The difference between Reserves and Provisions explained
Both reserves and provisions refer to the amount retained by an organization to deal with all possible contingencies in the future. In accounting parlance, reserves are appropriations out of profits and provisions are charges against profits. Although the IFRS Standards sometimes call provisions a ‘reserve’, they are not the same thing – a provision is…
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What is a common size balance sheet?
A common size financial statement is an income statement or balance sheet in which all items are expressed as percentages of a common base figure rather than as absolute numerical figures. For example, in a common-size income statement you will find the income and expenditure amounts as percentage of net sales. Similarly, a common size…
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Relationship of Finance to Economics and Accounting
Finance, economics, and accounting are deeply interconnected disciplines that influence one another. A thorough understanding of any one of these fields often necessitates at least a foundational grasp of the other two. Core Definitions Finance: The study of how to allocate assets optimally, focusing on the future value of assets. Finance is fundamentally forward-looking. Economics:…
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Method of Calculating length of holding period for stocks and receivables
(A manufacturing unit needs to hold the stock of raw material, work-in-process, finished goods for a length of time in the workplace before dispatching the final products to the customers. This article explains how to calculate holding period for stocks and book debts collection) The working capital cycle (WCC) is the time it takes for…
Read article How to compute working capital limits under Turn-over method/Nayak committee
(Nayak Committee norms for computation of working capital limits) The term working capital means 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),…
Organization of the Finance Function
Introduction The organization of the finance function involves structuring financial roles, responsibilities, processes, and systems to ensure the efficient management of financial resources. This function is critical in decision-making and strategy development, providing essential financial information and analysis to support business decisions while ensuring compliance with financial regulations and standards. Key Roles and Responsibilities The…
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