In business, burn rate is usually the monthly amount of cash spent in the early years of a start-up business. Burn rate is an important metric since the new business must spend time and money developing a product or service before it obtains cash from revenues.

If a company has $200,000 in initial cash and its burn rate is $20,000 per month, the company will be out of cash in 10 months unless it raises additional money, begins to generate significant revenues, or reduces its burn rate. Hence, it is important that a start-up business monitor all of its expenditures and avoid payments that will not speed up or increase revenues.

The cash flow statement, formally known as the statement of cash flows, is an important financial statement that can be helpful in computing a realistic burn rate.

Learn more about Cash Flow Statement.

In accounting, the acronym COS could indicate either cost of sales or cost of services.

The income statements of many retailers and manufacturers use the phrase cost of sales instead of cost of goods sold. In other words, for these corporations COS is the same as COGS.

The income statements of [...] Continue Reading…

Consolidated statements of operations is the heading appearing on the financial statement also referred to as the income statement. In a small survey of 14 U.S. corporations with stock that is publicly-traded, I found that eight used the title consolidated statements of operations. The other six corporations used one [...] Continue Reading…

The internal rate of return is the interest rate that will discount an investment’s future cash amounts so that the sum of the present values will be equal to cash paid at the beginning of the investment. In capital budgeting, the internal rate of return is also the interest [...] Continue Reading…

In capital budgeting, hurdle rate is the minimum rate that a company expects to earn when investing in a project. Hence the hurdle rate is also referred to as the company’s required rate of return or target rate. In order for a project to be accepted, its internal rate [...] Continue Reading…

Rent Receivable is a balance sheet asset account which indicates the amount of rent that has been reported as having been earned, but the money has not yet been collected.

Rent Revenue is an income statement account that reports the amount of rent that has been earned during a period [...] Continue Reading…

The purchase of equipment that will be used in a business is not reported on the profit and loss statement. However, the depreciation of the equipment will be reported as depreciation expense on the profit and loss statements during the years that the equipment is used.

For example, if a [...] Continue Reading…

The net book value of a noncurrent asset is the net amount reported on the balance sheet for a long-term asset.

To illustrate net book value, let’s assume that several years ago a company purchased equipment to be used in its business. The equipment’s cost was $100,000 and its accumulated [...] Continue Reading…

Here are the 20 most popular posts from the Accounting Coach Blog during 2011. New questions will be answered starting January 2012.

Why does LIFO usually produce a lower gross profit than FIFO?
What is depreciation?
Why is interest expense a nonoperating expense?
When do you put parentheses ( ) around a number?
What [...] Continue Reading…

LIFO usually produces a lower gross profit than FIFO only because the costs of the goods purchased or produced have been increasing over the past decades. Since LIFO assigns the latest costs of the goods purchased or produced to the cost of goods sold, the rising costs mean a [...] Continue Reading…