When we attempt to classify share capital, we might get confuse with the various terms used. Append below a table to differentiate the various terms used in the classification of capital: authorized or nominal capital, issued capital, subscribed, called-up and uncalled-up capital and finally the paid-up capital: WHAT IS AUTHORISED SHARE CAPITAL? Authorised share capital … Read more
WHAT IS CAPITAL EMPLOYED? Capital employed is basically the long term funds employed in a business. Capital employed of a business is from the ordinary shareholders and from long term liabilities. Hence, it is the effective amount of money actually being used in a business, regardless of whether it is from the owners … Read more
Cash Flow Statements form an integral part of the financial statements. However, many readers tend to under-emphasize this statement, believing that the Income Statement and the Balance Sheet holds the key to their answers This article is to briefly explain the reasons for the needs to understand the importance of the Cash flow statements. THE … Read more
It is critical that a business needs to monitor its cash flow very carefully. Below, are some suggested steps to attempt to improve the cash flow of a business. STEPS TO IMPROVE THE COMPANY’S CASH FLOWS: Improving Pricing policy This can then improve the gross profit margin of the business and assuming constant cost hence … Read more
WHY CASH FLOW IS SO IMPORTANT? Cash flow is the LIFE-BLOOD of a business. A business might be profitable but not necessarily liquid. For a growing business, for expansion purposes, cash is especially require to pay for salaries ( higher head count), more rental or storage space, payments to suppliers whether for raw materials or … Read more
WHEN DO YOU CONSIDER AN ENTITY BECOMES UNDERCAPITALIZE? Opposite of overcapitalization. Undercapitalization would mean that the entity has not sufficient capital to provide for its own scale of operations. Evidenced by high borrowings from trade creditors or bank borrowings Undercapitalization can be a result of Overtrading: –can be due to over-ambitious expansion of … Read more
WHEN DO YOU CONSIDER AN ENTITY BECOMES OVERCAPITALIZE? Generally, an entity is said to be overcapitalized when it has fixed assets in excess of its actual needs and A reasonable return is not being earned on the investments of these fixed assets Sometimes, we might consider an entity overcapitalize when it has substantial … Read more
FULL DISCLOSURE CONCEPT Does not only contain only the facts but should relate to events, information and others which might be relevant to the users of the financial statement. For obvious reason, full disclosure also relates to the materiality concept wherein all significant information and events need to be disclosed so as not … Read more
ACCOUNTING PERIOD CONCEPT OR PRINCIPLE CLICK THIS TO SEE MORE ARTICLES ON ACCOUNTING CONCEPTS & PRINCIPLES · A fixed equal period of time ascertained to report the financial performance of an enterprise. If this fixed equal period of time is not ascertained, the business based on the going concern concept can last a quite a … Read more
WHAT IS DEPRECIATION? Depreciation is the permanent and continuing diminution in the quality, quantity or value of an asset. Depreciation Accounting deals with the allocation of costs of fixed assets over their useful lives. More simply, that part of cost of this asset which is being periodically (monthly) allocated as expense into the Income Statement … Read more