Financial Terms and Accounting Terms: Investment, Cost, and Equity

This assignment delves into essential accounting and financial terminology, providing definitions and explanations of key concepts. It covers Return on Investment (ROI), a metric used to evaluate the profitability of investments; Last In, First Out (LIFO), a method of inventory valuation; and Deferred Charges, prepaid expenses treated as assets. Additionally, it discusses Paid in Surplus, which is the excess amount paid by the company’s investor to acquire the shares of company, over the par value of shares and Rate earned on stockholder’s equity, also termed as return on equity. The assignment references relevant sources to support the explanations, ensuring a comprehensive understanding of these core financial terms.

Running Head: Various Accounting Terms
Financial Terms

Various Accounting Terms 1
 Return on Investment:
It is the measure of profitability that is used to evaluate the performance of the business. The
rate indicates the percentage of profit and loss generated on a particular investment in relation
to the quantum of money invested. It is used to make various financial investments (Bierman
& Smidt, 2012).
 Last in, First out:
It is the method of asset management and inventory valuation of the company where it is
assumed that stock purchased latest is used firstly. It is used to determine the cost of closing
inventory lying in the stock so as to determine the gross profit of the company.
 Deferred charge:
It is a prepaid expense of long term nature that remains as asset in the balance sheet until it is
finally used. It is cost which has already been incurred but is distributed over a longer term
such as insurance charges. It is an asset because it generates economic benefits for the
business in future period.
 Paid in surplus:
It is the excess amount paid by the company’s investor to acquire the shares of company,
over the par value of shares. This surplus money received on shares is not the asset rather it is
part of owner’s equity and shown under reserves and surplus of the company.
 Rate earned on stockholder’s equity:
It is also termed as return on equity as it measures the quantum of profit generated by the
company, in a particular period, by investing the funds raised from the holders of company’s
stock (Baker & English, 2011).

Various Accounting Terms 2
References:
Baker, H. K., & English, P. (2011). Capital budgeting valuation: Financial analysis for today's
investment projects (Vol. 13). John Wiley & Sons.
Bierman Jr, H., & Smidt, S. (2012). The capital budgeting decision: economic analysis of investment
projects. Routledge.