A broad based term used in various industries. In business it has several definitions. The primary definition is associated with the equity section of the balance sheet. It refers to the financial position of the owners of a business.

Bookkeeping – Controls in Accounting (Lesson 95)

Just as manufacturing uses controls to ensure quality of product, controls are used in accounting to generate accurate information, maintain security over assets and comply with Generally Accepted Accounting Standards. The company implements various controls to assure accurate and timely information. 

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Return on Equity

Return on Equity

Another performance ratio used in business is return on equity.  It is similar to return on assets except return on equity uses one section of the bottom half of the balance sheet.  This section is technical what the owner’s have rights along with the earnings of the business entity.  Recall that the balance sheet formula...

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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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Debt or Equity in Small Business – Fundamentals

Small business books and manuals explain the formula used to determine whether additional debt increases the return for investors commonly known as return on investment (ROI).   I find this laughable in our modern economic times given the low cost of financing.   For well qualified individuals, money can be borrowed at less than 6% …

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Bookkeeping – Various Terms (Lesson 26)

In the previous 25 lessons I covered a lot of different terms and this lesson is merely a summary of the various terms a bookkeeper encounters. (Lesson 1) Account types – There are six major sets of accounts; three (assets, liabilities, equity) used with the balance sheet and three (revenue, cost of sales, expenses) found …

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Bookkeeping – The Accounting Equation (Lesson 24)

The accounting equation is a simple formula used frequently in business.   The formula is: Assets = Liabilities plus Equity OR Equity = Assets minus Liabilities The owner is interested in increasing the equity position as this is his wealth in the business.   There are only two ways to increase the equity value. One …

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Treasury Stock – Fundamentals of Stock

Treasury Stock

Those corporations doing well and flush with cash sometimes buy back stock from their investors. Once purchased back by the company the stock is called treasury stock. However, in small business, buying back stock can significantly alter the entire corporate control ownership and impact the long term outcome and direction of the company.

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Financial Statements for the Small Business

Financial statements serve the purpose of presenting economic activity and status related to a particular date and over a particular time frame.  Accountants record monetary transactions and via financial reports present the information in an easy to understand format.  The financial statements for a small business do not have to comply with those of publically …

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