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Functions of A Finance Manager

Functions of A Finance Manager
The Key Functions of a Finance Manager Finance manager is one of the important role-players in the domain of finance function. He must have a complete know-how on the areas of accounting, finance, economics and management. His position calls for judicious capability and analytical approach to solve various problems related to finance. A person who deals with finance related activities may be called finance manager. “Focus on a few key objectives … I only have three things to do. I have to choose the right people, allocate the right number of dollars, and transmit ideas from one division to another with the speed of light. So I’m really in the business of being the gatekeeper and the transmitter of ideas.” – Jack Welch The Finance Man Finance manager performs the following major functions Forecasting Financial Requirements It is the principal function of the Finance Manager where he is required to estimate the financial obligations of the business concern. He should evaluate how much finances are required to procure fixed assets and forecast the amount needed to meet the working capital requirements in future. Acquiring Necessary Capital The next step of a finance manager is to focus on how the finance is deployed and where it will be available. Investment Decision Best investment alternatives have to be considered to assure reasonable and stable return from the investment. He must be competent in the field of capital budgeting techniques to govern the effective utilization of investment. The finance manager must attach more importance to the principles of safety, liquidity and profitability while investing capital. Cash Management Cash management plays a major role in the area of finance because proper cash management also helps to meet the short-term liquidity position of the concern. Inter-relation With Other Departments Finance manager handles various functional departments such as marketing, production, personnel, system, research, development, etc. He must maintain a good rapport with all the functional departments of the business organization. “Rule No. 1 : Never lose money. Rule No. 2 : Never forget Rule No. 1.”― Warren...
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Need a Business Idea? BI #1

Need a Business Idea? BI #1
Best New Business Ideas for 2020 Accountant Create a flier outlining your services. Before you do that, you need to know what those services will be. Do you want to simply do bookkeeping for a small business? A more involved level of accounting would be do actually work up balance sheets, income statements, and other financial reports on a monthly, quarterly, and/or annual basis, depending on the needs of the business. Other specializations can include tax accounting, a huge area of potential work. Many business owners don’t mind keeping their own day-to-day bookkeeping records but would rather get professional help with their taxes. Most small businesses don’t have a full-time accountant, so the task of record keeping often falls to the business owner. A highly organized, trustworthy, part-time bookkeeper can really alleviate the stress of sorting through receipts and tax returns. You’ll most likely only need to put in one or two days a month for each client, depending on how many sales and expenses they have. Knowledge of QuickBooks is a plus, but not necessarily a requirement for, this side business. And if you don’t already have a relevant degree, you can take bookkeeping classes at a local community college. You can also become a certified bookkeeper through organizations like the National Association of Certified Professional Bookkeepers. Read on: A well researched article on “Small business ideas that’ll make you money” by Dawn Matthews  that throws light on realistic business ideas that’ll work out in the long run. It’s the year of the entrepreneur. Thanks, in part, to social media, crowdfunding and alternative lending options, and the constant evolution of technology, it’s a great time to start a business. Here is a great post on “Some very specific mistakes which can create big problems for Small Businesses“, compiled by John Hawthorne based on his research and experience. Read the Article for great insights on how branding has to be done the right way ! https://www.davidtaylordesign.com/youre-small-business-do-not-make-mistakes/ Attractive Business Ideas for Accountants Some of the most important business ideas for accountants are given as under. Bookkeeping: Bookkeeping is a lucrative business alternative for accountants. Both and small business firms require to maintain updated bookkeeping. With the availability of various software and computers equipped with the latest technology, bookkeeping has become easier than before. Accountants can engage themselves educational bookkeeping, this kind of business venture require both experience and education which the accountants usually have. Payroll Service: Payroll service which is a subsidiary of bookkeeping service is a very good business idea for accountants. Payroll services are necessary for most of the companies, and accountants can engage themselves into this kind of service which will help them earn good profits. Tax preparation: Tax preparation service can prove to be a very fruitful business idea for the accountants, for this kind of business grows very easily and appeals to numerous clients. Accountants taking tax preparation service as a business plan means that both individuals and firms will act as clients. Hope you found this article informative and useful…. Leave your feedback and...
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Advantages of Long Term Financing

Advantages of Long Term Financing
What is Long Term Financing? It is a form of financing that is provided for a period of more than a year to those business entities that face a shortage of capital. Before delving into the advantages of long term financing I would like to present you few fascinating facts on the economy that will blow your mind. Dell “has spent more money on share repurchases than it earned throughout its life as a public company,” writes Floyd Norris of The New York Times.According to Forbes, if a Google employee passes away, “their surviving spouse or domestic partner will receive a check for 50% of their salary every year for the next decade.”Start with a dollar. Double it every day. In 48 days you’ll own every financial asset that exists on the planet — about $200 trillion. Wow…According to Bloomberg, “Americans have missed out on almost $200 billion of stock gains as they drained money from the market in the past four years, haunted by the financial crisis.The “stock market” began in May 17th, 1792 when 24 stock brokers and merchants signed the Buttonwood Agreement.The Securities Exchange Act of 1934 creates the Securities and Exchange Commission, charged with the responsibility of preventing fraud and to require companies provide full disclosure to investors.Wall Street was laid out behind a 12-foot-high wood stockade across lower Manhattan in 1685. The stockade was built to protect the Dutch settlers from British and Native American attacks. Sources of Long Term Finance Long-term loans (External)Issue of shares or equitySale and leaseback (Internal)Retained profit Examples of long-term financing include – a 30 year mortgage or a 10-year Treasury note. Financial Markets and Securities Purpose of Long Term Finance To finance fixed assets.To finance the permanent part of working capital.Expansion of companies.Increasing facilities.Construction projects on a big scale.Provide capital for funding the operations. Factors determining Long-term Financial Requirements Nature of BusinessNature of Goods producedTechnology used Long term finance for businesses A Clear Perspective on Break Even Analysis Let us look at some of the Advantages of going for a Debt Financing Option Debt is the cheapest source of long-term financing. It is the least costly because interest on debt is tax-deductible, bondholders or creditors consider debt as a relatively less risky investment and require lower return.Debt financing provides sufficient flexibility in the financial/capital structure of the company. In case of over capitalization, the company can redeem the debt to balance its capitalization.Bondholders are creditors and have no interference in business operations because they are not entitled to vote.The company can enjoy tax saving on interest on debt. Disadvantages of Long Term Debt Financing Interest on debt is permanent burden to the company:  Company has to pay the interest to bondholders or creditors at fixed rate whether it earns profit or not. It is legally liable to pay interest on debt.Debt usually has a fixed maturity date. Therefore, the financial officer must make provision for repayment of debt.Debt is the most risky source of long-term financing. Company must pay interest and principal at specified time. Non-payment of interest and principal on time take the company into bankruptcy.Debenture indentures may contain restrictive covenants which may limit the company’s operating flexibility in future.Only large scale, creditworthy firm, whose assets are good for collateral can raise capital from long-term debt. Financing through Debt Vs Equity There are a number of ways to finance a business using debt or equity. Though the first choice of  many small-business owners would be equity, they may also prefer to utilize some type of debt to fund the business rather than take on additional investors. When done the right way, long-term debt financing provides a number of advantages to the business and its owner. Term Loans from Banks Most banks provide term loans,...
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Advantages and Limitations of Ratio Analysis

Advantages and Limitations of Ratio Analysis
What are the advantages and limitations of ratio analysis? Advantages: It is an important and useful tool to determine the efficiency with which working capital is being managed in a business organization. It is a ‘health test‘ for a business firm in that it can gauge whether the firm is financially healthy or not. It aids the management of business concern in evaluating its financial position and performance efficiency. It clearly shows the trend of changes in the market position (upward, downward or static), as it covers a number of previous accounting (financial) periods. The progress or downfall of a firm is clearly indicated by this analysis. It assists in preparing financial estimates for the future (financial forecasting). It facilitates the task of managerial control to a great extent. It helps the credit suppliers and investors in deciding upon a business firm as a potential investment outlet or desirable debtor. Ideal or Standard ratios can be established which can be used as reference points of comparison for a firm’s progress over a period of time. It communicates important information with relation to financial strength, earning capacity, debt (borrowing) capacity, liquidity position, capacity to meet fixed commitments, solvency, capital gearing, working capital management, future prospects etc. of a business concern. This analysis is also useful for bench marking purpose- to compare the working result and efficiency of performance of a business enterprise with that of other firms engaged in the same industry (inter-firm comparison). It helps the management to discharge their basic functions of planning, coordinating, controlling etc. It serves as an instrument for testing management efficiency too. It acts as a useful tool for deciding on certain policy matters. Limitations: Accounting ratios calculated based on ratio analysis will be correct only if the accounting data on which they are based are correct. It is only an analysis of past financial data. In certain cases ratio analysis might prove to be misleading with regard to profits. Continuous fluctuation in price levels ( or, purchasing power of money) seriously affect the validity or comparison of accounting ratios calculated for different accounting periods and make such comparisons very difficult. Comparisons become difficult also on account of difference in the definition of several financial (accounting) terms like gross profit, operating profit, net profit etc. There is lot of diversity in practice as regards to the measurement of ratios. Different firms use different accounting methods and the validity of comparison is severely affected by window dressing in the basic financial statements. A single ratio will not be able to convey much information. This analysis only gives part of the total information required for proper decision-making. This should not be taken as a substitute for sound judgement.  It should not be overlooked that business problems cannot be solved mechanically through ratio analysis or other types of financial analysis. Follow ManagementGuru Net’s board Accounting – Financial and Management Accounting on...
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How to Calculate Gross Profit

How to Calculate Gross Profit
Gross Profit  It is a required income statement entry that indicates total revenue minus cost of goods sold. It is the company’s profit before operating expenses, interest payment and taxes. It is also known as GROSS MARGIN. The gross profit on a product is computed as: Net Sales – Cost of Goods Sold (COGS) This concept is well understood if you are able to clearly distinguish between variable and fixed costs. VARIABLE COSTS: Materials used Direct labor Packaging Freight Plant supervisor salaries Utilities for a plant or a warehouse Depreciation expense on production equipment Machinery  FIXED COSTS: Fixed costs generally are more static in nature. They include: Office expenses such as supplies, utilities, a telephone for the office, etc. Salaries and wages of office staff, salespeople, officers and owners Payroll taxes and employee benefits Advertising, promotional and other sales expenses Insurance Auto expenses for salespeople Professional fees Rent  Variable expenses are logged as cost of goods sold. Fixed expenses are counted as operating expenses (sometimes called selling and general administrative expenses). While gross profit is a monetary entity, the margin is expressed as a percentage. It’s equally significant to track since it allows you to keep an eye on profitability trends. Gross Profit Ratio = Gross Profit / Net Sales The gross profit margin is computed as follows: When the ratio is expressed in percentage form, it is known as gross profit margin or percentage. Gross Profit / Net Sales *100 = Gross Profit Margin It is equal to the net sales minus cost of goods sold and net sales are equal to total gross sales less return inwards and discount allowed. Benefits of calculating gross profit: This ratio determines how efficiently the management utilizes labor and raw materials A company uses its gross income to fund activities such as research and development, marketing etc., which are vital for generating future sales. A prolonged decline in this margin is a cleat-cut indication of sales drop-down and ultimately earnings. Trends in this margin reflect basic pricing decisions and material costs of a company. This profit margin is an accounting measure designed to estimate the financial health of a business or industry. It may be noted that generating a profit margin alone cannot vouch for the financial health of a firm; rather the business must have sufficient cash flow in order to pay its bills and compensate employees. An entrepreneur might compare the return that would be available from a bank or another low-risk investment opportunity to that of his EXISTING profit-margin to gauge whether his startup is doing well. → Profitability...
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