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Finance - Essay Example

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Finance Part B: Essential Knowledge Answer 1 Terms Definitions Chart of accounts Chart of accounts is the list of accounts of the company which is incorporated by companies to classify the cost and revenue incurred under a particular item. The finance of an organization gets segregated into revenue, expenditure, liabilities and assets of the company…
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Thus the profit of the company is obtained after subtracting the expenses from the total revenue. For eg: The Profit and loss statement of an organization shows the revenue and expenses of the company. Through the process of financial statement analysis the real income and expenditure of an organization can be computed. Profit and Loss statement Profit and loss statement also known as the income statement of an organization is a summarization of the expenses, revenues and cost incurred during a specific time period. It helps the company and its stakeholders in detecting the item(s) for which the cost incurred has increased lowering the profit of the company.1 For eg: Profit and loss statement includes items like cost of goods sold, interest expense, tax expense and operating expenses; subtracting which from the total revenue, the net profit is obtained. Liabilities The obligation of on organization that arises out of the past transactions is known as the liability of the company. The liability of a company may be in cash or in kind which is repayable both in short and long time span. For eg: Accounts Payable, Interest Payable, Promissory notes payable, etc. are part of the liabilities of a company. Invoices An invoice is a form of bill which is paid to the seller by the buyer of the product or services. The invoice contains the details of the quantities, product and the price agreed upon by both the seller and the buyer of the product.2 For eg: An invoice is a sales invoice from the seller’s side while it becomes a purchase invoice from the buyer’s side. Ledgers A ledger is a book of accounts where the daily monetary transactions are recorded by debiting and crediting the accounts as per requirement. The entries made in the journal finally get transferred to a separate ledger account for the creation of the final accounts of a company. For eg: Sales Ledger, Purchase Ledger, General ledger, etc. Cash flow Cash flow is the movement of cash into or out of the business. Cash flow is used to compute the net present value, internal rate of return and the rate of return of a company. Thus the risk associated with the project can be determined with the help of cash flow of a company.3 For eg: Operational cash flow, investment cash flow and financing cash flow. Financial audit The financial audit is the verification of the financial statements of the company in tandem with the generally accepted accounting principles of the company. The purpose of financial audit of a firm is to increase the confidence of the stakeholders of the company who are intended to use the financial statements.4 For eg: The financial systems that are audited are the final accounts of the company which include the income statement, the cash flow and the balance sheet of the company. Answer 2 Answer 3 A manager ensures that legislative requirements for financial management are compiled with to the extent of achieving the budget targets agreed by the Australian Taxation Office whereby the costs are limited over which they have control. The manager of the organization verifies the information obtained is relevant, cost-effective and appropriate in the light of applicability of the information in unknown circumstances. The elements included by the manger of the organiz ... Read More
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