Month: September 2017

Debt Ratio

Debt is a natural part of business.   The most volume (number of transactions) of debt occurs with the simple purchase of materials (inventory) or supplies on account.   Every business buys on account whether it is a traditional vendor account like that found in retail or simply using a credit card.   A third party provides credit …

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Fixed Asset Turnover Rate

The fixed asset turnover rate is another activity ratio whereby an income statement financial characteristic is compared to a balance sheet asset section.    In this case, comparing adjusted sales against historical cost of fixed assets.   This financial business ratio is only effective for business operations that are fixed asset intensive.  So with service based industries …

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Working Capital Turnover

The activity ratios measure performance of a current asset on the balance sheet against a corresponding area of the income statement.  The working capital turnover is the most encompassing of all the activity ratios; in effect, it is the most general of the activity ratios.   This particular ratio measures the ability of management to efficiently …

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Tenancy in Partnership

Black’s Law Dictionary defines tenancy as the right to possess or occupy land.   It goes further to state: “The possession of real or personal property by right or title, especially under a conveying instrument such as a deed or will”. The Uniform Partnership Act defines a partnership as two or more persons who join together in …

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Cash Ratio

One of the liquidity ratios used in business is the cash ratio.  It is a much more effective tool for small business than the traditional current or quick ratio.  Although the cash ratio is more difficult to manipulate in small business, most entrepreneurs miscalculate the result.  This resource paper is designed to explain to the business entrepreneur …

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Business Barriers

No business is instantaneously successful.   There are multiple obstacles referred to as barriers all owners and managers have to overcome.   There are three primary groups of barriers for every business out there.   They include capital (financial backing), knowledge (level of education and/or experience) and persistence (staying power).   The following sections introduce …

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Bookkeeping – Departmental Accounting (Lesson 71)

One of the goals of accounting is to report to management performance results, specifically financial performance.   Since most businesses sell more than one product or render more than one service, management is interested in understanding the performance of the respective products or service.   To successfully report this information, the accountant uses departmental accounting to divide the …

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