Describe the law of supply and demand.
The law of supply and demand is a theory that explains the interaction between the supply of a product and the demand for that product, and how these factors affect the price of this product. Let's imagine a business launching a new product. It first charges $100, but only a few consumers buy it. Due to lack of interest, it has warehouses full of the product. Due to the high supply, the business lowers the product price to $50. Demand increases, and the supply dwindles. Now the business can raise the price by increments of $5 until it finds the perfect, or equilibrium, price to balance its product supply with consumer demand. To conclude, the law of supply states that the quantity of a product supplied rises as the market price rises, and falls as the price falls. The law of demand states that the quantity of a good demanded falls as the price rises, and vice versa.
What is Net Present Value (NPV)?
Net Present Value is the value of all future cash flows over the entire life of an investment discounted to the present. NPV analysis is a form of intrinsic valuation and is used extensively across finance and accounting for determining the value of a business, investment security, capital project, new venture, and anything that involves cash flow.
What are adjusting entries?
Adjusting entries are usually made on the last day of an accounting period (year, quarter, month) so that the financial statements reflect the revenues that have been earned and the expenses that were incurred during the accounting period. Adjusting entries are used because, revenue has been earned, but it has not yet been recorded, an expense may have been incurred, but it hasn't yet been recorded, a company may have paid for six-months of insurance coverage, but the accounting period is only one month, a customer paid a company in advance of receiving goods or services. Until the goods or services are delivered, the amount is reported as a liability. After the goods or services are delivered, an entry is needed to reduce the liability and to report the revenues.