(This post explains the definitions of working capital , Operating cycle and various methods of working capital appraisal viz. Tandon’s first method, Tandon’s second method,Turnover method or Nayak committee norms, Cash budget method, Chore committee norms, Maximum permissible bank finance, Minimum permissible bank finance and Important things to note in assessment of working capital…
Accounting standards are formal policy documents issued by expert accounting bodies, governments, or other regulatory authorities. These standards provide guidance on the recognition, measurement, presentation, and disclosure of accounting transactions in financial statements. Accounting standards address the following key areas:(a) Recognition – Identifying which events and transactions should be recorded in the financial statements,(b) Measurement…
Standard costing methods classify standards based on their accuracy and intended application. These include ideal, basic, normal, current, and expected standards, each serving a specific role in cost control and performance evaluation. (i) Ideal Standards Ideal standards represent the level of performance achievable under the most favorable conditions. These conditions include optimal material and labor…
The term working capital means the sum of the funds invested at various current assets used in the operating cycle, by the industrial and trading establishments. Operating cycle means the length of time required to convert ‘Non-Cash current assets’, (like raw material (RM), work in process (WIP), finished goods (FG), and receivables) into cash. The types…
The Reserve Bank of India (RBI) plays a pivotal role in shaping the credit management practices of banks through a comprehensive set of guidelines. These regulatory directives establish the foundational framework for responsible lending, effective risk assessment, and the overall stability of the financial system. By enforcing standardized norms and practices, the RBI ensures a…
A balance sheet should always balance. Assets must always equal liabilities plus owners’ equity. Liabilities must always equal assets minus owners’ equity. The balance sheet of an entity may be presented in a few different formats, including: Report form This is the most common format, with assets listed first, then liabilities, and finally equity. The…
The analysis of financial statements means identifying a business establishment’s financial strengths and weaknesses by interpreting and inferring the financial statements of the establishment. These statements cannot be analysed by the mechanical method as a financial statement is designed to give a fair, inaccurate view. Interpreting financial statements requires analysis and appraisal of the performance…
IntroductionCredit management is a vital financial discipline that involves the strategic extension and regulation of credit to customers. It includes assessing creditworthiness, setting appropriate credit terms, monitoring receivables, and ensuring timely collections. The objective is to balance the benefits of credit sales with the associated risks, thereby optimizing cash flow and minimizing financial exposure. Key…
IntroductionThe principles of credit, commonly known as the “5 Cs,” serve as a foundational framework for lenders to evaluate the creditworthiness of borrowers. These five elements—Character, Capacity, Capital, Collateral, and Conditions—enable lenders to assess the risk involved in extending credit to individuals or businesses. A thorough understanding of these principles is essential for sound lending…
[This article elucidates methods and techniques used to analyze profit and loss statements, the Format of the operative statement, the meaning of gross profit, operating profit and net profit, depreciation, amortization, etc.] The profit and loss (P&L) statements are one of three financial statements that every public company issues quarterly and annually, along with the…