Master Note of Accounting and Finance

Concept of Time Value of Money   Finance is an art and science of money management. The time value of money is one of the best concept in fiance. Money has time value. For example, if you're invested Rs. 100 today for a next five years @ 10% p.a. the future value will not be same as today.  The time value of the money is a concept that present worth of money is more than same amount in the future. In short, receiving money Today is preferable than receiving same money in the future. It has happened due to following three reasons: Reinvestment opportunity: Money received today can be reinvested to get further return. Inflation: Inflation brings upward change in the price level with the passes of time.  Sacrifice of Present Consumption:  For making an investment a person must have saving habit by sacrificing his/her present consumption pattern so that they can easily invest to get better and further return. Components of Time Value of Money In this topic we have to u...

Introduction Du-pont is very useful and helpful tool for manager, investors, and analyst that is created in 1920s by American Chemical Manufacturing Giant, Dupont Corporation for the purpose analyzing operation efficiency in the organization. Du-pont analysis is an extended examination of Return on Equity (ROE) of a company which analysis Net Profit Margin, Assets Turnover, and Financial Leverage or Equity Multiplier Ratio. In simple words, it breaks down the ROE to analyze how corporate can increase the return for their shareholders. Net Profit Margin is related to Profitability Ratio Total Assets Turnover is related to Efficiency Ratio Equity Multiplier is related to Leverage Ratio Derivation of Du-pont Model  Components of Du-Pont Analysis The following are the five components of Du-Pont Analysis listed as bellows: Net profit Margin Ratio: It compares total net profit to total sales. It measures the profitability ratio of the company. Total Assets Turnover Ratio: It compares ...

Introduction Net worth is the remain assets value claim by shareholder's after discharging all the liabilities i.e. long-term and short term liabilities. Net worth is what is owns minus what is owed. Net worth is total assets (include both financial and non-financial assets) minus any total debts you owe. It acts as an indicator of your financial health. Types of Net Worth Basically there are two types of net worth explained as bellows: Personal Net worth: Personal net worth is the amount of a person that is calculated by subtracting total liabilities from total assets. The assets include bank deposit, investment in stock, real estate property, gold, insurance etc. While liabilities include home loan, mortgage loan, car loan, credit card loan, personal loan etc. Business Net Worth: It is also known as book-value of company or shareholder's equity. Business prepare the balance sheet which is also known as net worth statement. The business net worth or shareholder's equity...

Introduction Forecast is a predict or estimate a future event or trend. In other words, it is the prediction of future data based on past data and/or human judgment. Financial forecasting describes the process by which firms think about and prepare for the future. The forecasting process provides the means for a firm to express its goals and priorities and to ensure that they are internally consistent. It also assists the firm in identifying the assets requirements and needs for external financing. The financial forecasting is the major part of the financial planning under Financial Management. The financial planning includes major three types of planning are listed as below: Strategic Planning: It defines, how the firms plans to make money in the future. It is the process of formulating, implementing and evaluating and controlling the implementing strategies. Long-term Financial Planning: Generally, it prepares three to five years projected income statements and balance sheet. It is...

Meaning of Financial Statement Analysis Financial Statement analysis is the process of analyzing financial statements of a company so as to obtain meaningful information about its survival, stability, profitability, solvency, and growth prospect.The financial statement analysis can be performed by using a number of techniques such as Horizontal (Comparative Statements) analysis, Vertical (Common Size Statements) analysis, Trend Analysis.  and Ratio analysis . Ratio analysis is the most popularly and widely used technique of financial statement analysis. Ratio analysis is a widely used tools of financial analysis. The systematic use of ratio helps to interpret the financial statements so that the strength and weakness of a firm can be determined and assessed. The ratios describe the significant relationship that exits between figures shown on a balance sheet and income statement or any part of a financial statement. List of Financial Ratios Liquidity Ratios Current or Working ...

Introduction to Financial Statements Any join stock company or corporation has established with its own a legal entity and performs various business activities for the purpose of earning profits. There are a number of stakeholders includes shareholders, BOD, management of the company, Government agencies, creditors, etc. who are keen to know about the results of its financial activities performed during a certain period of time. Therefore, in order to communicate the results of business operations and financial position to its stakeholders, the company prepares and publishes the statements of its financial affairs on a periodic basis. The entire financial activities has published though the documents called Financial Statements. Meaning of Financial Statements The financial statements are written reports of a financial affairs of a company. It include its trading and profit and loss account known as Income Statement, Balance Sheet, and Cash Flow Statements. To known about its compone...

Introduction Business uses cash book that records cash as well as bank transactions. A cash book is one of the type of subsidiary book (Day Book) that records original entry of all cash receipts and payments including bank deposits and withdrawals. Cash book has both debit and credit column representing cash and bank column hence it acts as a ledger account. Bank also records the transactions of customers. They keep all the deposits transaction in credit side and withdraws transactions in debit side of bank book.   Sometime bank as per cash book and cash as per bank book does not match. Hence it is necessary to reconcile it to fix the error of accounting. A bank reconciliation statement is a summary of banking and business activity that reconciles an entity's bank account with its financial records. Importance of Bank Reconciliation Statement Although, it is not necessary to prepare it and not fixed date to prepare it. It is only prepared due to the following reasons: To mat...