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Economics & Finance
Accounting Articles
Page 7 of 9
What is dual aspect concept in accounting & finance?
Every transaction of a firm is recorded in two different accounts. This relates to double entry bookkeeping. That means dual aspects concept tells every transaction affects the business in at least two aspects which are equal and opposite in nature.In a single entry system, only one side of transaction are made. For example, if a sale is made to the customer only sale revenue is recorded, other side is not recorded (receipt/credit to the customer is not recorded). But, in double entry, both sale revenue and receipt/credit to the customer are recorded.Accounting equation −assets = liabilities + EquityAuditors will accept ...
Read MoreWhat is payroll accounting in finance and accounting?
Payroll accounting deals with calculations and distributions of employee’s compensations like salaries, bonuses, commissions, overtime pay. It also helps higher level management to make decisions about labour cost.Type of payroll accounting includes −Initial recordings − Records gross wages, employment taxes which are owed to governmentAccrued wages − Records wages owned to employees which are paid later. Readjustments are made after payments.Manual payments − Records when company pays manually for pay adjustments or employee terminations.Steps for payroll accounting includes −To hire employees.Prepare paperwork regarding payments of employees.Pay checks.Record payroll.Steps to record payroll in general ledger are −Record payroll expenses.Record payroll liabilities.Transition ...
Read MoreWhat is capital structure and its factors in financial management?
The main difference between capital structure and financial structure is that financial structure consists of left hand side of a company’s balance sheet, whereas capital structure consists of long term debt and shareholder’s fund.Capital structure is a part of financial structure. Capital structure does not include short term liabilities, but financial structure does.Importance of capital structure includes −Increase in value of a firm.Utilisation of available funds.Maximisation of return.Minimisation of cost of capital.Solvency/liquidity position.Flexibility.Controlling.Financial risk minimises.Factors determining capital structure are given below −Trading on equity.Degree of control.Flexibility of financial plan.Choice of investors.Capital market condition.Period of financing.Cost of financing.Stability of sales.Size of ...
Read MoreDefine capitalisation and its type in financial management.
Capitalisation is combination of owner’s capital and borrowed capital. That means, it tells about total fund invested in a company. Share capitals, debentures, loans etc.Capitalisation is generally classified as follows −Normal capitalisation.Over capitalisation.Under capitalisation.Over capitalisationIn this, profits are not enough to pay interest on debentures and dividends to shareholders over a period of time. That means, amount generated is used to raise capital than required capital, which results decline in rate of returns.Some of the causes for over capitalisation are as follows −High promotion cost.Purchase of assets at higher price.Liberal dividend policy.Over estimation.Inadequate provision for depreciation.Some of the effects of ...
Read MoreDefine preference shares used in financial management.
These shareholders have preferential right to get dividend and initial investment at the time of winding up the company. They get fixed dividend and they don’t have voting rights.Preference share are classified into following typesCumulative preference shares − They have right to claim dividends for years, which does not have no profits. They have right to get comparative dividend for previous years, if the company earned profitNon-cumulative preference shares − They don’t have right to the rights, that have been enjoyed by cumulative preference shareholders. They have only earned dividend, if the company is earning profits.Redeemable preference share − If ...
Read MoreDefine equity shares used in financial management.
Equity shareholders are real owners of the company and have control over the management. Liabilities of the equity shareholders is the value of unpaid value of shares. They can’t be redeemed during the life time of the company.Features of equity sharesFollowing are the features of equity shares −Maturity of the shares − There is no maturity period for equity shares.Residual claim on income − They get their income left after paying dividend to preference shares. Their earnings equal to profit after tax minus preference dividend.Residual claims on assets − They have right to claim right to get claims on assets.Right ...
Read MoreExplain types and characters of security finance in finance.
Security finance is also called corporate securities. In this, funds are mobilised through shares and debentures. These kinds of funds play an important role in capital structure of a company.Characters of security finance are as followsLong term source of finance.Corporate securities.Repayment of finance is very limited.Plays major role in capital structure of a company.It includes both shares and debentures.Major role in company’s capitalisation.Types of security financesThe types of security finances are as follows −Ownership securities or capital stockCommonly called as shares. Shares are most common method of raising finance by a firm.Equity shares.Preference shares.No par stock.Deferred shares.Creditors’ securities or debt ...
Read MoreExplain various sources of finance in financial management.
Finance is the major part in running a firm. Distribution of finance to each and every department is based upon the requirements of that department and the situation of the business. Requirement of finance can be broadly classified into following −Long term or fixed capital financial requirement.Short-term or working capital requirement.Sources of finance shows the mobilization of funds for their requirement. To meet their long term and short term requirements firm needs amounts to meet their requirements. Based on mobilization of funds various sources are classified as belowBased on the periodLong term financeShort term financeBased on ownershipAn ownership source of ...
Read MoreWhat are short term financial requirements or working capital requirement in finance?
Funds require to meet day to day operations are called short term finance. It is also called working capital. Temporary working capital is termed as short term. Some of them are as follows −Trade creditThe credit, which extended by manufacturer in producing its product is called trade credit. In this period, the purchaser has a debt outstanding to supplier as payment became due.In buyer balance sheet, it is recorded as creditors and in supplier balance sheet, it is recorded as debtors. New and small firms will depend more on trade credit.Accrued expensesAccrued expenses generally refers to services availed by the ...
Read MoreWhat are Long term financial requirements or fixed capital requirement in finance?
Long term financial requirement is also called as fixed capital requirement. It is the capital required to purchase fixed assets like building, furniture, land, plant and machinery etc. These are also called as long term financial requirements of a firm. Repayable period in long term is more than five years. Long term financial sources include the following −Equity sharesEquity share represents ownership interest in a company. In this, no compulsion to pay dividend and it does not have any maturity. Capital provided by these funds is more or less on permanent basis. It also creates base for debt and loan ...
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