Opportunity Costs vs Sunk Costs – Key Differences

Opportunity costs represent a foregone opportunity for an investor or entity when choosing one option over the other. It is a widely used concept in the capital budgeting method when deciding between mutually exclusive projects. Sunk costs represent a type of non-relevant costs that cannot be recovered and already spent. Investment decisions mainly focus on …

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Effective Annual Yield – Definition, Formula, and Example

Effective annual yield (EAY) or effective annual rate (EAR) considers the compounding effect of return on investment. It provides a realistic annual interest rate of an investment rather than the simple nominal rate. Investors can use the EAY to calculate the actual return on investment. They can also use the EAR to evaluate whether a …

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Accounting for Joint Costs

Joints costs incur when more than one product is produced using the same resources. Companies can extract several products out of one main ingredient. Apportioning joint costs can help companies in calculating the correct selling price. Eventually, the decision can impact the company’s long-term profits. A company can use several methods to apportion joint costs. …

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What is Donated Capital and How to Account for it under US GAAP Rules

Donated capital comes in the form of nonreciprocal transfer of assets to a company. This form of capital is rare with for-profit organizations. However, not-for-profit (NFP) organizations can receive assets and capital donated by individuals and governments. ASC 958-605-25-2 and ASC 845-10-30 combined guide on the accounting treatment of donated capital. What is Donated Capital? …

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Accounting for Deferred Compensation Contracts

Deferred compensation contracts are arranged for paying employees at a later date. Employers set aside a proportion of deferred liability to compensate employees at retirement. An employer can use different methods to fund deferred compensation contracts. The employees can also participate in a volunteer contribution plan such as an insurance plan to fund their compensation. …

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