Residual Definition in Accounting
In accounting, a residual generally refers to the amount left over after all expenses and other obligations have been paid.
For example, in the context of a business’s income statement, the residual amount is the net income, which is calculated by subtracting all of the expenses and taxes from the company’s total revenue.
In the context of an asset’s value, the residual value is the estimated value of the asset at the end of its useful life, after accounting for depreciation.
In general, the term “residual” in accounting is used to refer to the remaining amount after all relevant factors have been taken into account.
Residual Definition in Finance
In finance, residual value refers to the estimated value of an asset at the end of its useful life or lease term. This is also referred to as the salvage value.
The residual value is an important consideration when leasing or financing an asset such as a car or equipment. At the end of the lease term or loan repayment period, the residual value will determine the amount that the lessee or borrower will need to pay in order to purchase the asset outright.
The residual value is often estimated based on factors such as the age and condition of the asset, as well as market demand and trends. In some cases, residual values may be guaranteed by the lessor or lender, providing greater certainty for the lessee or borrower.
In finance, residual income is another concept that refers to the income earned after deducting the cost of capital from the net operating income of a business. This is also known as economic profit or excess returns.
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