplinary processes or dismissal procedures.

This can help maintain a positive work culture and reputation as well. It also lowers employee turnover, leading to a more productive, cost-efficient workforce.

Conclusion

In conclusion, coaching out is an effective alternative to traditional disciplinary approaches. It emphasizes respect and collaboration while keeping in mind the best interests of both parties. Coaching out conversations can lead to productive, cost-efficient employees, better relationships between employer and employee, improved productivity, and reduced potential sources of conflict.

Article Source Here: What Does Being Coached Out Mean?

Portfolio Risks: Understanding and Managing the Risks of Investing in Different Asset Classes

When it comes to investments, whether it is a stock, bond, or any other security, there is some degree of risk. Every investment portfolio has its own degree of risk, and this is known as portfolio risk exposure.

The higher the risk amount, the greater the potential losses that could be sustained by an investor. However, the higher the at-risk amount, the greater the potential returns that could be earned as well.

What is Portfolio Risk Exposure

Every investment portfolio consists of different asset classes such as stocks, bonds, mutual funds, real estate, and other investments.

The overall risk of the portfolio is measured by how much money can be lost if the investments within it decline in value. The portfolio risk calculation measures volatility over a while, usually one year. However, it can be determined over shorter or longer periods as well.

The risk calculation takes into account not only the performance of the investments in the portfolio but also how they interact with one another. It measures overall risk by looking at how likely it is that the portfolio will be unable to meet its expected goals.

Different Types of Portfolio Risks

When calculating the portfolio risks, there are several types of risk to take into account - these include

1. Market Risk

The biggest risk of all is the market risk - this is the risk that the value of the investments in a portfolio will decline due to economic or political factors.

There are mainly three types of market risk

• Interest Rate Risks: This is the risk that interest rates will go up or down, causing the value of bonds to change.
• Equity Risk: This is the risk associated with investing in stocks. When stock prices decline, a portfolio’s value can be affected.
• Currency Risk: This is the risk of a currency losing its value due to exchange rate fluctuations.

2. Liquidity Risks

Investments such as mutual funds and stocks are easy to buy and sell, but other types of investments such as real estate may not be so easy to liquidate. So if any portfolio contains illiquid investments, there is a liquidity risk that needs to be taken into account.

3. Credit Risk

This is the risk of an investment not performing as expected due to default or insolvency of the issuer. This type of risk is usually associated with fixed-income investments such as bonds and other debt instruments.

4. Inflation Risk

This is the risk that inflation will outpace an investment’s performance, resulting in a loss of purchasing power for investors who own the investments.

However, this risk can be mitigated with investments that offer inflation protection such as Treasury Inflation-Protected Securities (TIPS) or precious metals such as gold.

How to Reduce Portfolio Risks

The best way to reduce portfolio risks is to diversify the investments within it as much as possible. This means investing in a variety of asset classes and ensuring that no single investment makes up too large a portion of the portfolio’s holdings.

Another way to reduce risks is to buy low-risk investments, such as government bonds or certificates of deposit (CDs). These investments are generally considered to be low-risk, but they may also offer a lower return than riskier investments.

Finally, investors should also consider investing in index funds or other passive investment strategies as these can help to reduce the overall risk of the portfolio while providing decent returns.

By diversifying, monitoring the markets closely, and understanding the different types of risk, investors can reduce their portfolio risks and achieve their financial goals.

Conclusion

In conclusion, portfolio risk is an important measure of the overall risk of a portfolio and its ability to meet its goals. By understanding the different types of risk, diversifying investments, and monitoring the markets, investors can reduce their portfolio risks and achieve their financial objectives.

Post Source Here: Portfolio Risks: Understanding and Managing the Risks of Investing in Different Asset Classes

Owner Withdrawal: Definition, Debit or Credit, Type of Account, Tax Treatment, Journal Entry, Calculation

Owners invest in a business expecting returns which may come in various forms. For companies, these returns include dividends, which are the distribution of earnings during a period. On top of that, it may also consist of a capital gain on shares over a period. Owners do not need dividends or may not capitalize these gains for other businesses.

For most businesses, owners receive returns through profits only. However, they cannot use those profits unless they withdraw them. In most cases, it occurs by taking money from the business for personal use. In business and accounting terms, these fall under owner withdrawals.

What is Owner Withdrawal?

Owner withdrawal refers to business owners removing assets or funds from their business for personal use. It reflects the transfer of ownership from that business back to its owners. Usually, withdrawals include cash, equipment, or other assets. However, they may significantly impact the financial health of the business if they are excessive or frequent.

Business owners must track withdrawals to ensure they do not take more than the allowed amount. These restrictions come from business bylaws or agreements. Similarly, it is crucial to note that owner withdrawals do not fall under business expenses, which are costs incurred by the business to generate revenue. On the other hand, owner withdrawals do not contribute to operations or generate revenue.

How does Owner Withdrawal work?

Businesses need capital or funds to operate. Usually, these funds come from two sources, equity, and liabilities. The former comes from owners and shareholders. In most cases, owners contribute to a business during its commencement stage. Furthermore, owners may further invest in that business when the need arises. As operations grow, the business may become self-sufficient and use profits as funds.

These profits that the business generates also are a part of the obligation towards its owners. Essentially, any income from operations is the owner's right after deducting expenses. Sometimes, owners may withdraw amounts from the business for personal or other uses. Any withdrawal in the form of assets, whether financial or non-financial, fall under owner withdrawal.

For sole proprietorships, withdrawals may be unlimited, subject to the value of the owner's equity in the business. For partnerships, these may fall under some restrictions based on the partnership agreement. In the latter case, withdrawing money may also impact the partner's holding and right to profits in the future. Owner withdrawals also affect the business's capital structure.

What is the tax treatment of Owner Withdrawal?

The tax treatment of owner withdrawals depends on the legal structure of the business and the jurisdiction where it operates. For the business itself, this withdrawal is not taxable. However, if the owner withdraws profits, these profits might have already gone through taxes. In some cases, these profits may also be taxed as a part of the owner’s income.

If the profits earned through operations don't fall under the owner's taxes, the treatment may differ. On top of that, if the owner receives a salary from the business, there might be additional tax implications. Overall, the tax system of a jurisdiction where the business operates impacts the tax treatment of owner withdrawals.

Is Owner Withdrawal A Debit Or A Credit?

Owner withdrawals are recorded as a debit to the owner's equity account and a credit to the cash or asset account. This is because owner withdrawals decrease the owner's equity in the business, and the cash or asset account is used to record the amount of cash or assets that the owner has taken out of the business.

The owner's equity account is a representation of the owner's investment in the business and reflects the residual interest in the assets of the business after liabilities are subtracted. When the owner withdraws cash or other assets from the business, the owner's equity decreases because the value of the assets that the owner has in the business has decreased.

Conclusion

Owner withdrawal is an accounting term to describe any assets an owner withdraws from their business. This withdrawal may be subject to some conditions depending on the type of that business and its agreement. Usually, owner withdrawal gets taxed as profits as a part of the owners’ income taxes. However, the treatment may differ in various cases.

Originally Published Here: Owner Withdrawal: Definition, Debit or Credit, Type of Account, Tax Treatment, Journal Entry, Calculation

Weighted Average Contribution Margin: Definition, Formula, Calculation, Example, Ratio

To understand how much money a particular product or service contributes to paying down the fixed costs of the business, it's essential to calculate the weighted average contribution margin.

It is an aggregate figure, calculated by taking the contribution margin of each product or service in a given group and weighting it to reflect its relative importance.

This allows businesses to easily determine how much money they are earning on different products or services.

It can be useful to know the weighted average contribution margin when doing a break-even analysis, as it shows how much profit each product or service must generate for the business to break even.

What is the Weighted Average Contribution Margin?

The weighted average contribution margin is a measure of profitability that indicates how much money a particular product or service contributes to paying down the fixed costs of the business.

It is calculated by taking into account the contribution margin for each item in the group and weighting it according to its relative importance. This allows businesses to easily identify which products or services are most profitable and which ones need to be improved.

The weighted average contribution margin is an important tool for businesses, as it allows them to accurately project their profits for different levels of sales.

It can also provide valuable insight into the overall health of the business and how it could be improved through changes in pricing or other strategies.

Understanding and utilizing the weighted average contribution margin can help businesses maximize their profits and achieve greater success in the long run.

How The Weighted Average Contribution Margin Works

The weighted average contribution margin is a key element of break-even analysis. This type of analysis determines how much sales volume is required to cover the fixed costs of the business.

By calculating the weighted average contribution margin, businesses can determine how much each product or service will contribute to covering their fixed costs. This helps businesses identify which products or services need to be improved to maximize profits.

This is a valuable tool for businesses when they’re making decisions about pricing, marketing, or any other strategy that could impact the profitability of their products or services.

By understanding the weighted average contribution margin, businesses can make more informed decisions and better manage their finances to maximize profits.

Formula for Calculating The Weighted Average Contribution Margin

Calculating the weighted average contribution margin is very simple. By subtracting the variable costs per unit from the sales price per unit, you can determine the contribution margin per unit.

Now to get the weighted average contribution margin, divide the contribution margin by the sales price - this will give you the contribution margin percentage.

This number will be just an estimate of the weighted average contribution margin, but it can be used to get an idea of how much profit each product or service will generate.

Example of Weighted Average Contribution Margin

Let's say Nick is selling t-shirts in his store. The t-shirts cost him $5 each to produce, including the cost of materials and labor, and he sells them for $15 each.

The contribution margin per unit would be

Sales price per unit - variable costs per unit = $15 - $5 = $10

Now, to calculate the weighted average contribution margin, divide the contribution margin per unit ($10) by the sales price per unit ($15).

This would give a contribution margin percentage of 67%.

Conclusion

The weighted average contribution margin is an important tool for businesses when doing a break-even analysis, as it shows how much profit each product or service must generate for the business to break even. By understanding and utilizing this concept, businesses can maximize their profits and increase their long-term success.

Article Source Here: Weighted Average Contribution Margin: Definition, Formula, Calculation, Example, Ratio

How Effective Are Stop-Loss Orders?

A stop-loss order is a type of order used in trading to limit an investor's losses or to take a profit. It is an instruction to sell a security when it reaches a certain price level, known as the stop price. When the stop price is reached, the stop-loss order is automatically executed, and the security is sold at the current market price.

Stop-loss orders are a popular risk management tool for traders, as they help to minimize potential losses in the event of an adverse price movement. By setting a stop-loss order, traders can define their risk tolerance and limit their potential losses to a predetermined amount. A trailing stop-loss order can also be used as a profit-taking strategy.

Reference [1] examined the effectiveness of stop-loss trading strategies. It utilized 2 types of stop-loss strategies:

• SL1: a sell order is generated when the price of the day is less than the average of 95% price over the previous three days.
• SL2: a sell order is generated when the price of the day is less than 95% of the highest price of the previous three days.

The authors pointed out,

Our findings are consistent with those of Lo and Remorov (2017), who demonstrated that tight stop-loss strategies underperform the buy-and-hold policy in a mean-variance framework due to high trading costs. In a nutshell, this study confirmed that the return of SL2 strategy in quarterly makes higher profit in comparison with two other strategies.

We think that the results are interesting, but not conclusive. Also, the studies have been performed on the Iranian stock market. It would be interesting to see the results from the developed markets’ perspectives.

As far as we’re concerned, we would limit the use of stop-loss orders since they make the PnL highly path-dependent, thus trading strategies become more complex to analyze. We prefer hedging strategies instead.

Let us know what you think in the comments below or in the discussion forum.

References

[1] Mohammad Amin Teimoori Boghsani, Abdolmajid Abdolbaghi Ataabadi, Majid Ameri, Effectiveness of Stop-Loss Trading Strategy VS. Buy-And-Hold Strategy: Evidences of Top 30 Companies at TSE, Preprint

Article Source Here: How Effective Are Stop-Loss Orders?

Service Revenue: Definition, Accounting, Journal Entry, Debit or Credit, Income Statement, Balance Sheet

Revenue refers to the income a company generates from its operations. Some companies also term it as sales. Typically, it is the first item that appears on the income statement. Revenue plays a crucial role in companies and how they operate. However, the source of these proceeds may differ from one company to another based on their activities.

For service-based companies, these revenues come from services rendered during operations. However, they may still differ from one company to another. These revenues fall under service revenue in the income statement.

What is Service Revenue?

Service revenue is the money a company earns from providing services to its clients or customers. It's the income that a business generates by offering services that satisfy its client's needs, such as consulting, software development, legal services, and more. Usually, these revenues are the primary income source for most service-based companies.

Service revenue is an accounting term and differs from other types of revenue. It is most relevant to companies that provide services as a part of their operations. Sometimes, companies may also sell physical products as part of their activities with services attached to these revenues. These companies then separate the income from both sources under different headings. Service-related earnings then become a part of service revenue.

What is the accounting for Service Revenue?

The accounting for service revenue involves recording the income from providing services to clients or customers. The company must debit the cash, bank, or accounts receivable account and credit the service revenue account. However, the value of the entry will differ based on the accounting standards a company follows.

Accounting principles require companies to record only the portion of the revenue earned as income. With services, this requirement applies more than to companies that sell products. Essentially, the services a company renders may spread over several accounting periods. Companies must separate the revenue relevant to one period from others.

The accounting treatment for service revenue also involves reporting it as a separate item on the income statement. This requirement is more relevant to companies that provide both services and products. Although not directly, service revenue also impacts the balance sheet.

What is the journal entry for Service Revenue?

The journal entry for service revenue is straightforward, as mentioned in the accounting treatment above. It involves debiting the relevant compensation account while crediting the service revenue account. Overall, the journal entry is as follows.

Dr	Accounts receivable or cash or bank
Cr	Service revenue

However, companies must ensure not to include unearned revenues in this journal entry as they constitute a liability.

Example

A service-based company, Blue Co., provides training services to employees. The company signed a contract with a client recently worth $100,000. During the fiscal period, Blue Co. had only completed 60% of the services agreed upon in the contract. For that period, Blue Co. recognized service revenue of $60,000 ($100,000 x 60%) using the following journal entry.

Dr	Accounts receivable	$60,000
Cr	Service revenue	$60,000

Conclusion

Service revenue includes income from services rendered to clients for various services. It is a separate account that records only service-related earnings. Usually, it is the first item in the income statement as well. Service revenue constitutes only income earned during a period. Companies must not record unearned revenues as a part of this account.

Article Source Here: Service Revenue: Definition, Accounting, Journal Entry, Debit or Credit, Income Statement, Balance Sheet

Manager’s Check: What It Is, Definition, Meaning, How to Get, Sample

A manager's check is a convenient, safe, and reliable way to pay large amounts of money relatively quickly. It is issued by the bank in its name and can be encashed by the bearer without having to go through the regular check-clearing process.

The guarantee provided by the bank makes it an ideal payment method for those looking to transfer or receive large sums of money with ease and security.

What are Manager Checks?

Manager checks are issued by the bank in its name, upon itself. It is a check that can be cashed without being passed through the regular banking clearing process and is guaranteed by the bank issuing it.

It can be a useful way of making large payments or transfers quickly and safely. A manager's check is also known as a treasurer's, cashier's, bank, or sight draft.

The best part about a manager's check is that it can be used as a form of payment without having to wait for the funds to clear.

This makes it ideal for large payments, such as buying real estate or when someone needs to transfer money between accounts quickly and securely.

How Manager Checks Work

When someone purchases a manager's check, the bank issuing it will guarantee payment.

This means that if the recipient of the check presents it for payment, the money will be paid even if there are insufficient funds in your account at the time.

The important part to note is that the payment of a manager's check is guaranteed, so there is no risk of the payment being dishonored.

It is important to remember, however, that a manager's check does not guarantee the validity of the transaction between the purchaser and recipient.

The bank issuing the check will only guarantee payment when presented for payment. It does not verify or guarantee any other aspect of the transaction.

It is important to make sure that all parties agree to the terms of the payment or transfer before issuing a manager’s check. This will ensure that everyone involved understands their rights and responsibilities in the transaction.

Uses of Manager Checks

Manager checks are mainly used to transfer or receive large amounts of money quickly and safely. They are commonly used in the purchase of property or real estate, as well as for large business payments such as taxes or loan repayments.

These checks can also be useful when a person is transferring money between their accounts, or sending funds to someone who does not have bank account access.

The main benefit of manager checks is that they are guaranteed by the bank, meaning that there is no risk of them bouncing or being dishonored. This makes them an ideal and reliable way to transfer or receive large payments.

Conclusion

Manager checks are a safe and secure way to make large payments quickly. They can be very useful financial tools when transferring large amounts of money, buying real estate, or making business payments. It's important to understand how manager checks work and be aware of the rights and responsibilities of all parties involved in a transaction before issuing one.

Originally Published Here: Manager’s Check: What It Is, Definition, Meaning, How to Get, Sample