Found 1015 Articles for Finance Management

Source of finance can be simply explained as follows −Based on timeLONG TERMMEDIUM TERMSHORT TERMBASED ON TIMEEquity sharesPreference sharesTrade creditPreference sharesDebenture/BondsWC loansInternal accrualsfinancial institutesgovernmentcommercial banksFixed deposits (period of 1 year)Debentures/bondsAdvances from customersTerm loansCreditorsVenture fundinglease financePayablesAsset securitizationHire purchase financeFactoring servicesInternational financeBill discountingBased on ownership and controlOwnedBorrowedBased on ownership and controlEquity capitalLoans fromFinancial institutionsCommercial loansPreference capitalRetained earningsConvertible debenturesDebenturesVenture fund/ private equityBased on source generationInternalExternalBased on source generationEquity capitalRetained profitsPreference capitalReduction in working capitalRetained earningsSale of assetsConvertible debenturesVenture fund/private equity

The term breakeven point in terms of accounting is nothing but, in a particular accounting period the firm revenues is exactly as same as expenses. This is denoted as BEP (Break Even Point). It tells about number of units to be sold to meet the expenses. It also helps in calculating zero operating margin.Formula − (total fixed cost/price per unit) - variable costFinancial breakeven point is a point where earnings before income tax (EBIT) is equal to financial cost of a firm (or) earnings per share (EPS) is equal to zero. It is useful in calculating zero net income. It ... Read More

Characteristics of corporate finance includes −Financial activity − This kind of duties are done by financial manager and consists activities like planning, raising, investing and monitoring the finance of the company.Raising the finance − It is raised through shares, debentures, bank loans etc. New companies will face difficulties to raise finance, whereas established companies can do it easily because of their reputation.Investing the finance − It will help in purchasing the fixed asset to fulfil the company objectives.Objective oriented − The main objectives are to earn maximum profits, to pay regular dividends to shareholders and to create a future growth ... Read More

Companies in finance are classified as follows −Based on liabilities − Company limited by shares, company limited by guarantee, unlimited companies.Based on members − One-person company, private companies, and public companies.Based on control − Holding and subsidiary companies, associate companies.Based on liabilitiesCompanies limited by shares − Shareholders of company will not be paid completely to their shares, therefore, company’s liability is limited. While winding up company will be liable until they pay total amount to their shareholders.Companies limited by guarantee − this, company will be liable only to amount which is guaranteed.Unlimited companies − As name suggests, it will have ... Read More

Amortisation means distribution of cost of intangible asset over a periods of time. Only intangible assets (assets which don’t have physical existence) are amortised, tangible assets (assets which have physical existence) can’t be amortised.Steps to record amortisation in a journal are as follows −Identify initial value of the asset.Life span of the asset.Residual value.DebitCreditAmortisation expenseXXXXAccumulated amortisationXXXXXFormula to calculate is − amortisation expenses = (initial value-residual value)/lifespanAdvantages of amortisation are −Reduces tax burdens.Firms can show higher value of an asset.Firms can show more income in financial statements.Amortising intangible assets includes −Note the starting date.Calculate initial cost.Estimate life span.Calculate amortisation value per ... Read More

Fictitious assets are the assets which has no tangible existence, but are represented as actual cash expenditure. The main purpose is to create this account for expenses which are not placed in any account headings.In other words, fictitious means fake or not real, these are not assets at all but they show in financial statements. Expenses incurred in starting a business, goodwill, patents, trademarks, copy rights comes under expenses which cannot be placed any headings.Fictitious assets have no physical existence.No realisable value.They are amortised in one or more profitable financial years.ExamplesPromotional marketing expenses.Underwriting commission.Preliminary expenses.Discount allowed on shares.Loss incurred (issue ... Read More

Bank reconciliation concept is comparing of balance sheet with bank statement. There is no fixed date for preparing bank reconciliation so its prepared periodically to check the balances and adjustments are made, if needed.It helps in detecting errors, cash manipulations, frauds etc. One thing we have to remember is that, not always both the balances are equal.Some of the reasons are as follows −Cash and check transactions are recorded in bank statement.Outstanding checks.Bank service fees.Interest.Bank reconciliation terminology includes −Deposit in transit − It occurs when the deposit arrives at bank too late, entity not deposited in the bank. Mont end ... Read More

Trial balance is a worksheet which consists of all ledger balance in a single sheet. All ledger balances are compiled into credit and debit columns (total should match). In other way, it can also be explained by the following steps −Recording of business transaction in a journal entry.Summarise and categorise them into a ledger.Create a worksheet and make a trial balance (balances credit and debit).Purpose of trial balance is −Trail balance is the first step in preparing financial statements.If balances are not matched in trail balance, difference will be rectified and adjusted before preparing financial statements.Ensures account balances.Assists in identification ... Read More

Journal is called as book of original entry. Journal is a detail record of business transactions that are made in a date. The word JOUR means a day, so it is a day book or daily book of accounting.Journal entry has following structure −A header line (journal entry number and entry date).First column includes account number and account name (credited).Second column to enter debited amount.Third column to enter credited amount.A footer line (brief description of entry).Features of the journal are −Book of primary entry.Daily record book.Chronological order.Dual aspect of transactions.Use of explanation.Different columns.Subsidiary book.Rules in journal are as follows −Debit ... Read More

Ledger is a summary of all transactions in a journal. A ledger is a record of all business transactions made by a firm. This is often called as chart of accounts.General ledger has three account types namely assets, liabilities and equity accounts. Most of the firms have almost same accounts like cash, account payable and retained earnings, but some may have specialised accounts for specific projects.Types of ledgers are −Sales ledger −Maintains sales transactions (service or goods sold) of a firmPurchase ledger −Maintain purchase transactions (services, goods purchased) of a firmGeneral ledger −Records expenses, income, depreciation etc. in nominal ledger ... Read More