A contingent liability is a potential liability that may or may not occur, depending on the outcome of an uncertain future event. Contingent liabilities are not recognized in the financial statements but are disclosed in the notes to the financial statements. Some examples of contingent liabilities are: • Warranty obligations • Product recalls • Legal … Read more
Detection risk is the risk that material errors or irregularities in the financial statements will not be detected by the auditor. The auditor’s objective in performing audit procedures is to reduce detection risk to an acceptably low level. There are two types of detection risk: 1. Inherent detection risk – this is the risk that … Read more
. How to Use Year to Date (YTD) What is the difference between current and YTD? The main difference between current and YTD is that current represents a snapshot of a company’s financials at a specific point in time, whereas YTD represents the financials for the entire year up to that point. Current assets are … Read more
. Types of Financial Statements and How to Read Them What are the 4 types of financial statements? There are four types of financial statements: 1. The balance sheet, which lists a company’s assets and liabilities; 2. The income statement, which reports a company’s revenues and expenses; 3. The cash flow statement, which tracks a … Read more
The term “incremental cost” refers to the additional cost that is incurred as a result of a change in activity or production level. This additional cost can be either positive or negative, depending on the nature of the change. For example, if a company decides to increase its production level, the additional cost of doing … Read more
Remeasurement is the process of adjusting the carrying value of an asset or liability to reflect its current market value. This is done to ensure that the asset or liability is properly valued on the balance sheet. There are two types of remeasurement: 1. Remeasurement to fair value This is when the asset or liability … Read more
The term “General Provisions” refers to those items which are considered to be part of the financial statements, but which are not specifically accounted for in other areas. This can include items such as bad debts, taxes, and depreciation. What is provisional balance sheet? A provisional balance sheet is a financial statement that is typically … Read more
Free Cash Flow to the Firm (FCFF) is a measure of how much cash flow is available to the firm after accounting for operating expenses, capital expenditures, and debt service. It is a useful metric for assessing a company’s financial health and its ability to generate cash flow. Is free cash flow a good measure … Read more
Explicit costs are those costs that are incurred by a company for the purpose of producing a good or service. These costs include raw materials, labor, and other direct costs associated with production. Explicit costs are also known as “direct costs.” Are wages implicit costs? Yes, wages are considered to be an implicit cost. This … Read more
Segment margin is a measure of profitability used to evaluate the profitability of a business segment. Segment margin is equal to segment revenue minus segment expenses. Segment expenses include both direct and indirect costs associated with the segment. Segment margin can be used to compare the profitability of different segments of a business or to … Read more
