MBA – 101-Accounting for Managers PDF

Preview

Summary

Download MBA – 101-Accounting for Managers PDF

Description

Write two objectives of financial statement analysis Assessment of Past Performance and Current Position Prediction of Net Income and Growth Prospects To assess the short term as well as long term solvency position of the firm What do you mean by Revenue Centre? A revenue center is the business operation responsible for generating a company’s sales revenue. These centers may be departments, divisions or business units that have direct interaction with consumers to sell goods and services. What is Depreciation? How it is calculated? In accounting terms, depreciation is defined as the reduction of recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible 1) Straight-line depreciation method Annual Depreciation expense = (Asset cost – Residual Value) / Useful life of the asset Differentiate between assets and liabilities. The main difference between assets and liabilities is that assets provide a future economic benefit, while liabilities present a future obligation . An indicator of a successful business is one that has a high proportion of assets to liabilities, since this indicates a higher degree of liquidity. assets are something that provides future benefits to the business. That’s why business consultants encourage businesses to build assets and reduce expenses. Liabilities, on the other hand, are something that you’re obligated to pay off in a near or distant future. Liabilities are formed because you receive a service/product now to pay off later.

What is the use of preparing Sales Budget? A sales budget is a forward-looking financial plan of sales volume and revenue for a certain period of time (usually a month or a quarter). Its basic components are the anticipated number of units to be sold, selling price per unit, and total sales. The sales budget serves as a basis for other business budgets, as well as for identifying needed process improvements and determining price increases

What is full disclosure convention? The full disclosure principle requires a company to provide the necessary information so that people who are accustomed to reading financial information are able to make informed decisions regarding the company Name the various material variances. 1.

Cost Variances

2.

Material Variances

3.

Labour Variances

4.

Overhead Variance

5.

Fixed Overhead Variance

6.

Sales Variance

7.

Profit Variance What is the objective of preparing Trial Balance? Ascertainment of the Arithmetical Accuracy Locating the Errors Preparation of Financial Statements State the formula for calculating PV Ratio. The Profit/volume ratio, which is also called the ‘contribution ratio’ or ‘marginal ratio’, expresses the relation of contribution to sales and can be expressed as under: P/V Ratio = Contribution/Sales Write the adjustment entry for “Manager’s Commission on Net Profit”. Sometimes the manager is entitled for a commission on profits which is usually calculated at a fixed percentage of the profits. Let us take an example. Suppose, a firm has earned Rs. 300000 as profits in the financial year 2016-17 without charging the commission, which is 10 % of the profits. Then the manager's commision will be Rs. 30000. The manager's commision will be treated as an outstanding expense and it is shown as an expense at the debit side of profit and loss account and also as a current liability it will be shown in the balance sheet. Therefore, the adjustment entry for manager's commission will be as follows.

Profit & Loss A/c Dr. To Manager's commission Payable A/c

30000 30000

R Discuss all the concepts of accounting. Business entity concept: A business and its owner should be treated separately 1. as far as their financial transactions are concerned. 2. Money measurement concept: Only business transactions that can be expressed in terms of money are recorded in accounting, though records of other types of transactions may be kept separately. 3. Dual aspect concept: For every credit, a corresponding debit is made. The recording of a transaction is complete only with this dual aspect. 4. Going concern concept: In accounting, a business is expected to continue for a fairly long time and carry out its commitments and obligations 5. Cost concept: The fixed assets of a business are recorded on the basis of their original cost in the first year of accounting. Subsequently, these assets are recorded minus depreciation. No rise or fall in market price is taken into account. The concept applies only to fixed assets. 6. Accounting year concept: Each business chooses a specific time period to complete a cycle of the accounting process. 7. Matching concept: This principle dictates that for every entry of revenue recorded in a given accounting period, an equal expense entry has to be recorded for correctly calculating profit or loss in a given period. 8. Realisation concept: According to this concept, profit is recognised only when it is earned. An advance or fee paid is not considered a profit until the goods or services have been delivered to the buyer.

Define Zero Base Budgeting. What are the steps involved in this? Zero-based budgeting (ZBB) is a methodology that helps align company spending with strategic goals. Its approach requires organizations to build their annual budget from zero each year to help verify that all components of the annual budget are cost-effective, relevant, and drive improved savings. 1. Start. Begin at ground zero. Create a new annual budget from scratch without using last year’s actuals as a baseline. 2. Evaluate. Evaluate every cost area. Eliminate and reduce unnecessary activities or services. 3. Justify. Account for all components of the budget. Identify areas that are costeffective, relevant, and that drive cost savings. 4. Streamline. Determine what activities should be performed and how. Automate and standardize processes where possible. 5. Execute. Roll out comprehensive planning and execution processes. Communicate clear plans, roles and responsibilities.

What are the different types of budgets prepared in an organization? 1. Sales Budget: It includes a forecast of total sales during a period expressed in money and/or quantities in the organisation Cash Budget: In the organisation, the cash budget usually gives detailed estimates of (a) cash receipts and (b) cash disbursements for the budget period. . Production Budget: It includes a forecast of the output during a particular period analyzed according to (a) products, (b) manufacturing departments, to schedule its production according to sales forecast in the organization Materials Budget: It generally deals with the direct materials for budgeted output in the organization. 5. Labor Budget: It is based upon the estimates of the production budget in the organisation. 6. Factory Overhead Budget: It includes the details of the fixed and variable overhead costs for the budget period . Distribution Overhead Budget: It includes the estimates of all items of expenditure on promotion and distribution of finished products in the organization. 8. Administrative Overhead Budget: It includes the estimates of administration expenses like expenses on office operations including salaries of office personnel in the organization 10. Fixed and Flexible Budget: A fixed budget, which is designed to remain unchanged irrespective of the level of activity, actually attained. 9. Master Budget:

The master budget is the summary budget incorporating its component functional budgets, which is finally approved, adopted and employed in the organisation...