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: MBISMCT11118178
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MBA Information Systems Principles of
Management
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Introduction
Accounts are records of financial transactions. Information that is used in
accounts is initially entered into books of prime entry, which may simply be
paper or computer records. This helps with financial planning. From there the
information will be entered into a double entry system in a book (or
computer programme) called the ledger. Each account is kept on a separate
page in the ledger, and every account has two sides - a debit and a credit
side. Information will then be extracted so that it can be presented in a
financial report.
Basic accounting rules group all finance related transactions/things into five
fundamental types of accounts. That is, everything that accounting deals
with can be placed into one of these five accounts:
Assets
things are own.
Liabilities things are owe.
Equity
overall net worth.
Income
increases the value in accounts.
Expenses decreases the value from accounts.
It is clear that it is possible to categorize financial world into these 5 groups.
For example, the cash in the bank account is an asset, mortgage is a liability,
pay check is income, and the cost of dinner last night is an expense.
Net worth is calculated by subtracting liabilities from the assets:
Assets Liabilities = Equity
Equity can be increased through income, and decreased through expenses.
This means pay check make "richer" and expense make "poorer". This is
expressed mathematically in what is known as the Accounting Equation:
Assets Liabilities = Equity + (Income Expenses)
This equation must always be balanced, a condition that can only be
satisfied if values are enter to multiple accounts.
Accounting Concepts
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Management
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Realizing Concept
This concept is related to the realization of revenue. The revenue is realized
either from sale of products or from rendering of services. The sale of
products involves a number of stages i.e.
1. Receipt of order
2. Production of goods
3. Despatch of goods
4. Receipt of money
Significance
It helps in making the accounting information more objective.
It provides that the transactions should be recorded only when goods
are delivered to the buyer.
Matching of Cost and Revenue Concept
The aim of every business is to produce profits. The costs are matched to
revenues. The difference between income from sales and cost of producing
the goods will be profit. If the revenue is more than the expenses, it is called
profit. If the expenses are more than revenue it is called loss. This is what
exactly has been done by applying the matching concept.
Therefore, the matching concept implies that all revenues earned during an
accounting year, whether received/not received during that year and all cost
incurred, whether paid/not paid during the year should be taken into account
while ascertaining profit or loss for that year.
Significance
It guides how the expenses should be matched with revenue for
determining exact profit or loss for a particular period.
It is very helpful for the investors/shareholders to know the exact
amount of profit or loss of the business.
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By Rent Received
By Commission received
By Increase on drawing
By interest on investment
By trade discount received
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Balancing process of the profit and loss account leads to two different
categories:
Net profit is the resultant of excess of income in the credit side over the
expenses in the debit side of the Profit and Loss account.
Net Loss is an outcome of excess of expenses in the debit side over the
incomes in the credit side.
3. Balance Sheet
Balance sheet is the third Financial Statement which reveals the financial
status of the enterprise through the total amount of resources raised and
applied in the form of assets. This is the fundamental statement of the firm
which explores the firm financial stature through the resources mobilized and
investments applied i.e. Liabilities and Assets respectively. From the early,
according to Double Entry Concept or Duality Concept, the balance sheet can
be divided into two distinct sides, known as liabilities and assets.
The balance sheet can be disclosed in two different orders:
1. In the order of long lastingness permanence.
2. In the order of liquidity.
Balance Sheet of ABC Company as at dated
Liabilities
Rs.
Assets
Capital
Land & Building
xxxx
Less: Drawings
Plant & Material
xxxx
Add: Net Profit
Furniture & fittings
xxxx
xxxxx Fixtures & tools
Long Term Borrowing
xxxxx Marketable securities
Sundrey Creditors
xxxxx Closing stock
Bills Payable
xxxxx Sundry debtors
Bank Overdraft
xxxxx Bills receivable
Outstanding expenses
xxxxx Pre paid expenses
Pre received income
xxxxx Cash at Bank
Cash in hand
Total liabilities
xxxxx Total Assets
MBA Information Systems Principles of
Management
Rs.
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
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Total Liabilities
xxxxx
Cash in hand
Total Assets
xxxxx
xxxxx
Question #3: Budgeting is the one of the main tool to control the
cost Give your views.
Answer:-
Budgeting
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Types of Budgets
There are many types of budgets. They may be classified into several basic
types. Most organizations develop and make use of three different types of
budgets:
1. Operating budgets;
2. Capital expenditures budgets;
3. Financial budgets; and
4. Zero-Base Budgets;
1. Operating Budgets
An operating budget is a statement that presents the financial plan for each
responsibility centre during the budget period and reflects operating
activities involving revenues and expenses. The most common types of
operating budgets are: Expense Budget, Revenue Budget and Profit budgets.
a. Expense Budget: An expense budget is an operating budget that
documents expected expenses during the budget period. Three different
kinds of expenses normally are evaluated in the expense budget - fixed,
variable and discretionary. Discretionary expenses - costs that depend
on managerial judgment because they cannot be determined with
certainty, for example: legal fees, accounting fees and R&D expense.
b. Revenue Budget: A revenue budget identifies the revenues required
by the organization. It is a budget that projects future sales.
c. Profit Budget: A profit budget combines both expense and revenue
budgets into one statement to show gross and net profits. Profit budgets
are used to make final resource allocation, check on the adequacy of
expense budgets relative to anticipated revenues, control activities
across units, and assign responsibility to managers for their shares of
the organization's financial performance.
2. Financial Budgets
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Budgetary Control
Budgets are the most widely used control system, because the plan and
control resources and revenues are essential to the firm's health and
survival.
"The establishment of budgets relating to the responsibilities of executives to
the requirements of a policy and the continuous comparison of actual with
budgeted results, either to secure by individual action the objectives of that
policy or to provide a basis for its revision. ICMA, England
"Budgetary control is a system which uses budgets as a means of planning
and controlling all aspects of producing and/or selling commodities and
services." J. Batty
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Solution:
PRODUCTION BUDGET (Units)
Estimated sales
50,000
Add: Desired closing
14,000
stock
64,000
Less: Opening Stock
10,000
Estimated Production
54,000
MATERIALS PURCHASE OR PROCUREMENT BUDGET. (Units)
Material A Material B
Estimated consumption
2x
1,08,000
54000
1,62,000
3x
54000
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13,000
1,21,000
12,000
1,09000
16,000
1,78,000
15,000
1, 63,000
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