Budgeting is a basic and essential process in a business which allows businesses to gain many goals in one course of action. The budgeting process may be carried out by individuals or by companies to estimate whether the person/company can continue to operate with its projected income and expenses. There are several purposes to create and implement a budget include control and evaluation, planning, communication, and motivation. Control and Evaluation This is most important matter after finalized a budget is providing sufficient control and evaluating its performance.If performance does not meet the budget, action can be taken immediately to adjust activities. Budgeting allows a company to have a certain range of control over costs, such as reducing many types of unnecessary expenses or assigning responsibility for these expenses. A budget also gives a company a benchmark by which to evaluate business units, departments, and even individual managers. Unfortunately this purpose 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.
Roles, Duties and Responsibilities of Management Accountant
Management Accountant is an officer who is entrusted with Management Accounting function of an organization. He plays a significant role in the decision making process of an organization. The organizational position of Management Accountant varies from concern to concern depending upon the pattern of management system. He may be an executive in some concern, while a member of Board of Directors in case of some other concern. However, he occupies a key position in the organization. In large concerns, he is responsible for the installation, development and efficient functioning of the management accounting system. He designs the frame work of the financial and cost control reports that provide with the most useful data at the most appropriate time. The Management Accountant sometimes described as Chief Intelligence Officer because apart from top management, no one in the organization perhaps knows more about various functions of the organization than him. Tandon has Continue reading
Indian Banking Sector Reforms: Asset Liability Management System
The critical role of managing risks has now come into the open, especially against the experience of the recent East Asian crisis, where markets fell precipitously because banks and corporate did not accurately measure the risk spread that should have been reflected in their lending activities. Nor did they manage such risks or provide for them in their balance sheets. In India, the Reserve Bank has recently issued comprehensive guidelines to banks for putting in place an Asset Liability Management System. The emergence of this concept can be traced to the mid 1970s in the US when deregulation of the interest rates compelled the banks to undertake active planning for the structure of the balance sheet. The uncertainty of interest rate movements gave rise to interest rate risk thereby causing banks to look for processes to manage their risk. In the wake of interest rate risk, came liquidity risk and Continue reading
Historical Cost Accounting – Definition and Criticisms
The historical cost accounting values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition. The historical cost accounting is the situation in which accountants record revenue, expenditure and asset acquisition and disposal at historical cost: that is, the actual amounts of money, or money’s worth, received or paid to complete the transaction. Historical cost is based on actual transaction rather than forecasts. There are supporting records for all the figures provided in the financial statements. It is also relevant in making economic decisions, as past data transactions are needed for making future decisions. Another defense of historical cost is that ‘historical cost’ has been used throughout history as financial statements which use historical cost are found to be useful. Profit is the excess of selling price over historical cost. Profit is a very well accepted concept of measure of performance. Continue reading
Bank Draft – Meaning and Definition
A bank draft is an order from one branch to another branch of the same bank to pay a specified sum of money to a person named therein or to his order. A draft is always payable on demand. Banks issue drafts at the request of the customers on their branches at the place of destination for remitting money from one place to another place. Any person who wants to remit money has to purchase a draft from the bank by paying the amount in advance to the bank. The purchaser of the draft then sends the draft to the payee’s place of residence by post or courier for the purpose of encashment at the drawee branch of the bank. The bank issuing the draft charges some commission depends upon the amount of the draft. The purchaser need not be a customer of the bank. The bank draft is like Continue reading
Open Market Operations by the Central Bank
The open market operations as a method of quantitative credit control are interpreted in two ways. In a broad sense, it refers to the buying and selling of government securities as well as other eligible papers like bills and securities of private concerns by the central bank. In a narrow sense it means the buying and selling of only government securities by the central bank in the money market. The process of open market operations affects the volume of credit, the level of business activity and the internal price level. The process is explained below. Suppose in an economy there is inflationary tendency and the expansion of credit is very high and the central bank wants to control this. Then the central bank will start selling securities in the open market to both the banks as well as the private individuals. When these securities are bought, payment is made in Continue reading