acoounting terminologies_group 7 (2).pptx

7/28/2019 Acoounting Terminologies_group 7 (2).pptx

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GROUP 7

CAPITAL

Nijo Jacob

Merin Elza Koshy Sameena.V.Y

Alex.B.Thomas

Shijith.S.Shaji


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ACCOUNTING

Accounting is an art of recording, classifying,summarizing business transaction in asignificant manner and in terms of money

transactions . It helps to record and classify the various

business transactions.

It helps in knowing the actual profit and lossof the business.

Helps in budgeting.


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It records only transactions which can be

recorded in monetary terms.Accounting is a post mortem survey.

It provide the information about the concern as a

whole.Effect of price level change are not considered

here.


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FUND FLOW STATEMENT


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INTRODUCTION

A statement showing the sources of funds and

how these funds were used

Measures the changes that have taken place in

the financial position of a firm between 2 balance

sheet dates

In India it is not compulsory to prepare a funds

flow statement..


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OBJECTIVES OF PREPARING

FUNDS FLOW STATEMENT

To know the changes in working capital during aperiod

To understand the working capital position of afirm

To assess the financial condition of a firm

To anticipate the working capital position

To provide a basis for budgeting


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BENEFITS OF FUNDS FLOW

STATEMENT

To share holders

To long-term creditors and debenture holders

To short term creditors, banks and financialinstitutions

Useful to management


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LIMITATIONS OF FUNDS FLOW

STATEMENT

Shows what happened in the past. Hence it ishistorical in nature

Only a secondary data. Because it is only arearrangement of data given in financialstatements

Cannot reveal continuous changes

Not a substitute for income statement or balancesheet


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STEPS

Statement of changes in working capital

Adjusted P & L a/c

Funds flow statement


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CASH FLOW STATEMENT


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CASH FLOW STATEMENT

Statement showing the changes in cash

position from one period to another

Inflows and outflows of cash and cashequivalents

If the effect of transaction results in increase ofcash and its equivalents, it is called an inflow(i.e.. source)

If it result in the decrease of cash, it is calledoutflow (i.e. application)


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PREPARATION OF CASH FLOW

STATEMENT

Adjusted P & L a/c

Calculation of cash from operations

Cash flow statement


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LIMITATIONS

Ignores non cash transactions

Not a substitute for income statement

Historical in nature

Limited scope


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TREND RATIOS


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INTRODUCTION

Important tool for horizontal financial analysis.

Ratios of different items are for various period are

calculated and then a comparison is made.

This comparison helps in the suggestion of upward and

downward trends of the concern.

Helps the management to compare the concerns

position.


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ADVANTAGES OF TREND ANALYSIS

Helpful in forecasting and budgeting.

Helps in comparing one period with another.

Makes data brief and easily understandable.

finding the upward or downward movement of

business.


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CAPITAL STRUCTURE


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CAPITAL STRUCTURE

CAPITAL STRUCTURE REFER TO THE

MIX OF SOURCES FROM WHERETHE

LONG TERM FUND REQUIRED IN A

BUSINESS MAY BE RAISED .SO ITREFERS TO THE PROPORTION OF

DEBT,PREFERENCE CAPITAL AND

EQUITY CAPITAL.


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CONT.

Raising of capital from different sources and

their use in different assets by a company is

made on the basis of certain principles that

provide a system of capital so that themaximum rate of return can be earned at a

minimum cost.

This sort of system of capital is known ascapital structure.


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FEATURES OF APPROPRIATE CAPITAL

STRUCTURE

PROFITABILITY

FLEXIBILITY

CONSERVATION SOLVENCY

CONTROL


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TOTAL REQUIRED CAPITAL

From Shares

Equity Share capital

Preference Share Capital

From Debentures


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OPTIMAL CAPITAL STRUCTURE

It is that mix of debt and equity which

maximizes the value of the company and

minimizes the cost of capital.

For example, a business might have an

optimal capital structure that consists of 30

percent debt, 10 percent preferred stock, and60 percent common equity.


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ESSENTIALS OF A SOUND OR OPTIMAL

CAPITAL STRUCTURE Minimum Cost of Capital Minimum Risk Maximum Return Maximum Control Safety Simplicity FlexibilityAttractive Rules and Legal Requirements Provision for growth Maneuverability


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MAJOR CONSIDERATION IN CAPITAL STRUCTURE

PLANNING

RISK

COST

CONTROL


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BUDGETARY

CONTROL


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CHARACTERISTICS OF BUDGET

Prepared in terms of quantity and money.

Prepared for a fixed and set period of time.

Prepared before a definite period of time.

Gives objectives to be attained.


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ADVANTAGES

Fix target in physical and financial terms.

Coordinate efforts of various divisions and

departments.

Performance evalution,cost

control,maximisation of profits.

Communication between all levels of

management.


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BUDGETARY CONTROL AND ITSCHARACTERISTICS Establishment of budgets- describes

responsibility towards a policy-monitoring of

performance.

Continous comparison of actual with

budgeted result.

Computation and analysis of variations and

actions for maintaining them.


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OBJECTIVES OF BUDGETARY CONTROL SYSTEM

To forecast operating activities.

To provide coordination of various activities.

To serve as an ideal means of

communication

To serve as a measure of performance.

To serve as a means of control.


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ESSENTIALS OF GOOD BUDGETARY

CONTROL SYSTEM

Plan of operation should be well defined.

Should be supported by top management.

Provisions for comparing actual with

budgeted results.

System should be flexible.


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BENEFITS

Co-ordinates and controls policy,plans andactions.

Indication of good management.

Corporate planning and budgetary control canbe linked.

Costs ,wastage etc can be reduced.

Help to achieve maximum profits.

Cash budget. Sales forecast.

Acts as means of declaration of policies.


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WEAKNESSES

All the systems may not be equally efficient.

Persons handling the system.

acoounting terminologies_group 7 (2).pptx

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