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Activity Based Costing (ABC) – Concept, Advantages and Disadvantages | Accounting

September 5, 2022August 7, 2022 by Smirti
Activity Based Costing (ABC)

Activity Based Costing (ABC)

Activity Based Costing (ABC) Meaning

An activity-based costing method identifies overhead and indirect costs associated with related products and services. Unlike traditional costing methods, this method recognizes the relationship between costs, overhead activities, and manufactured products. There are, however, some indirect costs that are difficult to assign to a product, such as management and office staff salaries. Manufacturing companies primarily use activity-based costing (ABC) since it enhances the reliability of cost data, resulting in nearly true costs and a better classification of costs.

By allocating manufacturing overhead costs on the basis of product activity rather than machine hours, activity-based costing (ABC) provides a more logical method of allocating manufacturing costs. In activity-based costing, overheads are first assigned to the activities that generate them. Costs for those activities are then assigned only to products that require them.

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Earnings Per Share (EPS) – Meaning, Formulas, Types, Advantages and Disadvantages | Accounting

August 6, 2022 by Smirti
Earnings Per Share (EPS)

Earnings Per Share (EPS)

Earnings Per Share (EPS) Meaning

Earnings per share or EPS is a common metric for calculating corporate value. EPS is a financial ratio that divides net earnings available to common shareholders by the average number of shares outstanding over time. It shows how much money a company makes for each share of its stock, which indicates its profitability. When examined alongside the share price and the number of shares outstanding, EPS makes more sense as an indicator of a company’s profitability and distribution amongst shareholders.

When analyzing stocks of companies within the same industry, investors usually consider the EPS as well as the share price. It is preferable to buy shares with a higher EPS because it indicates a better return on investment.

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Bank Reconciliation Statement(BRS) – Meaning, Features, Advantages and Disadvantages | Accounting

August 6, 2022 by Smirti
Bank Reconciliation Statement (BRS)

Bank Reconciliation Statement(BRS)

Bank Reconciliation Statement(BRS) Meaning

Bank reconciliation statements reconcile a bank’s checking account balances with the bank’s financial statements. It helps identify possible sources of error by showing discrepancies between the two sets of numbers. A bank reconciliation statement summarizes the transactions of a bank account for the previous month. A transaction can include a deposit, withdrawal, or transfer.

Keeping track of your finances and recording transactions properly can be made easier with this statement. It is typically done monthly, quarterly, or annually to prepare bank reconciliation statements. It is possible for the accounting staff of a bank to prepare bank reconciliation statements manually, or for the accounting system of a bank to create them automatically.

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Process Costing – Meaning, Features,Types, Advantages and Disadvantages | Accounting

August 5, 2022 by Smirti
Process Costing

Process Costing

Process Costing Meaning

A process consists of steps that must be followed in order to complete a task. In a process costing system, the costs of a production process are accumulated and assigned to the products the business produces. As part of the process costing system, a production report must be prepared. It involves accruing expenses for all interdependent processes in a cost accounting system. In manufacturing companies that employ process pricing, raw materials are transformed into final commodities after undergoing a series of processes. Typically, for cotton textiles, the first step is spinning, the second step is weaving, and the final step is finishing.

The ideal costing approach is to use process costing when identical items cannot be tracked back economically to a given unit using direct materials, direct labor, and manufacturing overhead. In batch production, process costing is especially prevalent. It is the responsibility of each department, production process, and batch process to keep track of its direct material and direct labour costs, as well as the number of units produced.

Using a process costing system, the actual cost to produce each unit varies, but the average result provides a sufficient estimate. In the event a company does not customise its end products for particular consumers, soft drinks, petroleum products, and even chairs can be manufactured and accounted for using a form of the process costing method. Manufacturers mostly use process costing. In addition to textiles, biscuits, cement, paper, and oil refining, this method of costing is also used in other industries. This diagram illustrates the sequence of processes in which the output of the first process becomes the input of the second process, and so forth.

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Objectives of Auditing – Primary and Secondary Objectives of Auditing | Auditing

January 23, 2023May 9, 2022 by Smirti
Objectives of Auditing

Objectives of Auditing

Meaning of Auditing

A simple definition of auditing is the evaluation of business books of accounts & vouchers. It is used to determine whether all financial transactions have been accurately recorded. The purpose of auditing is to identify errors in books of accounts of the company.Frauds are prevented with this system. An independent party conducts the examination. Performing audits with accuracy requires qualified personnel. Business employees can perform this function as well as people who are external to the company. An auditor conducts continuous audits at regular intervals. Auditing is not mandatory for every business, however.

Audit is derived from the Latin word Audire, which means ‘to hear’. An audit is the process of verifying the information in financial statements. Examining the financial statements in order to determine if they accurately depict the financial position of the business and its profits and losses. It is the intelligent and critical check of whether accounting data and accounting statements are accurate, adequate and reliable.

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Two methods of accounting for uncollectible accounts are the | Accounting Quiz

March 23, 2022 by Smirti
Two methods of accounting for uncollectible accounts are the

Two methods of accounting for uncollectible accounts are the

a. cost method.
b. Interest method.
c. equity method.
d. direct write-off method.

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Golden Rules of Accounting – 3 Golden Rules of Accounting | Management Notes

July 2, 2022March 23, 2022 by Smirti
Golden Rules of Accounting

Golden Rules of Accounting

The accounting process involves recording, classifying, and summarizing the financial transactions of a business or organization. Basically, accounting refers to a process where financial transactions are recorded systematically to keep a chronological record of what happened at each stage.

The financial information of every economic entity must be presented to all stakeholders. To provide a true picture of the entity, the financials must be accurate. Each of its transactions must be included in this presentation. The purpose of accounting is to understand financial status of economic entities by comparing them. In order to ensure uniformity and to account for transactions correctly, there are three Golden Rules of Accounting. Accounting and bookkeeping are based on these rules. Journal entries are the basis of this.

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Objectives of Accounting – What are the Objectives of Accounting | Management Notes

March 21, 2022March 21, 2022 by Smirti
Objectives of Accounting

Objectives of Accounting

The process of recording a business’s financial transactions is called accounting. Accounting involves summarizing, analyzing, and reporting transactions to oversight agencies, regulatory agencies, and tax collection agencies. There are two types of accounting – Financial Accounting and Managerial Accounting. Accounting is primarily used to record and report the financial performance of an organization. Along with this some of the other objectives of Accounting are described below.

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Working Capital – Meaning, Types, Needs, Sources and Calculation | Management Notes

February 22, 2022 by Smirti
Working Capital

What is Working Capital

A working capital is another component of the capital that the business needs to meet its day-to-day requirements. Payments to creditor, salaries to workers, raw material purchases, etc., are generally recurring in nature. They can be easily converted to cash. Hence, short-term capital is also known as working capital. A key aspect of financial management is the management of working capital. Short-term finance is primarily concerned with the liquidity and profitability of the business concern. Working capital management helps business concerns improve their operating performance, as well as meet their short-term liquidity needs.

Therefore, it is not only a part of financial management but also the overall management of a business concern to study working capital management. According to the definition, working capital refers to the capital that is not fixed but it is usually defined as the difference between current assets and current liabilities.

  • Gross Working Capital

The concept of gross working capital determines the concept of working capital. A business concern’s gross working capital is the amount invested in its total current assets. The total current assets of the business concern is known as the gross working capital.

Gross Working Capital (GWC) = Current Assets

  • Net Working Capital

Net working capital is defined as the concept that considers both current assets and current liabilities. A concern’s net working capital is its excess of current assets over current liabilities over a given period of time. Positive working capital is when the current assets exceed current liabilities; negative working capital is when the opposite is true.

Net Working Capital Formula,

Net Working Capital (NWC) = Current Assets(CA) – Current Liabilities (CL )

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A disadvantage of the fixed-period inventory system is that

January 18, 2022January 4, 2022 by Smirti
A disadvantage of the fixed-period inventory system is that

A disadvantage of the fixed-period inventory system is that

A) it involves higher ordering costs than the fixed quantity inventory system.
B) additional inventory records are required.
C) the average inventory level is decreased.
D) since there is no count of inventory during the review period, a stockout is possible.
E) orders usually are for larger quantities.

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Uses of Cash Flow Statement – Financial Statement Analysis | Accounting

November 17, 2021 by Smirti
Uses of Cash Flow Statement

Uses of Cash Flow Statement

The statement of cash flows is primarily designed to provide relevant information about how an enterprise’s cash has been received and expended during a given time period. Information from financial statements will help users assess the amounts, timing, and uncertainty of prospective cash flows for the enterprise.

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Meaning of Cash Flow Statement – Financial Statement Analysis | Accounting

November 17, 2021 by Smirti
Meaning of Cash Flow Statement

Meaning of Cash Flow Statement

A Cash Flow Statement describes the inflow (sources) and outflow (applications) of cash and cash equivalents in an enterprise over a specified period of time. It includes receipts and disbursements of cash, as well as the net effect of the various business transactions. It summarizes the reasons for changes in a business enterprise’s cash position between balance sheet dates. In accordance with AS-3 (revised), an enterprise should prepare a cash flow statement and present it for each period for which financial statements are prepared. Cash, cash equivalents, and cash flow are used in the statement with the following definitions:
Cash consists of cash on hand and demand deposits with the bank.

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