It entails the decision on the acquisition of new assets or equipment that is to be utilized by the business to increase its future cash flows and profitability. Managers are, therefore, faced with the challenge of determining which project to invest in order to avert the adverse effect on the financial performance. In making investment decisions, various factors must be considered. Managers have to know that the success of the business entirely depends on how best the investments are analyzed before they are undertaken. First, capital budgeting requires large capital outlay (Dugdale 16). Most of the capital budgeting decisions require a large proportion of business funds. It, thus, implies that failure to make proper investment decisions will lead to losses for the organization. Secondly, investment decisions are irreversible. After deciding on what projects to invest in, managers will lack the ability to reverse their decisions, i.e., equipment once acquired cannot be easily disposed of. The managers must therefore be careful before settling on a particular investment projects because of this nature. Moreover, in analyzing investment, the future cash flows are of importance. The cash flows likely to arise to the organization after determining which projects to invest will be realized in the future. The cash flows cannot be determined with certainty and therefore depend on forecasts and future changes in conditions (Szpiro 53). Managers will use their skills in forecasting future cash flows and in evaluating the worth of the investments. Capital budgeting needs long time decisions and commitments. Various models are used in evaluating the investments to pursue by the organization. These can be largely categorized into two: non-discounted methods and discounted methods of capital budgeting. The non-discounted method include payback period in which the period required to recoup the capital invested is used. Projects with a short payback period are preferred. The return on investment is the second non-discounted method of project evaluation. In this method, projects with the highest returns are chosen for investment purposes. This method is pegged on the historical accounting estimates. The discounted models of investments analysis have gained popularity and preference. This model considers the time value of money in deciding on what projects to pursue. It therefore takes into account inflation effect and considers all the cash flows (Szpiro 55). The methods include net present value, internal rate of return, profitability index, and discounted cash flows. For NPV, the project with the highest NPV should be pursued since it maximizes shareholders wealth (Heilbroner and Bernstein 23). Managers, by using IRR model, select projects with the highest rate of return. The discounted methods provide a basis for ranking the projects making them be preferred by managers in allocating the scarce business resources. Discounted methods of evaluating projects are also useful because they provide a clear forecast of all future cash flows and therefore consider wealth maximization goal. Capital budgeting impacts both the business and society. For the business, capital budgeting determines the going concern and the performance of the business. A business that fails to identify which projects are worth investing in will incur colossal losses that might interfere with the going concern of the business. Secondly, shareholders depend on the capital budgeting in making investment decisions and in assessing managerial performance (Dugdale 19). Managers who are incapable of determining which
Managers in making investment decisions are faced with the problem of limited resources. This, therefore, necessitates an understanding of the topic of capital budgeting. …
Accounting is a process of tracking record of varied transactions in an appropriate manner. Moreover, accounting is a procedure of recording transactions of businesses with relation to receipt and payment as well as incomes and expenditures.
Errors are unintentional mistakes committed by accounting clerks while dealing with journalising and posting activities. In contrast, fraud is a mistake committed by employees or managerial persons with intent to deceive the business owner. In a comparison, fraud seems to be a more severe issue as it is related to all organisational structures.
Traditionally, cost accounting is considered as the technique and process of ascertaining costs of a given thing, In sixties, the definition of cost accounting was modified as the application of costing and cost accounting principles, method and techniques to the science art and practice of cost control and ascertainment of profitability of goods, or services.
The design, analysis and control of individual production units and networks are part of operational planning and control. According to OPC the production unit is defined as organisational entity. It should set the objectives regarding cost, quality and time by using the resources allocated to it.
Former one describes the performance of one business that needs to be filed at company's house whereas the purpose of management accounts is to coordinate the planning of one business and making decisions about key areas like stock and sales etc. Management accounts provide the necessary guidance to make timely and meaningful management decisions about a business.
It entails the decision on the acquisition of new assets or equipment that is to be utilized by the business to increase its future cash flows and profitability. Managers are, therefore, faced with the challenge of determining which
ls with the controlling functions in the organization; since the management does not have the facility to deal with the external factors that affect its performance it confines its planning route to the factors that are controllable internally. The budget, in simple words, can
This paper examines the issue of the budgetary process and situations where budgets become outdated and need quick and emergency updating. The paper will evaluate and discuss the effectiveness of budgetary controls in
Employee fraud may include stealing assets through check tampering or through fraudulent billing schemes. Employee fraud involves employees engaging in fraudulent activities such as skimming cash, paying fictitious vendors,
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