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Economics & Finance
Articles by Mandalika
Page 30 of 41
Describe the term journal in accounting.
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 MoreWhat is matching concept in finance & accounting?
Matching concepts tells about expenses incurred during a period to be recorded in the same period in which revenues are earned. Revenues and expenses in income statement are matched for a period of time. Investors get a better idea about economics of the business.Product cost − These are tied directly to products and in turn revenues.Period cost − These don’t have corresponding revenues.Commission − If an employee earned x% of commission on sales in current month and that commission is paid in next month, then that transaction is recorded in present month.Depreciation − If a company buys a machine and ...
Read MoreExplain accounting period in finance and accounting.
Accounting period is a time frame in which, business financial activities are summarised. It can be yearly, mid-year or quarterly.Accounting period is useful to analyse company performance through its financial statements. A public held company must report to Securities and Exchange Commission (SEC) on quarterly basis.If the 12-month accounting period ends other on December 31st then, that period is called fiscal year. Accounting period only limited to income statement and statement of cash flows.Advantages of accounting period are −Preparation of financial statements.Maintains business records.Valuation of business.Decision making.Evidence in legal matters.Limitations of accounting period are −It measures only things/events that have ...
Read MoreWhat is accrual concept in accountancy?
In accrual concept, the transactions are recorded in the given time frame (accounting time). In this, transactions are recorded irrespective of payment made or not. Main idea is to recognise economic events by matching revenue and expenses.In this, some may pay for the goods to be delivered for the seller. In this type, the transactions are recorded in liability account for the seller. When the goods are delivered, the payment is then transferred into revenue account. Generally accepted accounting principles (GAAP) and International financial reporting standards (IFRS) supports accrual concept.Reasons to use accrual concept are explained below −Complexity of business ...
Read MoreWhat 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 ...
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