Accounting / July 17, 2018 / Ariyah Lang
A bank reconciliation is the process of matching the balances in an entity's accounting records for a cash account to the corresponding information on a bank statement. The goal of this process is to ascertain the differences between the two, and to book changes to the accounting records as appropriate. The information on the bank statement is the bank's record of all transactions impacting the entity's bank account during the past month.
When one thinks of how successful or unsuccessful a business is doing, it’s natural to lean towards the strategic elements of an organization that ensure profits come in: investments, funding decisions and risk management. While these elements are important, the success of a business, especially how it runs its day to day operations, is highly dependent on the effective management of operational cash (or commonly called cash flow or cash on hand). This comes in the form of accounts payable (AP) and accounts receivable (AR).
In effect the capital lease accounting treatment deals with asset as it it had been purchased using a loan as finance. The asset is depreciated as normal over the term of the agreement, and the rental payments are split between principal and interest to clear the loan balance over the term, and to charge the profit and loss account with the interest.
The cash flow-to-debt ratio examines the ratio of cash flow to total debt. Analysts sometimes also examine the ratio of cash flow to just long-term debt. This ratio may provide a more favorable picture of a company's financial health if it has taken on significant short-term debt. In examining either of these ratios, it is important to remember that they vary widely across industries. A proper analysis should compare these ratios with those of other companies in the same industry.
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