Make Or Buy Decisions
Make Or Buy Decisions
A Company may be producing a product by itself or receive an offer from an outside supplier to supply that product. Similarly, a firm may be buy a product from outside or may make/produced/manufacture that product in the firm itself.
Continuous Audit: Meaning, Advantages & Disadvantages Of Continuous Audit And Steps for Effectiveness
Continuous Audit
What is a Continuous Audit?
Continuous audit or a detailed audit is an audit which involves a detailed examination of books of accounts at regular intervals i.e. monthly, quarterly or yearly. The auditor visits clients at regular intervals during the financial year and checks each and every transaction.
An auditor checks the profit and loss account and the balance sheet at the end of the year. A continuous audit is not really useful to a small firm because its accounts can be audited at the end of the financial year without much loss of time. Banks conduct continuous audit which is otherwise known as concurrent audit in big branches.
Business where continuous audit is applicable:
1. Where it is desired to present the account just after the close of the financial year, as in the case of a bank.
2. Where the volume of the transactions is very large.
3. Where the statements of accounts is required to be presented to the management after every month or quarter.
4. Where no satisfactory system of internal check is in operation.
Advantages of Continuous Audit
1. Easy to quick discovery of errors
Errors and frauds can be discovered easily and quickly as the auditor checks the accounts at regular intervals and in detail. As a auditor visits the client after a month or two or so on, the number of transactions will be small and hence, the errors will be detected easily and quickly.
2. Knowledge of technical details
Since the auditor remains more in touch with the business, s/he is in a position to know its technical details and hence can be of great help to her/his clients by making valuable suggestions.
3. Quick presentation of accounts
As most of the checking works are already performed during the year, the final audited accounts can be presented to the shareholders soon after the close of the financial year at annual general meeting.
4. Keeps the client's staff alert
As the auditor visits the clients at regular intervals, the clerks are very regular in keeping the accounts up-to-date. They will see that there is no in accuracy or frauds as it would be detected by the auditor at the next visit.
5. Moral check on the client's staff
If the auditor pays surprise visit, it will have a considerable moral check on the clerks preparing the accounts as they do not know when the auditor may pay a visit to check. Moral check will be more valuable to make staff alert and careful.
Disadvantages of Continuous audit
1. Alteration of figures
Figures in the books of account which have already been checked by the auditor at previous visit, may be altered by a dishonest clerk and the frauds may be committed.
2. Disturbance of client's work
The frequent visits by the auditor may disturb the work if the client and cause inconvenience to the latter.
3. Expensive
Continuous audit is an expensive system of audit because an auditor devote more time. So, company needs to pay more amount as the remunerations of an auditor.
4. Queries may remain outstanding
The audit clerk may lose the thread of work and the queries which s/he wanted to make may remain outstanding as there might be a long interval between two visits.
5. Extensive note taking
Extensive note taking may be necessary in order to avoid any alteration in the figures after the audit.Steps to be taken to make continuous audit effective
1. The management should ensure that the books are not altered after the audit is completed. If necessary, any alteration can be made only after obtaining the approval of the auditor.
2. The auditor should use special ticks and marks during audit and the implication pf each mark should be kept confidential.
3. The audit notes, queries and remarks should be written date-wise and maintained. This will enable smooth flow of audit.
Computerized Accounting System VS Manual Accounting System
Differences Between Computerized Accounting System And Manual Accounting System
Computerized System:
1. Starts with the account balances in the ledger at the beginning of the period.2. Analyzes and classifies business transactions by type. Access appropriate menus for data entry.
3. Computer automatically posts transactions as a batch or when entered on-line.
4. The unadjusted balance are available immediately after each posting.
5. The trial balance, if needed, can be accessed as a report.
6. Enters and posts adjusting entries. Print the financial statements. Runs automatic closing procedure after backing up the period’s accounting records.
7. The next period’s opening balance are created automatically as a result of closing.
Manual System:
1. Starts with the account balances in the ledger at the beginning of the period.2. Analyses and journalise transactions as they occur.
3. Posts journal entries to the ledger accounts.
4. Computes the unadjusted balance in each account at the end of the period.
5. Trial balance is processing step leading to the statements.
6. Prepares the financial statements. Journalizes and posts the adjusting entries. Journalizes and posts the closing entries.
7. Prepare the post-closing trial balance. This trial balance steps 1 for the next period.
Taxation: Basis Period Of Assessment, Capital Allowance And Loss Relief
The following topics will be discussed in this series, those topics are: -
a. Basis period of assessment
b. Capital allowance
c. Loss relief.
Assessable Profit
The accounting profit arrived at in the trading, profit & loss account is not usually the same as “tax profit”. This is because in ascertaining the accounting profit some expenses which are not allowed for tax purposes may have been reported and some income included in the accounting profit are tax-free.
Taxation: Capital Allowance And Loss Relief
To read the previous article on basis period of assessment, please click here
CAPITAL ALLOWANCE
Definition
Capital allowance are a form of relief granted to any company which has incurred qualifying capital expenditure during a basis period in respect of fixed assets in use at the end of the basis period, for the purpose of a trade or business. Capital allowance is granted in lieu of depreciation. Capital allowance covers initial allowance, annual allowance, balancing allowance, balancing charges and investment allowance.
Difference Between Internal And External Recruitment
INTRODUCTION
Internal recruitment is concerned with recruiting people internally through transfer and promotion and external recruitment is associated with recruiting people externally through advertisement, employees referrals and other external sources.
A comparison between internal recruitment and external recruitment is as follows:
1. Internal recruitment: It is a quick process that involves the search of candidates internally.
External recruitment: It is a lengthier process that involves finding potential candidates externally or outside the organization.
2. Internal recruitment: This process is cheaper one as it does not involve any cost of contracting external sources.
External recruitment: This process is costly one as it bears extra cost for searching out the potential candidates.
3. Internal recruitment: Under it, there will be limited choice of candidates.
External recruitment: A wider choice of candidates is possible if external recruitment is used to get the people at work.
4. Internal recruitment: It motivates the existing staffs to improve their performance.
External recruitment: The existing staffs may feel dissatisfied if external recruitment is used to get the people at work.
5. Internal recruitment: The infusion of fresh talent is impossible in internal recruitment.
External recruitment: The infusion of fresh talent is possible in external recruitment.
External Recruitment: Sources, Methods, Advantages And Disadvantages
INTRODUCTION
External sources refer to recruiting employees from outside the organization. In fact, a pool of qualified candidates lie outside the organization. Firms cannot always get all required members from their current staff. In such a situation, an arrangement is made to attract qualified candidates from other sources.
An organization recruits employees from outside in order to fill the vacant position whose specification cannot be met by the present employees.
The following external sources of recruitment are used by most of the organizations:
1. Walk-ins
It is one of the most common and least expensive approaches of recruitment from outside the organization. Under it, the potential candidates visit office of the company and apply for jobs. Usually unskilled and semiskilled workers/supervisors are the candidates for walk-ins. It is relatively informal and less expensive method of external recruitment. It is concerned with direct recruitment and also known as factory gate recruitment.
2. Employment Agencies
Methods
External recruitment is concerned with generating a pool of qualified candidates through external sources of employment. Under it, following methods of recruitment are adopted.
1. Direct Recruitment
Direct recruitment refers to a process of recruiting qualified candidates from external sources by placing a notice of vacancy in an organization's notice board. The detail of the job will be specified on the notice board. this method is useful for the recruitment of blue-collar, white-collar, and technical workers. This method of recruitment is suitable when there is high supply of human resources in the market.
2. Casual Callers
This method of recruitment is concerned with using previously applied candidates as a source of recruitment. The applications already available in the employment office are used as sources of prospective candidates. In other words, applications from individuals who are already recorded in the employment list can be referred as new applicants and the best suited candidates are selected for the job. This method avoids the costs of recruiting people from other sources.
3. Advertising
Advertising is one of the most common and popular methods of external recruitment under which the job vacancy is announced through different print and electronic media. When the qualified and experienced employees are not obtained from other sources, advertisement method is used to attract the best qualified and experienced personnel. Usually, most of senior positions in organization are filled by this method.The job description and specifications are specified in the advertisement to allow self-screening.
4. Employment Agencies
Employment agencies run by private, public or government sectors are regarded as an important source of recruitment for unskilled, semi-skilled and skilled jobs. The agencies are likely to have a list of qualified candidates in their records, and they render their service as per the requirement from other organizations for employment.
5. Schools, Colleges And Universities
It is also known as campus recruitment. Under this method of external recruitment, educational institutions such as schools, colleges and universities offer opportunities for recruiting fresh candidates.Most educational institutions provide placement services where the prospective recruiters can review credentials and interview the interested graduates.
6. Labor Contractors
Labor contractors are an important source of recruitment under which workers are recruited through contractors. However, this method of recruitment is not used by many business firms and organizations.
7. Recommendations
Advantages
External recruitment sources and methods have following advantages:
1. Wider Choice
With the availability of large pool of qualified candidates, the selection process becomes more competitive in choosing the best suited candidate.
2. Qualified Personnel
External sources of recruitment provide a pool of talented candidates for selection purpose. With the large pool of potential candidates, it introduce new blood in the organization.
3. Fresh Talent
External recruitment facilitates the entry of fresh talents in an organization. It encourages the inflow of new ideas, knowledge and skills required to perform the tasks.
4. Competitive Spirit
External recruitment creates an environment for healthy competition in between internal employees and external members, who are supposed to be more trained and efficient.
5. Environmental Adaptation
Since external recruitment encourages the entry of new skills, knowledge and ideas in the organization, it helps in accompanying environmental changes.
6. Fairness
Disadvantages
External sources and methods of recruitment have following disadvantages:
1. Expensive
External recruitment is expensive in the sense that it requires an extra cost for vacancy announcement, arrangement for employment office, etc.
2. Dissatisfaction
When the qualified employees are recruited from outside the organization, the existing employees may feel dissatisfied with their jobs and leave the organization.
3. Long Process
External recruitment follows a long process. Various activities such as vacancy announcement, application collection, review of application forms, selection process etc. need to be performed before the placement of the candidate.
4. Adaptability Problem
As the selected employees are new for the organization, they may face adaptability problem in the organizational environment. More time will be needed for them to be familiar with organizational arrangements.
5. Competition
The existing employees think the new comers as their competitive. As a result of which, organization faces a great loss of productivity and quality.
6. Uncertain Response
The fresh candidates may not be suitable for the job due to the limited information about outsiders.
7. Poor Moral
Internal Recruitment: Aspects, Methods And Advantages
Internal Sources Of Recruitment
Introduction
Internal recruiting refers to recruiting employees from within the organization. In deciding requirement of employees, initial consideration should be given to a company's current employees, which is concerned with internal recruitment.
Recruitment: Definition, Processes And Factors Affecting It
INTRODUCTION
Recruitment is a process of identifying and preparing potential candidates to fill the application form. It is an initial phase of employment process. Recruitment inspires the potential candidates to fill the application form for employment. After estimating the need and requirement of human resource in an organization, the HR manager proceeds with identification of sources of HR, which is termed as recruitment.
Job Evaluation: Importance And Processes
JOB EVALUATION
Introduction
Job evaluation is the process of establishing values of different jobs. Job evaluation provides a basis for ranking different jobs and developing a pay structure for them. Evaluation of job is the process of describing the duties, authority relationships, skills, condition of work and other relevant information related to jobs. It supplies useful data and information to develop job description and specification documents.
Accounting Treatment Of Consignment
Valuation Of Unsold Stock In Accounting For Consignment Of Goods
Introduction
The stock lying in the hands of consignee at the end of accounting year is valued at cost or market price whichever is less. The cost of unsold stock or closing stock should be valued at cost to the consignor plus proportionate non-recurring expenses incurred by the consignor and consignee.
Introduction To Consignment Account
INTRODUCTION
Maximization of profit is the main objective of each and every business. For the fulfillment of this objective, the firm has to increase the sale of goods. For this purpose, the firm has to push its sales by all possible means. The sales can be increased by opening different branches within the territory or abroad. Opening a branch is a costlier affair. Instead of it, the business house may appoint some agents in various areas. The agent sells the goods on behalf of the sender of goods against commission.
Preparation Of Liquidator's Final Statement
INTRODUCTION
The liquidator is required to keep proper books to record receipt and payment which is known as liquidator's final statement, in every mode of winding up. The liquidator has to submit a report together with the audited final accounts to the CRO. The liquidator has to submit the statement to the court in the case of compulsory liquidation and to the company in the case of a voluntary liquidation.
Meaning Of Liquidation, Reasons For Liquidation And Calculation Of Liquidator's Remuneration
LIQUIDATION
Meaning Of Liquidation
A company is an artificial person or body created by law and only the law can dissolve it. The legal procedure by which the corporate life of a company can be brought to an end is known as liquidation. The liquidation of company is defined as " the termination of legal existence of company by closing its business". Liquidation is as well known as "winding-up" a company.
Accounting Treatment For Partner's Salary And Commission, Partners' Interest On Capitals And Partners' Drawing Accounts
Accounting Treatment For Partner's Salary And Commission
Introduction
We all know that no partner can entertain any salary or commission unless it is provided by the partnership deed. The salary or commission to a partner could be allowed to her/him if she/he does the most of the work of the firm according to the agreement among the partners. The salaries or commission is paid to the partners for the sake of sacrificing their time and labor to the firm as an emolument.
Partnership Businesss And Partnership Agreement
PARTNERSHIP BUSINESS
Introduction
The traditional form of business organization is sole proprietary system. Because of weakness in this form (i.e one man talent, capacity, knowledge, skill, qualification, experience and the like), the partnership form of business organization commences in the world of business. In case of sole proprietorship, single person is absolutely responsible for all affairs of the business but there is joint responsibility when talking about partnership form of business organization.
Meaning, Needs And Methods Of Valuation Of Shares
VALUATION OF SHARES
Concept And Meaning Of Valuation Of Shares
Introduction
Every share has its value printed in its front. Such a value is called as par value or face value of shares. The face value is assigned by the promoters of joint stock company and is given in the memorandum of association.
Cost Volume Profit (C.V.P) Analysis
COST VOLUME PROFIT ANALYSIS
Cost Volume Profit (C.V.P) analysis is the analysis of the relationship between cost and volume of activities and the effect of the relationship on profit. Managers can use the concept of cost-volume-profit analysis to forecast volume of activity at which the firm will break-even or attain target profits. CVP analysis is therefore, a useful tool that helps managers, business owners and entrepreneurs to determine the profit potential of a new firm or the impact on profit due to changes in selling price, cost or level of activities of current business.
Bad Debts And Provision For Doubtful Debts
BAD DEBTS AND PROVISION FOR DOUBTFUL DEBTS
Bad debts
The amount of the debtors which cannot be recovered is known as bad debt. At the end the accounting year, the amount of bad debt is shown as an expense in the profit & loss account and deducted from the debtors. The double entry for recording the bad debt is:
Debit Bad debt account
Credit Debtors account
Company Accounts
COMPANY ACCOUNTS
Introduction
Company account is a fiinancial information that a company is required to produce at the end of every year, including details of its profits or losses.
The capital of a limited company is divided into shares. A person can become the member of a company if he buys a share, then he is known as the shareholder. If the shareholder has paid in full for the shares he has taken, his liability is limited to the nominal value of those shares only. When the company loses its assets, it cannot ask the shareholders to pay anything out of their private property in respect of the company’s losses. If the shareholder has paid partly only for the shares, he can be forced to pay the balance owing on the shares.
The capital of a limited company is divided into shares. A person can become the member of a company if he buys a share, then he is known as the shareholder. If the shareholder has paid in full for the shares he has taken, his liability is limited to the nominal value of those shares only. When the company loses its assets, it cannot ask the shareholders to pay anything out of their private property in respect of the company’s losses. If the shareholder has paid partly only for the shares, he can be forced to pay the balance owing on the shares.
Manufacturing Accounts
INTRODUCTION TO MANUFACTURING ACCOUNTS
Manufacturing of goods is the transformation of raw materials into finished goods. A manufacturing organization will acquire raw materials, engage labour and other inputs necessary to change the raw materials into finished goods. Manufacturing accounts are prepared to ascertain the cost of goods manufactured during the financial year. It is an extension of the grading account.
Concept Of Audit Program
Concept Of Audit Program
After selecting senior and junior staffs, allocating the jobs to them, mentioning when to start, how to do the work etc., an auditor prepares a plan. This plan is called audit program. An auditor needs to include all the procedures in written form, objectives of each sector and all directions which are to be given to the staff members which helps in controlling their works and helps in implementing such programs into action.
Partial Audit: Objectives, Advantages and Disadvantages
PARTIAL AUDIT
Introduction
A partial audit is an audit that is conducted considering the particular area of accounting. Under partial audit, audit of the whole account is not conducted. Only the audit of the particular area where the owner thinks it is essential to conduct an audit will be conducted. Normally, business transaction is concerned with cash, debtor, creditor etc.
Concept Of Single Entry System And Incomplete Records
SINGLE ENTRY AND INCOMPLETE RECORDS
Introduction
Single entry system is an incomplete way of recording financial transactions. This system does not record two aspects (debit and credit) or accounts of all the financial transactions. Also, this system has no established or fixed set of rules in recording the financial transactions of the business.
Concept Of Delegation Of Authority
DELEGATION OF AUTHORITY
Delegation is the process of assigning specific works to individuals within the organization and giving them the right to perform those works. Delegation of authority is, of course, one of the most significant concepts in management practices that affects managerial functions. Management is the art of getting things done through others and delegation means getting things done through the subordinates.
Materials Control: Definition, Objectives, Needs and Essentials
Material Control
The systematic control over the purchase, store and consumption of materials is what we refer to as Material control. It helps in maintaining a regular and very timely supply of materials by avoiding both over and under-stocking. It ensures that the right quantity and quality of materials is available to the organization at the right time.
Financial Statement Analysis: Its Objectives, Methods, Users and Limitations.
Concept Of Financial Statement Analysis
Financial statement analysis is an analysis which highlights the essential relationship in the financial statements. Normally, financial statement analysis focuses on the evaluation of past performances of the business enterprise in terms of profitability, liquidity, operational efficiency and growth potentiality. Financial statements analysis, however, includes the methods used in assessing as well as interpreting the result of past performance and the current financial position as they relate to certain factors of interest in investment decisions. Thus, financial statement analysis is an essential means of assessing the past performance and also in forecasting, maintaining and planning future performance.
Financial statement analysis is an analysis which highlights the essential relationship in the financial statements. Normally, financial statement analysis focuses on the evaluation of past performances of the business enterprise in terms of profitability, liquidity, operational efficiency and growth potentiality. Financial statements analysis, however, includes the methods used in assessing as well as interpreting the result of past performance and the current financial position as they relate to certain factors of interest in investment decisions. Thus, financial statement analysis is an essential means of assessing the past performance and also in forecasting, maintaining and planning future performance.
Hire Purchase Accounting, How It Differs From Installments system And Its Accounting Entries
Hire Purchase Accounting
Introduction
Buying and selling of goods as for the system of hire purchase is different from the cash sales and credit sales. As for cash sales, the buyer pays a sum to the seller and the ownership is immediately passed along with the goods while as for credit sale, the payment is made in future. In the two cases the ownership of goods pass on the buyer.
Taxation Part 3
If you missed the first two parts, you can read them here by clicking Part 1 and Part 2.
TYPES OF TAX
There are two major types of tax. These are direct tax and indirect tax.
DIRECT TAX
Direct tax as the simply implies refers to the type of tax imposed directly on income of individuals or organizations by the government or its agencies. Such income would include wages, salaries, profits, rents and interests. The burden of direct tax is borne by the payers. The tax payers are usually aware of the payment of such tax.
TYPES OF TAX
There are two major types of tax. These are direct tax and indirect tax.
DIRECT TAX
Direct tax as the simply implies refers to the type of tax imposed directly on income of individuals or organizations by the government or its agencies. Such income would include wages, salaries, profits, rents and interests. The burden of direct tax is borne by the payers. The tax payers are usually aware of the payment of such tax.
Taxation part 2
If you missed part 1, read it here
PROBLEMS ASSOCIATED WITH TAX COLLECTION
Some of the difficulties encountered by tax collectors include in Nigeria:
1. Failure to fulfill civic responsibilities: Many people do not fulfill their civic responsibilities of paying tax as at when due.
2. Failure to declare real income: Many workers and corporate bodies, especially those in private firms, do not declare their real incomes.
3. Failure to meet people's expectation: Many people have the believe that the money they pay as tax should be used only for provision of social amenities. They will resist payment of tax if these anticipated amenities are not provided.
PROBLEMS ASSOCIATED WITH TAX COLLECTION
Some of the difficulties encountered by tax collectors include in Nigeria:
1. Failure to fulfill civic responsibilities: Many people do not fulfill their civic responsibilities of paying tax as at when due.
2. Failure to declare real income: Many workers and corporate bodies, especially those in private firms, do not declare their real incomes.
3. Failure to meet people's expectation: Many people have the believe that the money they pay as tax should be used only for provision of social amenities. They will resist payment of tax if these anticipated amenities are not provided.
Taxation part 1
Introduction
Taxation may be defined as the act or method of imposing a compulsory levy by the government or its agency on individuals and firms or on goods and services.Tax, on the other hand, is defined as a compulsory levy imposed by the government or its agency on individuals and firms or goods and services.
National Or Public Debt, Reason Why Government Borrow and The Terms Asscociated With Budget Debt Servicing
Introduction
National or public debt refers to to the debt a country owes to its citizens or other countries or organizations such as the International Monetary Fund (I.M.F) and the World Bank. The debt which a country owes to its citizens is know as internal debt while the debt owed to foreign governments and organizations is known as external debt.
National or public debt refers to to the debt a country owes to its citizens or other countries or organizations such as the International Monetary Fund (I.M.F) and the World Bank. The debt which a country owes to its citizens is know as internal debt while the debt owed to foreign governments and organizations is known as external debt.
Balanced and Unbalanced Budget, Ways of financing Budget Deficit
Definition Of Budget
A budget may be defined as a financial statement of the total estimated revenue and the proposed expenditure of a government in a given period of time, usually a year.
Importance or uses of budget
The budget of a country is used to achieve the following objectives:
1. Allocation of resources: Budget is usually use to allocate resources from one sector of the economy to another.
A budget may be defined as a financial statement of the total estimated revenue and the proposed expenditure of a government in a given period of time, usually a year.
Importance or uses of budget
The budget of a country is used to achieve the following objectives:
1. Allocation of resources: Budget is usually use to allocate resources from one sector of the economy to another.
Terminologies associated with inflation and Inflation in Nigeria
TERMINOLOGIES ASSOCIATED WITH INFLATION
1. Inflationary gap: Inflationary gap refers to an economic situation in which the total demand in the economy exceeds the total supply of goods and services available to satisfy demand. Inflationary gap is calculated as the difference between the total amount of money available for spending and the total money value of goods and services available to meet the demand. The greater the inflationary gap, the greater the rate of inflation in the company and vice versa.
1. Inflationary gap: Inflationary gap refers to an economic situation in which the total demand in the economy exceeds the total supply of goods and services available to satisfy demand. Inflationary gap is calculated as the difference between the total amount of money available for spending and the total money value of goods and services available to meet the demand. The greater the inflationary gap, the greater the rate of inflation in the company and vice versa.
Company Amalgamation and Revaluation Method
TERMINOLOGIES ASSOCIATED WITH INFLATION
1. Inflationary gap: Inflationary gap refers to an economic situation in which the total demand in the economy exceeds the total supply of goods and services available to satisfy demand. Inflationary gap is calculated as the difference between the total amount of money available for spending and the total money value of goods and services available to meet the demand. The greater the inflationary gap, the greater the rate of inflation in the company and vice versa.
1. Inflationary gap: Inflationary gap refers to an economic situation in which the total demand in the economy exceeds the total supply of goods and services available to satisfy demand. Inflationary gap is calculated as the difference between the total amount of money available for spending and the total money value of goods and services available to meet the demand. The greater the inflationary gap, the greater the rate of inflation in the company and vice versa.
Efficiency of Labour
INTRODUCTION
Efficiency of labor may be defined as the ability of labor to increase output without increasing the quantity of labor. Increase in efficiency is normally expressed in terns of increase in output of labor within a shorter period of time without any fall in the quality of goods and services produced. If a labour is efficient, the quality of goods and services produced will be high.
Efficiency of labor may be defined as the ability of labor to increase output without increasing the quantity of labor. Increase in efficiency is normally expressed in terns of increase in output of labor within a shorter period of time without any fall in the quality of goods and services produced. If a labour is efficient, the quality of goods and services produced will be high.
Concept of labour and factors affecting the size of abour force
INTRODUCTION
Labour can be defined as all human efforts of any kind, either skilled or unskilled, mental or manual, directed towards the production of goods and services.
Market, on the other hand, is defined as a place or any means of communication whereby the sellers and buyers can communicate with one another, to exchange goods and services at prices determined by the market forces.
Labour can be defined as all human efforts of any kind, either skilled or unskilled, mental or manual, directed towards the production of goods and services.
Market, on the other hand, is defined as a place or any means of communication whereby the sellers and buyers can communicate with one another, to exchange goods and services at prices determined by the market forces.
Basic Economic Problems: What to produce, how to produce, for whom to produce and effiency of Resource Use.
INTRODUCTION
Basic economic problems refer to the problems people encounter in the society while attempting to satisfy their numerous wants with the limited resources available to them. These basic economic problems of society include what to produce, how to produce, for whom to produce and efficiency of the resources used or efficient use of resources.
Basic economic problems refer to the problems people encounter in the society while attempting to satisfy their numerous wants with the limited resources available to them. These basic economic problems of society include what to produce, how to produce, for whom to produce and efficiency of the resources used or efficient use of resources.
Effects And Control of Inflation
Inflation
has both positive and negative effects:
The
Positive effects
- Reduction in burden of debt: During inflation, debtors gain because there is too much money in circulation, which will enable them to pay their debts with ease.
- Higher profit margin: Because producers are selling their goods at higher prices, this will lead to higher profits.
- Higher tax yield: As a result of high volume of money in circulation, government is able to realize high yield from taxes.
Definition, Types And Causes of Inflation
INTRODUCTION
Inflation
may be defined as the persistent rise in the general price level of
goods and services. Inflation occurs when the volume of purchases is
permanently running ahead of production, with too much money in
circulation chasing too few goods.
TYPES
OF INFLATION
There
are four main types of inflation. These are:
Limitations To The Scale of Production or To The Growth of Firms.
LIMITATIONS
There are some limitations affecting
the growth of firms or the scale of production. Some of which are:
- Extent of the market: When there is a high demand for certain products of a firm, this will motivate the firm to produce more goods so as to expand.
- Availability of capital: The availability of adequate capital and other resources will enable a firm to expand and produce more goods but when these resources are no more available, growth and expansion will be impossible.
- Falling price of the commodity: A falling price of the commodity without corresponding increase in supply definitely tends to lower the scale of production.
- Increased risks: It is generally known that the bigger a firm, the greater the level of risks and vice versa. In order to reduce the level of risks, the size of the firm has to be reduced.
- Nature of Business: The nature of business is directly related to the scale of production. When a large number of people demand for a particular commodity, it will require a large firm to handle it but when a personal service of a barber for example is required, the size of the firm has to be small.
- Need to cater for individual taste: Large firms are known and associated with standardization of products which does not meet the taste of individual. To meet this taste, there will be limitations in the scale of production.
- Nature of the firm's products: If a firm's products are of inferior and perishable type, their size and growth are definitely going to be limited.
- Increasing management costs: When a firm embarks on large scale expansion, there is a corresponding employment of managers and this tends to increase the cost of production of such firms.
EXTERNAL ECONOMIES AND EXTERNAL
DISECONOMIES
External economies
are the benefits a firm derives from concentration or localisation of
industries in a particular area. In other words, these are the
benefits a firm enjoys from increase in its output and decrease in
cost as a result of the kind of assistance it derives from other
firms within the same location. External economies are mostly derived
from industrial estates where there are many firms operating in the
same location.
External dis-economies, on the other hand, means the advantages a firm
experiences when the activities of one or more industries increase
the cost of production or output of that firm within the same
location.
The advantages and
disadvantages of localization of industries are also applicable to
external economies and dis-economies.
You can also read the following related topics:
1.Labor as a factor of production
2.Capital as a factor of production
3.Entrepreneur as a factor of production
4.Land as a of production
Entrepreneur As A Factor of Production
INTRODUCTION
An entrepreneur
can be defined as the factor of production that co-ordinates and
organizes other factors of production (Land, Labour and Capital) in
order to produce goods and services. The entrepreneur bears the risks
and takes his capital in setting up the business with the aim of
obtaining maximum profit.
Capital As A Factor Of production
INTRODUCTION
Capital can be defined as man-made assets used in production. In other words, capital refers to man-made goods or wealth used in the production of other goods and services. It may also be defined as the stock of previous wealth invested in order to produce future wealth.
Capital, when properly combined with other factors of production, produces goods and services.
Capital can be defined as man-made assets used in production. In other words, capital refers to man-made goods or wealth used in the production of other goods and services. It may also be defined as the stock of previous wealth invested in order to produce future wealth.
Capital, when properly combined with other factors of production, produces goods and services.
Labor As A Factor Of Production
LABOR
Labor as a factor of production is defined as all forms of human efforts put into or utilized in production. It also refers to man's mental and physical exertions generated in the process of production.
Human beings provide the necessary labor which combines with other factors to provide goods and services.
Labor as a factor of production is defined as all forms of human efforts put into or utilized in production. It also refers to man's mental and physical exertions generated in the process of production.
Human beings provide the necessary labor which combines with other factors to provide goods and services.
Land As A Factor Of Production
INTRODUCTION
Factors of production refers to agents, resources or components that are combined together to produce goods and services. We have only four factors of production which are:
Land can be defined in economics as a free gift of nature.
Factors of production refers to agents, resources or components that are combined together to produce goods and services. We have only four factors of production which are:
- Land
- Labor
- capital
- Entrepreneur
Land can be defined in economics as a free gift of nature.
Importance And Factors That Determine The Level Of Production
FACTORS THAT DETERMINE THE LEVEL OF PRODUCTION
1. Amount of capital: The amount of capital available to a producer determines the volume of production. The greater the amount of available capital, the higher the volume of production and vice versa.
1. Amount of capital: The amount of capital available to a producer determines the volume of production. The greater the amount of available capital, the higher the volume of production and vice versa.
Know More About Theory Of Production
INTRODUCTION
Production can be defined as the various economic activities aimed at the creation of goods and the distribution of the goods and services to the final consumers for the satisfaction of human wants.
Production can also be defined as the creation of utility. All goods and services must possess utility. That is to say that they must be capable of satisfying certain human wants.
Production can be defined as the various economic activities aimed at the creation of goods and the distribution of the goods and services to the final consumers for the satisfaction of human wants.
Production can also be defined as the creation of utility. All goods and services must possess utility. That is to say that they must be capable of satisfying certain human wants.
Divisions of Subsidiary Books
This is the continuation of the the previous post. To read the Part, click here
The Subsidiary books are divided into six, which are sales day book, purchases day book, sales return, purchases return, general journal and cash book.
1. SALES DAY BOOK
It is a book of original entry in which credit sales are entered or recorded before posting to the ledgers. In the sales day book, cash transactions should and must not be recorded.
The Subsidiary books are divided into six, which are sales day book, purchases day book, sales return, purchases return, general journal and cash book.
1. SALES DAY BOOK
It is a book of original entry in which credit sales are entered or recorded before posting to the ledgers. In the sales day book, cash transactions should and must not be recorded.
Subsidiary Books And Source Documents
INTRODUCTION
There are two books of accounts, namely:
1. Principal books.
2. Subsidiary books.
Let it be noted that the two books are very necessary in the recording of financial transactions. All transactions must must pass through the books of accounts.
The subsidiary books are explained below while you are to click here for the the principal books.
There are two books of accounts, namely:
1. Principal books.
2. Subsidiary books.
Let it be noted that the two books are very necessary in the recording of financial transactions. All transactions must must pass through the books of accounts.
The subsidiary books are explained below while you are to click here for the the principal books.
Book Keeping And Accounting
INTRODUCTION
Accounting is the process of recording, classifying, selecting, measuring, interpreting and communicating financial data of an organization to enable interested users make decisions.
Accounting as the process of recording, identifying, analyzing, classifying, summarizing, measuring and communicating economic information to allow informed decisions by the users of the information.
Accounting is the process of recording, classifying, selecting, measuring, interpreting and communicating financial data of an organization to enable interested users make decisions.
Accounting as the process of recording, identifying, analyzing, classifying, summarizing, measuring and communicating economic information to allow informed decisions by the users of the information.
How To Prepare Income Statement Using Principles of Marginal And Absorption Costing
MARGINAL COSTING
The marginal cost of an item is its variable cost. The marginal production cost of an item is the addition of its direct materials cost, direct labour cost, direct expenses cost and variable production overhead cost. The higher the volume of production, the higher will be the total variable cost of sales.
Contrarily, fixed costs are costs that remain unchanged in the short run, regardless of the quantity of production and sale.
The marginal cost of an item is its variable cost. The marginal production cost of an item is the addition of its direct materials cost, direct labour cost, direct expenses cost and variable production overhead cost. The higher the volume of production, the higher will be the total variable cost of sales.
Contrarily, fixed costs are costs that remain unchanged in the short run, regardless of the quantity of production and sale.
History of Accounting
There is no very correct record as to when accounts started. However, but information that is available suggests that record keeping is as old as man. We can link its starting point to the merchants in the Babylonia and Assyrian civilizations, about 4000 years B.C.
Depreciation of Fixed Assets
INTRODUCTION
Fixed assets are assets which are of permanent nature and they create revenue for the business. They can last for a long period of time. Fixed assets of a business lose value or are said to depreciate with usage. Depreciation can be defined as a reduction in the economic service potentials of an asset as a result of wears, tears, usage and passage of time. It can also be defined as the permanent and continuous decrease in the quality,quantity and value of an asset.
Fixed assets are assets which are of permanent nature and they create revenue for the business. They can last for a long period of time. Fixed assets of a business lose value or are said to depreciate with usage. Depreciation can be defined as a reduction in the economic service potentials of an asset as a result of wears, tears, usage and passage of time. It can also be defined as the permanent and continuous decrease in the quality,quantity and value of an asset.
The Principal Book: LEDGER
The ledger is the final destination of all transactions in the subsidiary books. It is the most important book of account. It can be defined as a book which contains a permanent record of all transactions in classified and summarized form. The ledger is used for the double entry book keeping.
Accounting For Non-Profit Making Organization
Commercial and Industrial organizations are set up principally to make profit, but non-profit making organizations like societies, clubs and charitable bodies are not profit oriented, but to provide services to their members. In place of trading, profit and loss account found in the trading concerns, such associations prepare the following accounts to show the financial affairs to their members:
Money and Capital Markets
The money market is a component of the financial market for assets being used for short-term borrowing of funds by government and corporate entities. This means that the money market is used for buying and selling of financial instruments with original maturities with a period of one year.
How To Prepare Bank Reconciliation Statement
INTRODUCTION
An organization will record money paid into the bank and the sums drawn from the bank with cheques in the cash book. Then again, the bank will record all the transactions in its own book. The book prepared by the bank showing the transactions between it and the customer is called "Bank Statement".
The Final Accounts Of A Sole Trader
The trading account is prepared to show the gross profit or gross loss for the accounting period. It is prepared to conform to the rules of double entry. Since it contains the result of operation of a company or a business over a period,
Some Financial Ratios In Accounting You Need To Know
Financial Ratios
Financial Ratios
According to businessdictionary.com, financial ratio is a financial analysis comparison in which certain financial statement items are divided by one another to reveal their logical interrelationships. Some financial ratios are called primary because they indicate the fundamental causes underlying a company`s strengths and weaknesses.
Correction Of Errors in Accounting
Errors can be defined simply as mistakes made in the preparation of accounts. Errors can be categorized into two, namely:
- Errors that will affect the totals of the trial balance.
- Errors that do not affect the totals of the trial balance.
Ethics of Accounting
Ethics means morality. It deals with human conduct in relation to what is morally good and bad, right and wrong. It is applicable to values for decision making. These values include fairness, honesty, respect, responsibility, integrity and compassion.
Accounting ethics in the field of accounting means the guidelines that a professional needs to follow while practicing accounting. Or it is the distinct guidelines for a business or company to maintain clean and very accurate balance sheet;
Accounting ethics in the field of accounting means the guidelines that a professional needs to follow while practicing accounting. Or it is the distinct guidelines for a business or company to maintain clean and very accurate balance sheet;
Public Sector Accounting
Public sector accounting is the process of recording,summarizing, analyzing and interpreting the financial transactions of the government. Government accounting shows the receipts and payments of public funds in all levels of government.
Business: Its definition, importance, significance and classifications
Wikipedia defines business that "A business, also known as an enterprise, agency or a firm, is an entity involved in the provision of goods and/or services to consumers". It is an organized and systematized activity for profit. It deals with activities of people chasing a common goal.
Deparmental Account
In some organizations where operations are divided into separate departments, the trading result of each department must be ascertained. The criteria for identifying
the departments in an examination
question is always
the separate sales/work-done
revenue.
Accounting Concepts and Conventions
Job and Batch costing
Job costing
According to CIMA, job costing is a form of specific order costing which applies where work is undertaken to customers` special requirements and each other is of comparatively short duration. The work is usually carried out under a roof or in a factory and moved through many processes and operations as a continuously identifiable unit.
Business Organization
Money And Banking
(1) Money
Money can be defined as any commodity that is generally acceptable as a medium of exchange
and measure of value. It enables one to trade what he has for what he
wants. That is the conventional definition of money and it emphasizes
the basic functions of money are medium of exchange and measure of
value. However, money is highly important so as to maintain maintain good health.
Money as a medium of exchange
Money serves as a medium of exchange between two goods. It is considered the most important and
unique definition of money. The importance of this function is that it
provided solution to one of the biggest problems of barter system. For
exchange to take place in barter system, there must be double
coincidence of wants, i.e, one is willing to accept what the other
person is willing to give in exchange. If this condition is not
fulfilled, there can`t be exchange. In barter system, a person who has
shoes but wants clothes for his family has to find someone who has
clothes but wants shoes.
In modern market economy,
money has solved the problem of double coincidence of wants. Since
money is generally acceptable, a shoe maker can sell his shoes to
anybody for money and buy clothes in exchange for the money. The
purchasing power of money acceptable to all.
Money as a measure of value
All values are measured in terms of money. As a measure of value, money
works as a common denominator, as a unit of account. Money makes computation
of the value all possessions of a person, group, or a country easier.
Not only each good and service has a price, but also one can calculate
and compare their relative prices in terms of money. With the invention
of money, valuation is made easier.
Characteristics of Money
- General acceptability: It must be generally acceptable as a medium of exchange for goods and services.
- Homogeneity: Each of unit of money must be identical, i.e, of the same size, quality et.c.
- Divisibility: It must be capable of being divided into smaller units. In USA,$100 note must be divisible to two $50 notes.
- Portability: It must be easily transmissible or carried about.
- Durability: It must be capable of staying for a long period of time without getting bad.
- Relative scarcity: It must be relatively scarce so as to maintain its value.
- Stability of value
DEMAND FOR MONEY
Demand
for money is the total amount of money which all individuals in the
economy wish to hold. It is the desire to hold money. The demand for
money in economics is called liquidity
preference. Classical theory explained the demand for money as
essentially a demand resulting from this need for money as a medium of
exchange.
Motives For Holding Money
(1) Transactionary Motive:
People love to hold money for day to day transaction. Household needs
to hold money to cater for the interval between receipt of income and
their expenditure. The average amount of money held on each day is said
to be the individual`s demand for money. It varies directly with the
level of income, i.e the higher the level of income, the higher the
demand for money for transactionary motive. It is written as:
Mt = f(Y)
(2) Precautionary Motive: This is when people hold money in order to meet up with unforeseen circumstances e.g sickness. People also keep money against future emergencies due to uncertainty in life. Unlike a transactionary balance, which is something scheduled for use in the near future, a precautionary balance is to secure one against a raining day that may never come. It depends on the level of income. There is direct relationship between demand for money for precautionary motive and the level of income. Hence, it is written as:
MpD = f(Y)
(3) Speculative Motive: This is a business motive specifically and refers to the desire to hold cash balance in order to embark on speculative dealings in the bond market. The desire to keep money for this motive is elastic. The demand for money for speculative motive varies inversely with interest rate. It is a function of income and rate of interest. Hence, it is written as:
MsD = f(Y,r)
SUPPLY OF MONEY
It is the total amount of money available for use in the economy at a
given period of time. It involves the currency circulating out of
banking system and bank deposits in current accounts.
There are basically two definitions:
(1) Narrow Definition: Money supply is currency in circulation and demand deposit with commercial banks. Hence, it is written as:
M1 = C + DD
(2) Broad Definition: Money supply is the total currency in circulation, demand deposit and time deposit(T) at commercial banks. Time deposits are fixed deposits of customers. Hence, it is written as:
M2 = C + DD + T
Determinants of Money Supply
Determinants of money supply are both exogenous and endogenous. By exogenous, we mean that money supply is influenced by what is happening in a country. By endogenous, we mean money supply is determined by what is happening in an economy(by level of economic activities).
Cash ratio: It is part of total deposits which the merchant and commercial banks are expected to keep as cash in bulks as deposits in the Central Bank in order to meet deposit demand. There is inverse relationship between money supply and cash ratio. The higher the cash ratio, the lower the supply of money and vice versa.
Discount rate: It is the interest collected by the Central Bank for providing reserve deposit to the banking system. There`s inverse relationship between discount rate and money supply.
Other determinants are: interest rate ceiling, aggregate credit ceiling, moral suasion and open market operation.
(2) BANKING
Commercial Banking
Commercial banks are the banks that provide services such as acceptance of deposits, giving business loans and basic investment products. Commercial banks are the kingpins of the financial system. They render various valuable services. They perform important functions such as: acceptance of deposits, making of advances and undertaking of of some investments. There are three major aims of commercial banks, namely: Profitability, Liquidity and Security.
Profitability is achieved by a commercial bank by lending very high proportion of the of the deposits at its disposal and getting interests in the process.
The consideration of security is reflected in the manner in which commercial banks examine any prospective borrower with respect to credit worthiness, marketability of collateral security of prospective borrowers with respect to credit worthiness and the profitability of the investments that determine the ability to repay.
As for liquidity, banks also keep proportion of their assets in liquid forms including treasury bills, bills from discount houses and bills of exchange.
Credit Creation by Commercial Banks
Suppose there are a number of banks in the banking system namely Bank 1, Bank 2, Bank 3 e.t.c. and we assume that (1) banks accept only demand deposits (2) the cash reserve requirement is 20% (3) banks` assets are held only in form of cash reserves, loans ans advances.
If Mr. A makes a demand deposit of $100,000 in Bank 1 in which the bank holds $20,000 as the 20% cash reserve requirement. The banks lends Mr. B the remaining $80,000 and he deposits the money in Bank 2 in which the bank also reserves 20% which is $16,000. Bank 2 also lends the remaining $64,000 to Mr. C. If this process continues, the excess reserve with banks will become zero. It will lead to the following table:
Bank
|
Deposit
|
Reserve
|
Bank loans
|
Bank 1
|
100,000
|
20,000
|
80,000
|
Bank 2
|
80,000
|
16,000
|
64,000
|
Bank 3
|
64,000
|
12,800
|
51,800
|
--------
|
----------
|
----------
|
-----------
|
--------
|
----------
|
----------
|
-----------
|
--------
|
----------
|
----------
|
-----------
|
Bankn
|
0000
|
0000
|
00000
|
Total
|
500,000
|
100,000
|
400,000
|
From the table above, a primary deposit of $100,000 in Bank 1 leads to the creation of a total deposit of $500,000, A credit of $500,000 has been created by the banking system and maintaining a total cash reserve of $100,000 which equals the primary deposit. The total money created is the money supply by the banks.
However, money creation has some limitations such as: high legal reserve ratio, lack of collateral securities, too much reserve by banks e.t.c.
Central Banking
A central bank is a financial institution owned by the government of a country, managed by the board of directors, under the chairmanship of a governor appointed by the government and charged the responsibility of availability of money in the interest of public welfare.
A central bank performs the following functions: issuance of currency, banker of commercial banks, controller and regulator of money supply, government to the central government, management of foreign exchange, lender of last resort and financing of economic development. It controls money supply through open market operation, reserve requirement,bank rate e.t.c.
