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changes to the records or books managed by a company. Every journal entry comes with a detailed one-line identifier, which should be unique and should relate to the entry that you’re recording. Entries should also contain a date, an amount for the transaction, a mention of the debit/credit, an account code, and proper alignment.
Liquidity
Liquidity identifies just how quickly an accounting asset, or any other asset, can be converted into cash. The liquidity of an organization is important to assess the preparedness of a business for unexpected scenarios. Businesses should always have a positive liquidity ratio, which is measured in the form of the Acid Test or the Current Ratio. Liquidity of separate assets almost always depends on how hard it will be to convert the asset into cash. Assets that are easy to turn into cash during emergencies are more liquid than other assets that can take up time during conversions. The stocks you possess can easily be turned into cash in comparison to real estate property, which is hard to sell off.
On Credit
Any purchase that happens on credit or on account is one that has to be paid at a given time in the future. Credit purchases are made when the buyer needs the replenishment or services immediately but cannot pay for them at the given time. As soon as the resources are incurred, the vendor will make payments for the purchases made.
Overheads
Overheads are basic administrative
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expenses that relate to running and managing a business. Overhead expenditures do not include expenses directly relating to the delivery of the service or the manufacturing of the product you provide. Overhead expenses often include rent, internet payments and other administrative expenses of this sort.
Payroll
Payroll is the account created by the HR department, which shows all payments to employee salaries, deductions made in the finalamount,wagespaidtohourly workers and bonuses given to high- performing employees. Payroll is generally marked as an expense under salary and wages, but it can also appear on the balance sheet as a liability. This happens when a company owes accrued wages or unpaid vacation pay to employees.
Present Value
Present Value and Net Present Value are concepts based on the valuation of assets today, as opposed to their valuation at different points in time. Both these concepts are used in investment appraisal techniques and find the present value of an investment in today’s terms. These concepts are based on the principle that cash in hand is more valuable and better than the cash you get tomorrow.
Return on Investment
While the term return was originally used to refer to the profit or loss generated by an organization, the term is also currently used to refer to the returns from a specific investment. Organizations are part of numerous projects and investments at any given time,
which is why it is necessary that they track and monitor the returns to measure and evaluate the success of their project.
For instance, an organization that spent around $1,000 in marketing and made a return on investment of 50 percent would have probably made a profit of $1,500.
Trial Balance
The trial balance is the listing that includes all accounts mentioned in the general ledger. The separate heads or account titles are posted on the trial balance with their separate account titles and separate debit or credit balances. The debit side of the trial balance should equal the credit side, which is why it is called the ‘trial balance’. This trial balance measures the accuracy of the balances before they are put into the final income statement and balance sheet.
Variable Costs
Variable costs work as complete opposites of fixed costs, which we discussed earlier. Variable costs change with the volume of sales and are determined by just how much a manufacturer produces or sells. Variable costs are all direct expenses incurred in order to provide the end product or service and drive the sales figure forward. These terms are necessary for maintaining your accounts and recording all entries periodically. We hope you can use the information to derive positive results in your own business.