Accounting

The Sinking Fund Method of Depreciation is a contingency fund which assures the availability of funds for asset replacement upon completing its useful life. It is also known by a variety of names like: Depreciation Fund Method Amortisation Fund Method Every fixed asset has a specific useful life, after which it needs replacement. With each passing year, the … [Read more...] about Sinking Fund Method

Valuation of Goodwill is estimating the company's monetary worth besides its asset built over the years by exceptional business practices or dedicated efforts towards customers. But, you might be thinking that why is goodwill valuation necessary? Despite being an intangible asset, we can trade goodwill. But one can only realize it through sale/purchase considerations … [Read more...] about Valuation of Goodwill

Definition: A Statement of Affairs is a financial statement that summarizes the position of assets and liabilities to ascertain the profit or loss for the financial year under the Single Entry System. It is also known as the 'Capital Comparison' or 'Net Worth Method'. Moreover, this statement is used to calculate the Opening and Closing Capital. For this, we prepare the … [Read more...] about Statement of Affairs

Goodwill is that segment of the total purchase consideration that is left after evaluating the fair value of assets. However, the determination of the price or value of goodwill is quite challenging. This is because it deals with the intangible components. The simplest way to calculate goodwill is to estimate the business's overall value. Besides this, there are some … [Read more...] about How to calculate Goodwill?

Definition: We can refer to Management Accounting as an accounting system that provides information to perform management functions directed toward achieving organizational objectives. If we emphasize the keyword, it is explanatory to denote the managerial aspect of accounting. Besides, it has a differentiated lookout directed towards decision-making and control. It … [Read more...] about Management Accounting and its Functions

Definition: Cash Budget is a precise statement depicting anticipated projections about the cash receipts and payments for a specific time period. It is a type of functional budget that is useful for cash management in the organization. A cash budget is essential for companies and is referred to as the "Nervous System of Budgetary Control". Also, it is alternatively known as … [Read more...] about Cash Budget

Definition: Zero-based Budgeting or ZBB is an analytical budgeting method where the preparation of a budget begins by assuming the base as Zero. In this, the overall process starts from scratch every time while preparing budgets. In 1962, Peter Phyer introduced this approach of ZBB. It turned out to be an excellent tool in the field of management. This approach uses … [Read more...] about Zero-based Budgeting

Definition: Budgetary Control is a system of control that focuses on cost management with the help of budgets for Departmental and Organizational levels. It begins with budget preparation as per employees' responsibilities, thereafter comparing the actual and planned outcomes and ends with variance analysis followed by a review. In brief, we can understand it as a road map … [Read more...] about Budgetary Control

Definition: Flexible budget is the one that changes with the level of Activity/Output rather than for any specified activity level. It includes the preparation of multiple budgets that depict budgeted costs for various activity levels. The flexible budget supersedes the limitations of a fixed budget. Because it is a practical approach that is suitable for dealing with … [Read more...] about Flexible Budget

Definition: Absorption Costing is the oldest technique for estimating profit/cost per unit for Goods and Services. More precisely, it is a technique to determine the cost or profit of the manufactured products. Here, production is taken as the base for the profit calculation. It identifies and combines all the production costs, whether Variable or Fixed. After that, … [Read more...] about Absorption Costing