Net Present Value: Investment Appraisal Tool
What is the Net Present Value Method? Net present value is the total value of the expected future cash flows for a project or investment and deducts a return that the cash is expected to earn. Net Present Value (NPV) is one of the most used techniques of capital investment appraisal. Net Present Value Explained […]
What are Accounting Standards? | Benefits and Limitations
Accounting standards are a set of principles, rules and guidelines that companies must follow when preparing and presenting financial statements. In simple terms, accounting standards are the written documents issued by the expert institutes or other regulatory bodies covering various aspects of treatment, measurement, presentation and disclosure of accounting transactions. The basic objective of ASs […]
The concept of accruals and prepayments
Accruals and prepayments stand on the basis of the double-entry bookkeeping system and modern financial accounting. Accruals/Prepayments The accruals concept is often used to refer to both accruals (outstanding or unpaid expenses) and prepayments (payments in advance) (payments in advance). You may recall that previously in this section, we examined some of the accounting principles […]
What is Financial Performance Measurement?
Financial Performance Measurement Financial performance measurement, also known as financial statement analysis, employs all available tools to demonstrate how essential things in a company’s financial statements are related to the company’s financial objectives. Individuals that have a significant interest in measuring a company’s financial success fall into this category. Separated into two categories: 1. A […]
What Are the Limitations of Absorption Costing?
The term “absorption costing” refers to a method of inventory costing that treats all direct and indirect manufacturing costs as inventory costs. This method can be defined as “the method that includes all direct manufacturing costs and all indirect manufacturing costs as inventory costs.” Despite having several advantages in cost and management accounting, the following […]
What is a Budget Manual? – Meaning and definition
A budget manual outlines the policies, procedures, timelines, and responsibilities related to the budgeting process within an organisation. It serves as a reference tool for all individuals involved in the budgeting process, helping to clarify expectations, roles, and requirements. CIMA London defines a budget manual as a document schedule or booklet which sets out, inter […]
What Are Direct Material Cost Variances?
Direct material cost variance refers to the difference between direct materials’ actual and standard costs. It is calculated using actual output. Direct material cost variance is important for cost control and profitability analysis in manufacturing companies. It can be used to assess the effectiveness of purchasing strategies and identify potential cost savings opportunities. Reasons for […]
What is the accounting process? Various Steps Explained
The accounting process is a methodical procedure that organisations employ to account, analyze, and interpret business transactions. In other words, the accounting process is a series of steps that businesses follow to record, classify, summarize, and report their financial transactions. It is a cyclical process that typically takes place over an accounting period, which is […]
What are accounting estimates in financial accounting?
We have learned how to measure a transaction that has already occurred or taken place and for which either some value /money has been paid, or some valuation principles are to be adopted for their measurement. But certain items can not occur and cannot be measured, but they are necessary to record in the books […]
Systematic and Unsystematic Risks in Finance
Risk is the probability of an individual or organization incurring a loss. Risk can be classified as market risk, credit risk, operational risk, liquidity risk, and compliance. In finance, the risk is the chance that the actual rate of return on an investment will be different from what was originally expected. An investor can assess […]