POSSIBLE USES OF THE FINANCIAL STATEMENTS BY DIFFERENT USERS: Equity Investor group: Assessing their investment Loan Creditor group: Assessing the ability to make repayment of loan Employee group: Assessing security of employment Analyst-adviser group: Assessing their investment Business contact group: For the suppliers: likelihood of future supply and for the customers: reliability of future supply Government: … Read more
The fundamental principle of classification of cost depends on the purpose for which costs are required. Cost can be classified as follows: (1) By Nature Based on nature of major costs like material, labour and other expenses. Material can be sub-classified into: Raw material, semi-finished materials, components, consumables, maintenance materials Labour can be sub-classified into: … Read more
What is the difference between cost unit and cost center? A Cost Unit Is the quantitative unit of product or service in relation to which costs can be ascertained. Examples: Jobs, contracts, kilowatt hours, cost per patient day A Cost Centre Is “a location, person or item of equipment ( or group of these) in … Read more
What is Costing? Costing is basically the ascertainment of cost whether for a specified thing or activity. To ascertain cost, we need to apply accounting and costing principles, methods and techniques Costs may be historical/being incurred or estimates. Importance of Costing: In view of the complexity of businesses and increasing changes in industry, trade and … Read more
Prepayments are expenses paid in advance and the unexpired up is accounted as current assets in the Balance Sheet. Vice versa, revenues received in advance are payment received from customers for work not yet done or goods to be delivered at some future date. So how do we treat revenues received in advance? Revenues received … Read more
During the accounting cycle, prepayments form one part of the adjusting entries. After the draft trial balance is extracted, the bookkeeper will then look for adjusting entries like prepayments to be expensed off into the Income Statement? So what are Prepayments? Prepayments or prepaid expenses are expenses paid in advance. They are actually economic resources … Read more
What Is Present Value Of Money? In the earlier articles, we have understood the time value of money, compounding interest to get the future value of money, we now need to understand what is the present value of money. Simply, the present value is the amount that must be invested NOW to reach a given … Read more
What do we mean by Future Value Of Money? The future value is merely the amount an investment would grow to if it accumulates interest at a certain interest rate COMPOUNDED over the terms of the investment. To understand the future value of money, we need to understand compound interest. For example, if we have … Read more
What do we mean by Time Value Of Money? In simple terms, a dollar in hand TODAY is worth more than when you supposed to received say ONE YEAR from today. Is it important to understand this Time Value Of Money concept? It is definitely important to understand especially when an entity start investing in … Read more
What Is Financial Management? Financial management involves the analyzing and interpreting the financial statement so as to be able to plan and control the business. Unlike bookkeeping or accounting, financial management has a wider spectrum and its goals are as follows:- to attain profitability and liquidity for an enterprise. In the very short run, a … Read more