There are many sources of finance available to a business. Finance is needed for several purposes and different purposes need sources of finance which are most suitable to them. When choosing an appropriate source of finance some factors have to be considered. The factors that need to be considered when choosing an appropriate source of finance are: The amount of money needed: This is the amount of finance the organisation wants to raise. Not all sources of finance provide all amounts of funds. Some sources are notable to raise large amounts of funds whereas others are not flexible enough to put up for the small sum of money the business requires. Therefore it is necessary to identify the amount of money needed by the company to choose a suitable source of finance. For example borrowing a commercial loan for a small and short-term cash-flow problem is unwise because loans may Continue reading
Business Finance
Business Finance is that business activity which is concerned with the acquisition and conservation of capital funds in meeting financial needs and overall objectives of business enterprises.
Accounting Treatment for Material Losses: Waste, Scrap and Spoilage
Meaning and Types of Waste The loss of raw materials in processing is waste. Waste has no receivable value. It is a quantity loss of material in the process of producing goods. Waste is brought into record by comparing the input quantity with the output quantity. Waste may occur due to shrinkage, smoke, weight loss and evaporation causing the material to become waste. They are material losses causing a quantity loss. Waste may occur in terms of a by-product which does not produce any realizable value. For example, 20kg of potato does not give 20kg of potato chips. Thus, the fact that 15 kg of chips is produced out of 20kg potato means that 5 kg of potato is wasted in the course of making chips. 5kg of waste does not produce any sales value and so is treated as waste. Waste is divided into two types, normal and abnormal Continue reading
Direct Costs, Indirect Costs and Overhead Costs
Direct Costs In finance, direct costs are those costs that are associated with a specific project, department, or activity. Sometimes referred to as hard costs, expenses of this type are found with just about every type of business activity, beginning with research and development, moving through sales and marketing campaigns, and into the production of different types of goods and services. A direct cost is often some type of fixed expense, but there are some situations where a variable expense may also fall into this category. The key to understanding what does and does not constitute direct costs is to identify costs that apply only to a specific project, and have nothing to do with any other activity that is taking place concurrently. In order to be a true hard cost, the expense must be for resources that benefit that one project. For example, if the project is to construct Continue reading
Sources of Short Term Finance
Short term finance in business usually refers to the additional money a business requires for doing its business for short terms, which is usually a maximum period of one year. These funds are usually used for day to day operations such as payment of wages, inventory ordering, advertisement expenses and so on. The major sources of short term finance are discussed below: 1. Trade Credit Trade credit is a common source of short-term finance available to all companies. It refers to the amount payable to the suppliers of raw materials, goods etc. after an agreed period, which is generally less than a year. It is customary for all business firms to allow credit facility to their customers in trade business. Thus, it is an automatic source of finance. With the increase in production and corresponding purchases, the amount due to the creditors also increases. Thereby part of the funds required Continue reading
Lead Bank Scheme
A milestone in the history of banking in India is the nationalization of the 14 major commercial banks in 1969. This process was undertaken with the main objective of involving the banking sector in a big way in the nation building and economic development. To help to achieve this commendable objective, two committees were set up viz., National Credit Council Study Group with D.R. Gadgil as the Chairman and the Committee of Bankers under the chairmanship of Nariman. These committees independently went into their terms of reference and recommended an ‘area approach’ for involving the banks in economic development. This paved the way for giving a concrete shape to the Lead Bank Scheme. As nationalization of banks took place to extend and expand the banking services to all the non-banked areas especially the rural areas, Continue reading
Definition of Budget
A budget is a detailed plan of operations for some specific future period. It is an estimate of costs and benefits of programs to be undertaken and policies thereto prepared in advance of the period to which it is applied. Budget acts as a business barometer as it is a complete program of activities of the business for the period covered. According to Gordon and Shilling law, ‘budget is a predetermined detailed plan of action developed and distributed as a guide to current operations and as a partial basis for the subsequent evaluation of performance’. According to Weygandt, Kimmel & Kieso, “A budget is a formal written statement of management’s plan for a specified future time period, expressed in financial terms. It represents the primary method of communicating agreed-upon objectives throughout the organization. Once adopted, a budget becomes an important basis for evaluating performance. It promotes efficiency and serves as Continue reading