When it comes to measuring revenue, it’s essential that businesses analyze it from a variety of perspectives. While there’s revenue and net income on an income statement to show a company’s quarterly financials, another way to measure it is through ARPU (average revenue per user) and ARPPU (average revenue per paying user). Defining ARPU ARPU is the average revenue per customer or per unit. It looks at how much revenue is earned over a particular timeframe (multiple times a month, quarter, half-year, or 12 months) divided by the average patron during the same timeframe. This can be applied to many different types of companies, including social media and software as a service (SaaS). It’s calculated as follows: ARPU = Total […]

With accounting fraud and financial reporting mistakes creating a lack of confidence, understanding how financial reporting mistakes occur and are detected is an important topic. According to the Association for Federal Enterprise Risk Management and the U.S. Securities and Exchange Commission, the first nine months of 2018 saw 8.8 percent more accounting fraud enforcement action cases versus 2017. Controls are procedures implemented to lower the chance of financial reporting issues. While these mechanisms are meant to prevent an overload of problems, they are not always foolproof. Corporations also are required to show that sufficient financial oversight is in place for financial records and assets by the Sarbanes-Oxley Act of 2002. There are two types of controls: preventive and detective. As […]

Managerial accounting is a form of internal reporting that helps business owners and others involved in the organization’s decision making. It looks at individual processes and products to see how they are functioning via practical data points. This is done in hopes of applying data analysis to improve the business’ operational efficiency. It is important to keep in mind the intended audience and data structure with regard to managerial accounting versus financial accounting. While managerial accountants analyze information, it is not subject to GAAP requirements; however, financial accountants must present company information according to GAAP standards – and such information is often intended for external consumers like investors or lenders. Measuring Inventory Levels One way that businesses turn to managerial […]

According to a 2022 Allied Market Research report, the size of the global forensic accounting market is forecast to increase in value to $11.68 billion in 2031, up from its 2021 estimated value of $5.13 billion. Allied Market Research puts this compound annual growth rate at nearly 9 percent (8.8 percent). This same report found that the Covid-19 pandemic saw an uptick in the need for forensic accounting skilled professionals and approaches. Forensic accounting is a specialization within the general accounting profession. Professionals in this specialized subset focus on allegations of financial fraud brought by individuals and businesses in the civil courts and government agencies in the criminal courts. Disputes can range from family members contesting assets and valuations of […]

When it comes to businesses looking to mitigate risk, one concept that’s important to explore is reproduction costs. The first step is to distinguish between reproduction and replacement costs. Replacement cost refers to how much it would cost a company to replace an asset that will duplicate the performance of the beginning asset; however, it does not necessarily have to meet the same materials, specifications, etc. Reproduction cost refers to how much it would cost a company to reproduce the asset so that it’s constructed of the same materials, specifications, etc., based on current market prices.   When looking to assess real estate accurately, the cost approach examines how much a builder would need to spend on the land and […]

When it comes to valuing a business, there are many ways to examine a company’s profitability. Looking at a business’ liquidation value and its breakup value are two of many approaches to see how a company is functioning and how it might run under different management and economic environments. Liquidation Value This type of valuation can be defined as the difference between what tangible assets would sell for at auction minus outstanding liabilities. Typically, intangible assets are not considered in this type of valuation. However, if the intangibles along with the physical assets are considered for sale and not sold at auction, it would be considered a business’ “going-concern value.” Examples of intangibles include goodwill, brand recognition, patents, etc. There […]

The Setting Every Community Up for Retirement Enhancement 2.0 Act of 2022, otherwise known as SECURE 2.0, is a piece of legislation that focuses on how employers and their employees are able to save for retirement and how it impacts their bottom lines. Businesses with as many as 50 employees can receive a tax credit when they offer a defined contribution plan to employees. The start-up tax credit permits up to 100 percent of start-up costs ($5,000 annually) to offset administrative expenses to implement a start-up plan. However, for businesses with 51 to 100 employees, the first SECURE Act’s tax credit equal to 50 percent of administrative costs, capped at $5,000, remains in effect. SECURE 2.0 also allows for an […]

When it comes to defining an impaired asset, its fair market value is worth less than the original cost of the asset – or, more formally, its carrying value. As a company re-evaluates its assets’ value, and when it determines there’s a discrepancy between the book or original value and the current market value, impaired assets that are lower in value are written down on the balance sheet. The business’ income statement shows a loss for the negative difference in value. Impaired assets can be Property, Plant, and Equipment (PP&E), goodwill, or fixed assets. Making a Judgment on Asset Impairment   One more consideration to get an accurate calculation, according to generally accepted accounting principles (GAAP), is to ensure that […]

When it comes to businesses and their inventory and accounting methods for managing it, there are a few different ways to approach the task. The three different options to value inventory/implement cost flow assumptions, include: Last In, First Out (LIFO); First In, First Out (FIFO); and Weighted Average Cost Accounting (WAC). This article will focus only on the WAC method. Weighted Average Cost (WAC) Method WAC is a way to value inventory based on how much each tranche contributes to the overall valuation of its cost of goods sold (COGS) and inventory. Recognized by both GAAP and IFRS, it’s determined by taking the cost of goods available for sale and dividing it by the quantity of inventory ready to be […]

When there’s a question of the benefit that tangible or intangible assets provide businesses, there are many factors that must be weighed to make internal accounting procedures effective. Businesses must determine how the cost of business assets can be expensed each year over the asset’s lifespan. Looking at how amortization and depreciation work, implementing both processes depend on the type of asset being expensed. There are noticeable differences for each method, including how to salvage value is considered, whether accelerated expensing is allowed, and how each type is expressed on financial statements. Amortization Amortization is an accounting practice of spreading the cost of an intangible asset over its useful life. Examples of intangible assets, according to the Internal Revenue Service’s […]

The Importance of Auditing Auditing typically refers to an objective review of a company’s financial statements, which consists of the cash flow statement, the income statement and the balance sheet. It analyzes the level of accuracy that the business has characterized its financial records. The process looks at how a business documents investing, financing and operating ventures. Depending on the type of audit and what it aims to accomplish, it can be conducted by internal employees or independent, third-party examiners like a Certified Public Accountant (CPA) firm or a government agency such as the Internal Revenue Service. When it comes to the United States, the Generally Accepted Accounting Principles (GAAP) is what auditors look to when analyzing financial statement preparation. […]

Financial accounting is how accounting professionals document, compile and outline how a business performs financially over a discrete period of time. Unlike cost accounting, which is used primarily for internal short and long-term strategic planning, financial accounting focuses primarily on producing relevant documentation for outside parties interested in short- and long-term financial performance. Small businesses, large corporations and nonprofits use the following financial statements produced for relevant parties: the Balance Sheet, the Cash Flow Statement and the Income Statement. When it comes to publicly traded companies, their financial accounting standards are overseen by generally accepted accounting principles (GAAP). It’s one way to provide a standardized means to communicate the business’s monetary details to potential and current shareholders, lenders, government oversight […]

Cost accounting is a type of accounting that analyzes a business’ complete production costs by looking at both variable and fixed costs. This includes the concepts of marginal costing, lean accounting, standard costing and activity-based costing. It’s used by a business’ management to evaluate fixed and variable costs involved in the manufacturing operations. The initial step is to assess and document such costs one-by-one. Once production is finished, it will contrast projected costs to what actual costs ended up being and see how processes can be improved. Management gleans information on how funds are used, revenue is earned, and where funds might be misdirected. It can help businesses create greater productivity and financial efficiencies after analyzing such information. Looking at […]

Whether it’s tariffs, trade wars or post-pandemic inflation caused by kink-ridden supply chains and what many experts believe to be excess money printing, inflation is an insidious drag on businesses’ operations. When it comes to energy’s contribution to inflation, the U.S. Energy Information Administration (EIA) reports that crude and natural gas prices in 2022 have increased on an annualized and weekly basis. Looking at the snapshot of 7/21/2022, WTI crude on the futures market was $96.35 a barrel. This was up more than $26 compared to 12 months ago, and $0.57 higher than a week earlier. For the same time frame, natural gas futures were $7.932/MMBtu, an increase of $3.973 from 12 months ago and an increase of $1.332 from […]

Whether it’s tariffs, trade wars or post-pandemic inflation caused by kink-ridden supply chains and what many experts believe to be excess money printing, inflation is an insidious drag on businesses’ operations. When it comes to energy’s contribution to inflation, the U.S. Energy Information Administration (EIA) reports that crude and natural gas prices in 2022 have increased on an annualized and weekly basis. Looking at the snapshot of 7/21/2022, WTI crude on the futures market was $96.35 a barrel. This was up more than $26 compared to 12 months ago, and $0.57 higher than a week earlier. For the same time frame, natural gas futures were $7.932/MMBtu, an increase of $3.973 from 12 months ago and an increase of $1.332 from […]

Corporate profits, according to the Bureau of Economic Analysis, grew by $20.4 billion in the final quarter of 2021, a 0.7 percent increase. For the first quarter of 2022, corporate profits fell by 2.3 percent or $66.4 billion. On an annualized basis, corporate profits fell 5.2 percent in 2022, but grew 25 percent in 2021. With the economy facing inflation, the uncertainty of the Russia/Ukraine conflict, and the world working its way out of the COVID-19 pandemic, economic uncertainty abounds. For companies, measuring margins is one way to evaluate performance and strategize ways to survive and thrive in a dynamic economy. Here are a few common margins that businesses can determine to measure their financial performance. Operating Margin Defined Also […]

According to the January 2022 Future Forum Pulse survey, there’s been a shift in what workers want post-pandemic. The report found that in Q4 of 2021, 78 percent of workers from six industrialized companies wanted location flexibility. The survey also found that 95 percent desired schedule flexibility. This is in light of the same survey finding that 72 percent of employees desire greater flexibility from their current places of employment. Those same workers reported that if they can’t find more flexible arrangements, they would seek out another employer that provides greater flexibility – compared to 57 percent expressing the same desire in Q3 of 2021. According to a December 2017 Gallup report titled, “Thinking Flexibly About Flexible Work Arrangements,” along […]

According to the U.S. Small Business Administration and Project Equality, 60 percent of business owners plan to cash out of the business in the next 10 years. For the baby boomer generation, it’s especially important as they contemplate retirement, with this generation reportedly owning 2.3 million businesses. When it comes to getting a business ready for sale, there are many components to review and get organized before looking for prospective buyers. The first thing owners looking to sell their business are being asked is why they’re selling. This may occur for many reasons – voluntary or not. Some people are looking to retire, while others might be looking to exit their business because things soured with partners. These are just […]

According to the U.S. Chamber of Commerce, the level of usage and data swirling around the internet is expanding at an accelerating pace. The amount of data on the internet globally during 2020 amounted to 3 trillion gigabytes; and 2022’s traffic is expected to increase to 4.5 trillion gigabytes. As a result, the U.S. Chamber of Commerce is concerned about the challenges American companies will have when it comes to business competitiveness. According to a survey from Statista titled “Challenges encountered as a result of digital transformations in global organizations as of 2020,” there are common challenges that businesses are facing, such as: 51 percent of respondents said that “skill gaps have opened up on traditional teams as top talent […]