8 Purchase management and the steps involved in the purchase management.

Purchase Management

Purchase Management is a process of managing the whole purchase and related activities in an organization. The purchasing of an organization is highly depends on the re order level of the stocks for the further process of business activities. In the case of manufacturing companies the purchase is about 70 percent of the turn over of the business but in the case of service organizations it is limited to 40 percent of the turn over of the company. 

Process or Steps involved in the purchasing

Basically the purchase management process involves three major things such as (1) Purchasing planning (2) Purchasing Tracking and (3) Purchasing Reporting. the major process involved in the Purchasing are as follow:-

1.     Purchase requisition

The process of purchasing is stars when the purchase requisitions are generated from the internal organizations. This is the indication of the managers that there is an urgent need of purchasing of goods and services in an organization.

2.     Study of Market

The main process of purchasing is depends on the market trends and technologies for a particular product or services. The study of market and trends leads to the decision regarding the purchase of the goods and services.

3.     Making Purchase decision.

After the selection of a particular market the next process is to take the purchase decision for the particular concern. This is done through the effective analysis of quotations from different companies.

4.      Placing orders

After the finalization of the particular company with the analysis, the purchase order will be placed to the proposed company.

5.     Receipting goods and services received         

   The placing of an order is the final decision for the purchase of goods and services in the company. After the placing the next step is to the receipt of the same. This will happen the effectively only after the continous follow up activity.

6.     Accounting goods and services.

After the receipt of the goods and services it is necessary to account the number of items received in the organization. This is the main duty of the store keeper under the guidance of the accountant in the concerned organization.

7.     Receiving invoice and making payments

The receiving of invoice and making payments are the responsibility of the accountant. This will be happen only after the verification of goods and services along with the invoice received.

8.     Debit note incase of any defects in products.

Every organization is liable to pay the bills immediately after the receipt of items ordered. If there is any damaged goods they can return the goods and can be avail of the reduction of the value of money along with the invoice received.

These all are the process involved in the purchasing management of an organization.

15 Strategic Business Planning and steps involved in the Strategic Planning process.

Strategic Business Planning

Strategic planning is a process of identifying the important things which we need to accomplish in the future course of business as per the priority basis. This planning will bring the entire organization in to a single set of ideas for the effective execution of plans and procedures  Strategic planning helps to improves the performance of the organization and solves major issues at a macro level.

Strategic planning should have the following qualities:-

(1)     It should be Specific

(2)    It should be Measurable

(3)    Strategic planning should be Agreed upon

(4)    Strategic planning should be Realistic

(5)    It should be Time bound.

The strategic planning does not means any future decisions or forecasting of business but emphasis on the basic plans which we need to reach after 3 or 5 years of business life. The strategic planning is the result of the study of where we are now which means over all assessment of the current position  what we need to do for achieving better future for the business and finally it is the understanding of how will close the gap or the threats for attaining the objectives of the business.

Significance of Strategic planning

1.       Long term impact of decision

Strategic planning deals with the future impact of the current decisions. It provides basic plans and ideas for the future course of actions of the business organization.

2.       Strategic planning is a continuous process

Strategic planning is a continuous process starts with the organizational objectives, then defines the strategies and policies to achieve in the future and develops a detailed plans to make sure that the strategies and plans implemented in the business to achieve a desired output.

3.       It is a Philosophy

Strategic planning is an attitude of the life which leads to the effective planning process of the organization to achieve the goals and objectives of the business in the current scenario.

4.       Strategic planning gives the Structure

In an organization Strategic planning gives three major plans and it links the future planning process of the organization. The three major plans are as follows:-

a)      Long range Strategic planning

b)      Short range Strategic planning

c)       Short range budget and operating plans

Steps of Strategic Business planning

The important steps involved in the strategic planning process are as follows:-

1.       Defining the Business

The Strategic planning creates a clear plan about the business and this should generate the future course of business ie, where will be the position of business after 3 or 5 years.

2.       SWOT Analysis

The term SWOT stand for Strength, Weakness, Opportunities and Threats.

The Strength and Weakness indicates the internal Assessments of the organization which includes organizational assets, resources, people, systems, partnership, suppliers and customers.

The opportunities and Threats indicates the external Assessments of the organization which includes market place, competitors, trends and technologies, economic cycles, government rules and regulations etc.

3.       Creating Strategic Action Plan

The strategic action plan includes the objectives of the business, initiatives for the smooth running of the business and the real action plans to be implemented in the business.

4.       Implementing the Strategy

The action plans we are selected should be implemented at the right time in the right place. The implementation of a strategy will leads to the trial and error methods of the business.

5.       Implementation and Review of Performance

After the implementation of the strategic plans we have to review the systems are good or unfavourable to the conduct of the business. It will be done with the help of suitable trial and error method.

                   These are the common steps involving in the process of strategic business planning.

7 Meaning of Financial Statements- Need or Importance and Limitations of Financial statements.

Financial Statements

Financial statements are those statement which includes the income statement, balance sheets, statement of retained earnings and the statement of sources and uses of funds. The income statement includes the trading account and the profit & loss account of the business concern and the balance sheet includes the assets and liabilities of the business.

The financial statement provides the vital information relating to the profitability, liquidity and solvency of the business.  The main aim of the financial statement is to provide reliable information relating to the economic resources, business obligations, changes in net resources etc.

Need or Importance of Financial Statements.

The need or importance of financial statement is to satisfy the needs of the users of the financial statements and which provides relevant information's about the business to the interested parties like Government, management, creditors, share holders etc. The importance of Financial statements are as follows:-

1.      Importance to Management

In the competitive business environment, it is difficult to sustain the business without any advanced planning or forecasting. The financial statements helps the management to know about the current position of the business as up to date, accurate and systematic information relating to the business. It enables the management to identify the current position, progress of the business and the business prospectus which leads the managers to take necessary remedies and plans to develop the business environment.

2.      Importance to Share holders.

In the case of companies, management is separated from the ownership of the organisation and the share holders are not authorized to take part in the day to day business activities of the concern. But in the Annual General Meeting, the results and activities of the concern will be reported to the shareholders in the form of financial statements. This financial statements enables the shareholders to know about the performance of the management and it will give the relevant information of the effectiveness, efficiency and the current financial position of the business also.

3.      Importance to Leaders or Creditors

The financial statements provides the useful information or guide to the suppliers or the creditors of the company. This is done with the help of critical evaluation of the financial statements and which provides the clear idea about the liquidity, profitability and the solvency of the business enterprises.

4.      Importance to Labour

The financial statement provides the profit and loss account of the business. This enables the staff to identify the profit condition of the business and helps to negotiate for the better salary because the profit of the company depends on the salary for the staffs.

5.      Importance to the public

Every business is a social entity which includes the co- operation of the various groups which includes lawyers, trade unions, financial analysts, teachers, research scholars etc. These groups are intended to know the financial position of the business and this will be available only through the financial statements.

6.      Importance to National Economy

The economic development of a country is highly depends on the growth and development of business environment. Financial statement discloses the relevant details of the business to the needy and this is importance to the tax authorities and other statutory aspects in the country.

These all are the importance of the Financial Statements of a business organization.

Limitations of Financial Statements.

The important limitations of financial statements are as follows:-

1.      In formations provided through the financial statements will be incomplete and inexact.

2.      The qualitative information may be ignored in the financial statements.

3.      Financial statements provides historical data.

4.      The financial statements are based on the accounting concepts and conventions.

5.      Personal judgments will be affected to the financial statements.

These all are the important unavoidable limitations of the financial statements.

3 Meaning of Depreciation in accounting with the Objectives, the causes and Methods of depreciation.

Depreciation

Depreciation refers to the decline of the value of any kind of property due to use, normal wear and tear, obsolescence or efflux ion of time. Depreciation of any kind of assets or property are allocated so as to charge a reasonable proportion of the depreciable amount in each accounting period during the expected useful life time of the asset.

Objectives  of providing Depreciation

The main objective of providing depreciation to the concerned property are as follows:-

1.      To ascertain true profit of the business.

2.      To show the proper value of assets.

3.      To retain the capital In tact.

4.      Provision of depreciation is a statutory need for the business.

Causes of Depreciation of Assets

The main reasons for the depreciation of the value of assets are as follows:-

1.      Physical Deterioration which includes normal wear and tear, rust of assets without using, wind, rain, sun and other elements of nature.

2.      Economic Factors like Obsolescence and inadequacy.

3.      Time factors which includes the reduction of value simply by passing of time.

4.      Depletion which means the lose of value due to the use such as coal mines, ore and oil deposits etc.

Methods of Depreciation

To find out the depreciation of assets or any kind of property, there are different forms or kinds of methods are available. The different kinds of depreciation methods are as follows:-

1)      Fixed Installment or Straight line method.

2)      Diminishing Balance or written down value method.

3)      Sums of the digit method

4)      Annuity method

5)      Depreciation fund or Sinking fund method

6)      Insurance policy method

7)      Revaluation method

8)      Activity method

1.      Fixed Installment or Straight line method.

Under this method, an equal amount of the value of asset is allocated as depreciation in each accounting year over a period of its effective life time. The depreciation will be calculated up to the salvage of the value of assets.

2.      Diminishing Balance or written down value method.

Under this system, depreciation will be calculated as a certain percentage of the value of the assets. This will be shown as reduced in the books of depreciation.

3.      Sums of the digit method.

Under this system, uses a constantly reducing rate to calculate the depreciation of assets. This is similar to the straight line method which means, this uses a constant system to calculate the value of assets. This uses some digits to find out the amount of depreciation in each year.

4.      Annuity method.

Under this system, the purchase amount is assumed as the investment and the interest from that investment also will be considered in the case of calculation of depreciation of assets.

5.      Insurance policy method

Under this system, an insurance policy will be taken for the assets and this matures when the assets are replaced.

6.      Revaluation method

Under this system, the reduction of the value of assets will be treated as the depreciation for the concerned assets.

7.      Activity method.

Under the activity method, usage of assets is given more importance than the passage or efflux ion of time for assets of any kind of property. The activity may take place in different forms or kinds they are as follow;

·        Production Unit Method

·        Machine Hour Method

·        Service Unit Method

·        Depletion Method.

These all are the different kinds of Method of Depreciation.

8 Meaning of Balance sheet and Classifications of Assets and Liabilities.

Balance Sheet

Balance sheet is a statement of assets and liabilities as on a particular date.  The balance sheet shows the sources and applications of capital. On the left hand side of the balance sheet shows the liabilities and capital and the right hand side of the balance sheet shows all the assets. Both sides of the balance sheet should be always equal, that means, assets must be equals with liabilities.

Format of Balnce sheet

Format of Balance Sheet

Classification of Assets and Liabilities

The classification of different assets and liabilities are as shown below;

Classification of Assets

Assets represents the possession and properties of the business. The assets are the valuable things which owns the business. Some of the examples of the Assets are land & building,Furniture, plant & machinery, stock, cash, debtors etc. As per the nature of assets they are classified in to the following types.

1.       Fixed Assets

Fixed Assets are those Assets which are acquired and held permanently and is used for the future with the intention of earning profits. Land & building  Furniture, plant & machinery are some of the examples for fixed assets.

2.       Current Assets

Current assets are those assets which can be converted in to cash or can be used for the process of production of goods and services. Cash, stock,debentures etc are some of the examples for current assets.

3.       Liquid Assets

Liquid assets are those assets which are in the form of cash or can be easily converted in to cash. Cash, debenture, bills receivables are some of the examples for Liquid assets.

4.       Tangible Assets

Tangible assets are those assets which can be seen and touch and have a definite volume such as cash, stock etc.

5.       Fictitious Assets

These are assets which have no real value and are losses for the business. Examples of fictitious assets are p&L a/c debit balance, preliminary expenses etc.

6.       Wasting Assets

Assets which have exhausted or reduces in value by their workings are called Wasting Assets. Examples for Wasting assets are mines , quarries etc.

7.       Contingent Assets

These are assets the existence, value and ownership of this is depends on the occurance and non occurance of a specified act or an uncertain future event.

Classification of Liabilities

Liability is a claim in which the business owes. This includes the credit balance of personal accounts, real account and the owners capital. Liabilities are classified in four categories. They are as follows:-

1.       Fixed Liabilities

Fixed liabilities are those liabilities which are payable only on the termination of the business. This includes the owners paid up capital, reserves and surplus etc.

2.       Long term Liabilities

Long term liabilities are those awhich are payable only after a long period of time say five to ten years.

3.       Current Liabilities

Current Liabilities are those which will be payable out of current assets within the next accounting period usually a year.

4.       Contingent Liabilities

Contingent liability is one which is not an actual liability but it will become an actual on the occurance of some future uncertain event.

These all are the kind or classifications of Assets and Liabilities in the balance sheet of a business.

50 Meaning and Types of accounting Errors and procedure for rectifying accounting errors.

Accounting Errors

Accounting errors are those mistakes which occurs in the book keeping or accounting, relating to a routine activity or relating to the principle of accounting. The Accounting errors happens in entering the transactions in journal or subsidiary books or at the time of posting of entries in to the ledger. The accounting errors may happen because of the omission, commission, principle or as a compensating of errors.

Classification of Accounting errors

Accounting errors are classified in to four types on the basis of nature of Errors. They are (1) Errors of Omission, (2) Errors of Commission, (3) Errors of Principles and (4) Compensating Errors.

(1)     Errors of Omission

The Errors of Omission will occur when a transaction is not recorded in the books of accounts or omitted by mistake. The Errors of Omission may happen as partial or complete.

         The partial errors may happen in relation to any subsidiary books. This is the result of when a transaction is entered in the subsidiary book but not posted to the ledger. For example, cash paid to the suppliers has been entered in the payment side of the cash book but it will not be entered in the debit side of the suppliers account.

        The complete omission may happen the transaction is completely omitted from  the books of accounts. For example, an accountant fails to enter a specific invoice from the sales day book.

(2)     Errors of Commission

When a transaction is entered in the books of accounts in wrongly, this may be entered as partially or incorrectly. This kind of errors are known as Errors of Commission. The Errors of Commission may happens because of ignorance or negligence of the accountant. This may be of different types, the main reasons are Errors relating to subsidiary books and Errors relating to ledger.

(3)    Errors of Principles

This  kind of errors are occurs when the entries are made against the principle of accounting. These Errors are made because of the following reasons:-

1.       Errors happens due to the inability to make a distinction between the revenue and capital items.

2.        Errors happens due to the inability to make a difference between the business expenses and personal expenses.

3.       Errors happens because of the inability to make a distinction between the productive expense and nonproductive expenses.

(4)     Compensating Errors

 Compensating Errors are those errors which compensates themselves in the net results of the business. This means, if there are over debit in one account which will be compensated by the over credit in some account in the same extent of the business. Like that, if there is a wrong debit in one account which will be neutralized by some wrong credit in the same extent of the business.

The accounting errors will hardly affect the accuracy of trial balance of the business because the trial balance is the final proof of the books of accounts. There are some of the methods to rectify the accounting errors happened in the books of accounts. The important two methods for rectifying the accounting errors are as follow.

à Striking of the wrong Entry.

à Making appropriate entries to correct the errors.

Procedure for rectifying Accounting errors.

There are mainly three steps to rectify the accounting errors in the books of accounts.

a.       Ascertain the error occurred

b.       Identify the correct record of transaction which has to be done.

c.       Decide the rectification entry.

These all are the different kinds of accounting errors and the methods to rectify those errors.

10 Meaning and Types of Subsidiary books detailed study report.

Subsidiary Books

Most of the big companies are recording the business transactions in one journal and the posting of the same to the concerned ledger accounts are very difficult tasks and which require more clerical labour also. For avoiding such kind of difficulties most of the business organizations are subdividing the journal in to subsidiary journals or subsidiary books.  Subsidiary books are those books of original entry in which similar nature of transactions are recording in a chronological order.

Kinds of Subsidiary Books

There are different kinds of subsidiary books which includes purchase day book, Sales day book, purchase returns book, Sales returns book, Bills receivable books, Bills payable books, Cash book.

1.       Purchase day book

purchase day book is used for recording credit purchase of goods only. This will not record any cash purchase or credit purchase of any assets. The term goods means all the commodities and services in which the company deals in day to day activities. The preparation of purchase day book involves the Date column, Particulars column, Invoice number column, Ledger folio column, inner amount column and Amount column.

2.       Sales day book

Sales day book is mainly used for recording credit sales of goods and services in an organization. This will not record any cash sales or assets sales. The ruling for the preparation of this book is same as like Purchase day book. This involves the Date column, Particulars column, Invoice number column, Ledger folio column, inner amount column and Amount column.

3.       Purchase returns book

This is maintained to record the transactions of goods returned to the supplier when purchase on credit. The ruling of the preparation of purchase return book or returns outward book involves Date, Particulars, Debit note number, Ledger folio and amount column.

4.       Sales returns book

This book is used to record the goods returned by the customer the goods sold on credit. The ruling of the preparation of Sales return book or returns inward book involves Date, Particulars, credit note number, Ledger folio and amount column.

5.       Bills receivable books

It is used to record the transactions when the bills received from the customer for credit sales. This provides a medium for posting bills receivable transaction. The preparation of this book involves Date when received, Drawer, Acceptor, Where payable, date of bill, term, due date ledger folio, Amount, remarks columns.

6.       Bills payable books

This is used to record the acceptances given to the suppliers for credit purchase. The preparation of bills payable book involves Date of acceptance, giver, payee, Where payable, date of bill, term, due date, ledger folio, Amount, remarks columns.

7.       Cash book

The cash book is used to record all the receipts and payments of cash. For the preparation of cash book there are different rules are available according to the nature of business. The different forms of cash book are as follows:-

a.       Simple Cash book – This is the simple form of cash book.

b.      Two column cash book – This type of cash book have two columns like cash column and discount column.

c.       Three column cash book – This involves three columns such as Bank column, cash column and discount column.

d.      Petty cash book -  This is used to record petty expenses like postage, cartage, printing and stationery etc in the day to day business activities.