The document discusses key accounting concepts and terms:
1) Journal, ledger, trial balance, and balance sheet are important accounting books that record transactions, maintain account balances, check accuracy, and report financial position.
2) Budgets can be fixed/static or flexible/dynamic depending on whether they adjust for actual performance. Capital structure refers to how a company finances its assets through debt vs equity.
3) Key capital budgeting techniques are payback period, net present value (NPV), and internal rate of return (IRR) which analyze costs/benefits and viability of investment projects.
The document discusses key accounting concepts and terms:
1) Journal, ledger, trial balance, and balance sheet are important accounting books that record transactions, maintain account balances, check accuracy, and report financial position.
2) Budgets can be fixed/static or flexible/dynamic depending on whether they adjust for actual performance. Capital structure refers to how a company finances its assets through debt vs equity.
3) Key capital budgeting techniques are payback period, net present value (NPV), and internal rate of return (IRR) which analyze costs/benefits and viability of investment projects.
The document discusses key accounting concepts and terms:
1) Journal, ledger, trial balance, and balance sheet are important accounting books that record transactions, maintain account balances, check accuracy, and report financial position.
2) Budgets can be fixed/static or flexible/dynamic depending on whether they adjust for actual performance. Capital structure refers to how a company finances its assets through debt vs equity.
3) Key capital budgeting techniques are payback period, net present value (NPV), and internal rate of return (IRR) which analyze costs/benefits and viability of investment projects.
JOUNAL: This is a book of first entry or original entry.
Business transactions are first
entered in this book before they are taken to the appropriate accounts in the ledger. The word Journal is derived from the Latin word ‘Journ’ which means a day. Hence, Journal is also termed as a day book where in the day to day transactions are recorded in chronological order. LEDGER:This is the main book of account. This is a book in which all accounts are kept. The entries recorded in the journal are posted into the accounts opened in the ledger and their balances are found. It is a set of accounts. TRIAL BALANCE:This is the list of the balances of the accounts appearing in a trader’s ledger. The trial balance is a statement containing the balances of all ledger accounts, as at any given date, arranged in the form of debit and credit columns side by side and prepared with the object of checking the arithmetical accuracy of the ledger postings. In other words, the Trial Balance is a connecting link between the ledger accounts and final accounts. Balance sheet: A balance sheet is a financial statement that presents the financial position of an organization at a specific point in time. It provides a snapshot of an organization’s assets, liabilities, and equity, and shows the relationship between these components. The balance sheet is also known as the statement of financial position. • Fixed budgeting: A fixed budget, also known as a static or traditional budget, is a budget that is prepared based on predetermined targets and remains unchanged regardless of actual performance or changes in business conditions. In other words, a fixed budget is set at the beginning of a budget period and remains constant throughout that period, regardless of whether the actual results deviate from the budgeted targets. • Flexible budgeting: A flexible budget, also known as a variable or dynamic budget, is a budget that is prepared based on a range of possible outcomes or levels of activity. It is designed to be flexible and adjusts based on actual performance or changes in business conditions. In other words, a flexible budget is a budget that is recalculated or adjusted based on the actual level of activity achieved during the budget period. • Fixed and working capital requirement:Fixed and working capital requirements are important financial considerations for businesses. Both fixed and working capital are essential for the smooth operation of a business and play a crucial role in determining a company’s financial health and sustainability. • CapiCapital structure refers to the way a company finances its operations and investments by utilizing different sources of funds, such as debt and equity. It represents the mix of long-term debt and equity used by a company to finance its assets and operations.In simpler terms, capital structure is the combination of debt and equity that a company uses to raise funds for its business activities. • Capital budgeting: Capital budgeting is a process used by businesses and organizations to evaluate and make decisions about potential investments in long- term assets, such as equipment, buildings, or projects. It involves analyzing the costs and benefits of different investment options to determine their financial viability and align them with the organization’s strategic goals. • Packback: Payback period is the time required for the project’s expected cash inflows to recover the initial investment. It is a simple method that focuses on the time it takes to recoup the investment, but it does not account for the time value of money or cash flows beyond the payback period. • NPV: NPV is the difference between the present value of expected cash inflows and the present value of expected cash outflows over the life of the project. A positive NPV indicates that the project is expected to generate more cash inflows than outflows and is considered financially viable. • IRR: IRR is the discount rate at which the present value of expected cash inflows equals the present value of expected cash outflows, resulting in an NPV of zero. It represents the rate of return at which the project breaks even. If the IRR exceeds the required rate of return or cost of capital, the project is considered acceptable. • Working capital management: Working capital management refers to the management of a company’s short-term assets and liabilities to ensure efficient operations, smooth cash flow, and effective utilization of resources. Working capital includes the company’s current assets, such as cash, accounts receivable, inventory, and short-term investments, as well as its current liabilities, such as accounts payable, short-term debt, and accrued expenses • Cash flow: A cash flow statement is a financial statement that provides information about the inflows and outflows of cash and cash equivalents for an organization during a specific period of time. It shows how cash is generated and used by a company, and provides insights into its liquidity, operating activities, investing activities, and financing activities. • Fund flow: A fund flow statement, also known as a statement of changes in financial position or a cash flow statement, is a financial statement that shows how funds have been generated and utilized by an organization during a specific period of time. It provides information on the changes in a company’s financial position by analyzing the inflows and outflows of funds. • Concept of cost: The concept of cost refers to the monetary value of resources or inputs that are utilized in the production or acquisition of goods, services, or assets. Costs are incurred by businesses and organizations as part of their operations, and they are a fundamental aspect of financial accounting and management. • Fixed cost: These costs remain unchanged regardless of the level of production or sales volume within a certain range. Fixed costs are incurred on an ongoing basis and do not vary with changes in production or sales activity. Examples of fixed costs include rent, salaries of permanent employees, insurance premiums, and depreciation of fixed assets. • Variable cost: These costs vary in proportion to the level of production or sales volume. As production or sales increase, variable costs also increase, and vice versa. Variable costs are directly tied to the level of output or sales and change accordingly. Examples of variable costs include raw materials, direct labor, and sales commissions. • Semi variable cost: These costs have both fixed and variable components. They have a fixed portion that remains unchanged regardless of the level of production or sales volume, and a variable portion that varies with changes in production or sales activity. Semi-variable costs are also known as mixed costs. Examples of semi-variable costs include utility bills that have a fixed monthly charge and a variable charge based on usage, and telephone bills that have a fixed monthly charge and a variable charge based on the number of calls made. • Step cost: These costs remain constant over a certain level of production or sales volume, and then increase abruptly to a higher level when a certain threshold is crossed. Step costs are incurred when there is a significant change in the level of production or sales, and the cost increases are not proportional to the changes in activity level