ACCOUNTING

Most companies use the historical value method of deriving their asset’s value. This process includes taking the asset’s cost and deducting any impairment and depreciation to reach the book value. The same method applies to deriving the value of liabilities. However, some accounting standards also require or allow companies to measure items at fair value.…

Read More Fair Value Hierarchy: Definition, Levels, Examples

The accrual principle in accounting is a concept that requires entities to record transactions in the period in which they occur. This concept goes against the cash accounting method in which entities only account for cash transactions. However, the accrual principle does not consider the timing of the cash flows. There are several accounts that…

Read More Salary Payable: Journal Entry, Calculation, Example

What is Amortization? Amortization is a method through which businesses lower the book value of their loans or intangible assets. It is similar to depreciation for assets. Both of these techniques help companies record the gradual decrease in an asset’s book value. However, depreciation only applies to property, plant, and equipment, or fixed assets. In…

Read More Amortization Expenses: Formula, Journal Entry, Examples

Manufacturing companies incur various costs within different processes. These costs are vital in helping companies generate revenues and make profits. One of the essential items for those companies includes raw materials, which contribute to a significant portion of the overall expenses. However, there are other costs as well, which can be substantial. One of these…

Read More Conversion Costs: Formula and Examples

In a previous post, we presented an article on using an econometric model for predicting the P/E ratio. In this post, we will discuss a different approach for predicting a firm’s financials. Reference [1] utilized the Gradient boosting method for predicting a firm’s profitability. Gradient boosting is a method that belongs to the family of…

Read More Predicting Firm Profit Using Machine Learning Techniques

Efficiency is one of the primary factors in a company’s success. There are several metrics that provide valuable insights into a company’s operating efficiency. One of these includes the net operating assets. However, it is crucial to know about operating assets and liabilities first. What are Operating Assets and Liabilities? Operating assets are any resources…

Read More Net Operating Assets: Definition, Formula and Examples

The matching principle in accounting requires accountants to match the expenses with their related revenues. Sometimes, however, accountants may need to estimate figures. Once they establish the actual value, they must adjust their accounts to reflect the actual transaction or position. A term related to similar adjustments is ‘true up’. What is True Up in…

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What is a Foreign Exchange Gain and Loss? Most companies or businesses deal in various currencies due to the nature of their operations. It may include transacting with foreign suppliers or customers, overseas operations, foreign investments, etc. Usually, companies incur a gain or loss on each transaction due to variations in currency exchange rates. Therefore,…

Read More Accounting For Foreign Exchange Gains and Losses

In a previous post, we highlighted an article that showed how useful accounting numbers are. In this post, we will present a concrete example of an application of accounting numbers in portfolio management. Reference [1] showed that the Price-to-Earnings ratio is a mean-reverting process, and it can be accurately estimated by AR(1), an econometric model.…

Read More Using an Autoregressive Model to Predict the Price-to-Earnings Ratio and Develop an Investment Strategy

What are Mortgage-Backed Securities? Mortgage-backed securities (MBS) are financial instruments that have similar characteristics as bonds. These securities use mortgages or a collection of mortgages as collateral. Like other financial instruments, MBS also gets traded in the market. Mortgage-backed securities are a type of asset-backed securities and allow investors to deal in mortgages. Through these,…

Read More Accounting for Mortgage-Backed Securities