In preparation of a budgeting process, the procedures in creating the budget differs from one organization to another and should be presented to the budget committee before it is finally agreed. The budget committee consists of high level executives in charge of various functions (i.e. sales, production and purchasing). In financial procedure the functional head obtain an approval by presenting their budget to the committee, if the level of budget doesn’t contain a reasonable performance, the functional head will required further changes in order to obtain an approval. The budget committee appoints a budget officer known as the accountant, whose take actions and coordinates the individual budgets of a company. Some important stages in the budgeting process are as follows: Communicating details of budget policy and guidelines: A long term planning process is the starting point in the preparation of a company’s annual budget, the manager are responsible for preparing Continue reading
Financial Management
Financial management entails planning for the future of a person or a business enterprise to ensure a positive cash flow, including the administration and maintenance of financial assets. The primary concern of financial management is the assessment rather than the techniques of financial quantification. Some experts refer to financial management as the science of money management. The five basic components of the Financial Management Framework are: Planning and Analysis, Asset and Liability Management, Reporting, Transaction Processing and Control.
Working Capital Investment
Investment in working capital involves determination of the total quantum of current assets, the size of individual items of current assets and the operating cycle. These may be planned, adopting any of the following approaches, viz. industry norm approach, economic mode approach and strategic choice approach. Under the Industry norm approach the size and composition of current assets are determined according to the convention or norms adopted by die firms in the industry. For instance, 2 months production requirements of raw materials, 1 months production needs of work-in-process, 3 months sales of finished stock, 2 months credit to customers, etc. may be norms and you follow the norms. When this approach is adopted, automatically total volume arid component size of currents assets become proportional with level of activity. But this approach is not scientific. It is a rule of thumb. But we cannot say it is a wrong course. Under Continue reading
What is Owner’s Equity? Meaning and Components
Preferred and common stockholders have some interests in organizations which are referred to as owner’s equity. Investors contribute to the capital of a corporation through the purchase of stocks sold by the corporation without the use of a secondary market. This type of capital is referred to as paid-in capital. The total paid-in capital is a combination of share capital and additional paid-in capital that is normally added to the nominal value of a stock. On the other hand, earned capital is the type of capital that comes from a company’s profitable operations. The two types of capital are normally reflected on the balance sheet as part of the owner’s equity. Earned capital is calculated by subtracting dividends from the total sum of the company’s beginning capital and the net income. The net income of a company is the major source of earned capital. Companies reinvest earned capital to generate more Continue reading
Impact of E-Commerce in Banking Sector
Advancement in information technologies and improvement of the Internet access have not only changed the way businesses are being conducted, but have also resulted in cutthroat competition on the global market. As a consequence, strategic companies have incorporated and integrated information technologies in their operations to create competitive advantages and to sustain their existing competitive advantage. The banking industry has incorporated web-based information technologies to synchronize with the market trends. Precisely, banks have adopted electronic commerce (e-commerce) products and services in a move to keep in touch with the globalized economy and ongoing migration of people, entities, and businesses to the cyberspace. E-commerce refers to the utilization of the internet as a distribution channel to sell banking products and services to either existing or potential customers. From a broader perspective, e-commerce involves electronic exchange of products (mainly services), information, and payments. It also entails establishment and sustenance of web-based relations, Continue reading
What is Return on Investment (ROI)?
Return on Investment (ROI) refers to a well-known financial metric commonly used to analyze the financial results which arise from personal investments as well as deeds. A number of varying metrics are basically known by the same definition. Normally used as a cash flow metric, the Return on Investment particularly makes a comparison of the scale as well as scheduling of investment gains which are matched directly to the scale and scheduling of costs involved. In any situation where the ROI is seen to post a high rate, it implies that the gains which have been made compare well with the costs that had been incurred. Return on Investment (ROI) = (Net Profit or Gain / Cost of Investment) * 100 Return on Investment has grown into a well-known concept within the past few decades mostly as an all-purpose metric for analyzing capital attainments, business initiatives, and conservative fiscal investments. These Continue reading
Similarities Between Financial and Management Accounting
Financial accounting and management accounting play an important part in accounting information system. They co-exist in enterprise production and operation of management, constituting the modern enterprise accounting system together. Much information which management accounting required is from financial accounting, while financial accounting also put the established budget, standards organizations, and such daily accounting data from management accounting as the basic premise. Financial accounting focuses on external services, but internal services is also included. Information which financial accounting provided on the funding, costs, profits and other information is very important for business management. In particular, financial statements can comprehensive and reflect all aspects of enterprise’s financial position and operating results. Study of the financial statements can grasp the overall situation of the enterprises, managers must first be aware of the overall situation, so that guide enterprises to continuously move forward. Therefore, managers must pay close attention, and be very concerned about Continue reading