Prof. Pratik Gohil

Difference between Financial Accounting & Cost Accounting BASIS FOR COMPARISON COST ACCOUNTING FINANCIAL ACCOUNTING Meaning Cost Accounting is an accounting system, through which an organization keeps the track of various costs incurred in the business in production activities. Financial Accounting is an accounting system that captures the records of financial information about the business to show the correct financial position of the company at a particular date. Information type Records the information related to material, labor and overhead, which are used in the production process. Records the information which are in monetary terms. Which type of cost is used for recording? Both historical and pre-determined cost Only historical cost. Users Information provided by the cost accounting is used only by t...

Objectives of Cost Accounting 1. Ascertainment of Cost: One of the primary objectives of cost accounting is to ascertain the cost of producing goods or services accurately. It involves the collection, classification, and allocation of costs associated with different activities, processes, or products within the organization. This information helps in cost control and decision-making. 2. Determination of Selling Price: Cost accounting assists in determining the appropriate selling price of goods or services by considering various costs involved in production, such as material, labor, overheads, and a reasonable profit margin. It ensures that the selling price is set at a level that covers costs and provides a suitable profit. 3. Control of Cost: Cost accounting aims to control and reduce costs by analyzing cost behavior, identifying cost variances, and implementing cost control measures. It helps management in identifyi...

Limitations of Financial Accounting           Financial Accounting is mainly concerned with recording of business transactions. It provide the information to internal and external parties. Managers, departmental heads, management are the examples of internal parties. Investors, shareholders, debtors, government authorities, banks are the examples of external parties. 1. Shows overall performance:  Financial accounting presents an overall picture of a company's financial health through financial statements. However, it lacks granularity in detailing specific operational areas or segments of the business, which might be essential for internal decision-making. 2. Historical in nature: Financial accounting records and reports past transactions. It provides information on what has already occurred but may not accurately reflect current market conditions or predict future trends. This historical data may not always be suitable for making forward-looking d...

Introduction Business needs continuous information regarding costs of business activities to plan accurately for the future, to control business results, and to make a proper appraisal of the performance of persons working in an organisation.  The fulfillment of these goals requires details about the costs incurred and benefits (revenue) obtained which are provided by cost accounting and management accounting.  Concept of Cost, Costing, Cost Accounting and Cost Accountancy A) Cost: The term cost is understood in a variety of ways. The meaning of cost is different according to different point of view. In ancient period only labour expenses were included in term of cost. However with the development of civilisation, the production methods were changed and material, labour and other expenses are considered in the concept of cost.  Cost is the amount of resources spent for manufacturing goods or providing services.   Definitions: 1. According to Chartered Institute of Ma...

Balance of Payments (BoP): The balance of payments is a systematic record of a country's economic transactions with the rest of the world over a certain period, typically a year. It's divided into three main categories: the current account, the capital account, and the financial account. Components of Balance of Payments: 1. Current Account: Trade Balance (Visible Balance): This records the value of exports and imports of goods (merchandise trade). A surplus occurs when exports exceed imports (favorable balance), and a deficit occurs when imports exceed exports (unfavorable balance). Services: It accounts for the value of services exported and imported, such as tourism, financial services, consulting, etc. Income: This includes income earned by residents from foreign investments and income earned by foreigners in the domestic economy. Transfers: These are unilateral transfers without receiving anything in return, such as foreign aid, remittances, etc. 2. Capital Account: Ca...

Introduction to Factoring Factoring is a financial transaction where a company sells its accounts receivable (invoices) to a third party, known as a factor, at a discount. This process allows the company to convert its receivables into immediate cash instead of waiting for the customers to pay. The factor assumes the responsibility of collecting the debts from the company's customers. Types of Factoring Recourse Factoring: In this type, the company remains liable if the factor is unable to collect the debt from the customer. The risk of bad debts remains with the company. Non-recourse Factoring: Here, the factor assumes the risk of non-payment. If the customer fails to pay due to insolvency or credit reasons, the company is not held responsible. Advantages of Factoring Improved Cash Flow: Factoring provides immediate cash, enhancing liquidity for the company to meet its operational needs. Risk Mitigation: Factors assume the risk of non-payment, especially in non-recourse factori...

Introduction to International Cash Management International cash management involves overseeing an organization's cash flows, liquidity, and financial operations across different countries and currencies. Managing cash across borders poses unique challenges due to varying regulations, currencies, time zones, and economic conditions. Challenges in International Cash Management Managing cash across borders comes with a set of unique challenges which can be explained as under : Currency Fluctuations: Fluctuating exchange rates can have a significant impact on a company's cash positions, especially when dealing with multiple currencies. Exchange rate movements can affect the value of cash inflows and outflows, impacting profits and cash flow. Regulatory Compliance: Different countries have their own regulations and requirements regarding cash transfers, reporting, and compliance. Staying up to date with these regulations and navigating the complex compliance landscape can be a ...

Bretton Woods System and Current Exchange Rate Arrangements Historical Context: The Bretton Woods System was established in 1944 during a conference held in Bretton Woods, New Hampshire, United States. This system was a pivotal moment in the post-World War II era when global leaders came together to create a new international monetary order. Key Features: 1. Fixed Exchange Rates: Under this system, currencies were pegged to the US dollar, which was in turn linked to gold. Countries agreed to maintain their exchange rates within a narrow margin of fluctuation against the dollar. 2. International Monetary Fund (IMF): Created to promote exchange rate stability and provide short-term financial assistance to countries facing balance-of-payment problems. The IMF also aimed to encourage global economic cooperation and avoid competitive devaluations. 3. World Bank: Established to provide long-term loans for the reconstruction of war-torn countries and support their economic development. 4. ...

Evolution of International Monetary System and Gold Standard The evolution of the international monetary system spans centuries, undergoing significant transformations influenced by historical events, economic theories, and global politics. Here's a detailed overview: 1. The Gold Standard (1870-1914):   This system pegged currencies to gold, ensuring their convertibility. It promoted stability but constrained economic flexibility during economic downturns. 2. Interwar Period (1914-1944):   The gold standard collapsed during WWI, leading to volatile exchange rates and economic instability. Attempts to revive it failed, leading to competitive devaluations and trade barriers. 3. Bretton Woods System (1944-1971):   Established after World War-II, this system created the International Monetary Fund (IMF) and the World Bank. Currencies were pegged to the US dollar, which was convertible to gold. It aimed to stabilize currencies, facilitate trade, and provide financial assistanc...

I Issue of Shares

  IIntroduction to Corporate Finance Meaning of Corporate Finance:              Corporate finance deals with the raising and using of finance by a corporation. It deals with financing the activities of the corporation, capital structuring and making investment decisions.                 Henry Hoagland expresses the view that "corporate finance deals primarily with the acquisition and use of capital by business corporation."                 It includes financial planning, study of capital market, money market and share market. It also covers capital formation and foreign capital. Even financial organisations and banks play vital role in corporate financing.  Importance of Corporate Finance:  Helps in Decision Making  Helps in Raising Capital  Helps in Research and Development  Helps in Smooth Running of Business...