What Is Accounting Insolvency? Accounting insolvency refers to a situation where the value of a company’s liabilities exceeds the value of its assets. Accounting insolvency looks only at the firm’s balance sheet, deeming a company “insolvent on the books” when its net worth appears negative. Also known as technical insolvency, a company can have the
What Is Accounting Changes and Error Correction? Accounting changes and error correction refers to guidance on reflecting accounting changes and errors in financial statements. It outlines the rules for correcting and applying changes to financial statements, which includes requirements for the accounting for, and reporting of, a change in accounting principle, a change in accounting
What Is Accounting Conservatism? Accounting conservatism is a set of bookkeeping guidelines that call for a high degree of verification before a company can make a legal claim to any profit. The general concept is to factor in the worst-case scenario of a firm’s financial future. Uncertain liabilities are to be recognized as soon as
What Are Accounting Controls? Accounting controls consists of the methods and procedures that are implemented by a firm to help ensure the validity and accuracy of its financial statements. The accounting controls do not ensure compliance with laws and regulations, but rather are designed to help a company operate in the best possible manner for
What Is an Accounting Convention? Accounting conventions are guidelines used to help companies determine how to record certain business transactions that have not yet been fully addressed by accounting standards. These procedures and principles are not legally binding but are generally accepted by accounting bodies. Basically, they are designed to promote consistency and help accountants overcome
What Is an Accounting Currency? The accounting currency is the monetary unit used when recording transactions in a company’s general ledger, also commonly referred to as the company’s “books” or accounting records. The accounting currency may also be called the reporting currency. The accounting (reporting) currency is not necessarily the same as the functional or
What Is an Accounting Cushion? An accounting cushion is a term used to describe an intentionally excessive expense reported on a company’s financial statements in order to even out fluctuations in earnings across periods. Management can use these inflated numbers to artificially understate income by overstating liability or allowance accounts. Making larger provisions for profit-eroding
What Is the Accounting Cycle? The accounting cycle is a collective process of identifying, analyzing, and recording the accounting events of a company. It is a standard 8-step process that begins when a transaction occurs and ends with its inclusion in the financial statements. The key steps in the eight-step accounting cycle include recording journal
What Is an Accelerated Dividend? An accelerated dividend is a special dividend paid by a company ahead of an imminent change in the treatment of dividends, such as an adverse change in dividend taxation. Companies will also sometimes pursue an accelerated dividend strategy to drive growth by sending a signal to investors that the company
What Is an Accelerated Return Note (ARN)? An accelerated return note (ARN) is a short- to medium-term debt instrument which offers a potentially higher return linked to the performance of a reference index or stock. Key Takeaways An accelerated return note (ARN) is a type of structured investment product (SIP) that offers a potentially higher
