A PAC tranche is a type of collateralized mortgage obligation (CMO) that is used to finance the purchase of mortgage loans. The cash flows from the mortgage loans are used to pay the interest and principal on the PAC tranche. PAC tranches are typically the first to be repaid in a CMO structure. What is … Read more
The average balance definition is the total of all the balances in an account divided by the number of days in the period. This information is used to calculate the interest owed on the account. What is minimum average balance? The minimum average balance (MAB) is the minimum balance that a bank account holder must … Read more
An onerous contract is a contract in which one party has to bear a disproportionately high level of risk relative to the other party, or in which the costs of performing the contract exceed the economic benefits expected to be received. Such contracts are often unprofitable, and may even result in a loss. Onerous contracts … Read more
LIFO liquidation is the process of selling off inventory that has been purchased using the last-in, first-out (LIFO) method. This type of liquidation is typically undertaken when a company is experiencing financial difficulties and needs to generate cash quickly. In a LIFO liquidation, the most recent inventory purchases are sold first, regardless of how long … Read more
An aging schedule is a report that lists outstanding receivables by age. The aging schedule is used by businesses to keep track of which invoices are overdue and by how many days. This information is used to prioritize collections efforts and to assess credit risk. The aging schedule groups receivables by age, typically in 30-day … Read more
Replacement cost is the cost of replacing an asset with a new one of similar function and quality. This is different from the historical cost of an asset, which is the original cost of the asset less any depreciation that has been charged against it. Replacement cost is important in insurance, as it is used … Read more
A statutory audit is an independent examination of an organisation’s financial statements and other financial information, which is conducted in accordance with legislation. The purpose of a statutory audit is to provide assurance that an organisation’s financial statements and other financial information are free from material error and fraud. Statutory audits are conducted by certified … Read more
What is the Economic Order Quantity and why is it important? What are the limitations of EOQ? There are several limitations to the EOQ model which should be noted. Firstly, the EOQ model assumes that there is no uncertainty in demand, which is often not the case in the real world. Secondly, the model also … Read more
The accounting currency is the currency in which an organization’s financial statements are prepared. The accounting currency is usually the same as the functional currency, but may be different if the organization has operations in multiple countries. What are the 8 branches of accounting? The 8 branches of accounting are: 1) Public accounting 2) Management … Read more
The term “consolidate” in accounting refers to the combining of two or more companies under a single ownership. In a consolidation, the assets and liabilities of the component companies are combined on a single balance sheet. The income and expenses of the component companies are combined on a single income statement. The shareholders’ equity of … Read more
