Month: January 2011

What is Income Statement?

Simply a statement showing income, expenses, and profit or loss of firm is called income statement. In technical terms it is a financial statement presenting income earned during a period and expenses incurred to generate that income along with profit or excess of income over expenses called surplus. Income statement is also referred to as profit and loss account or a statement of financial performance. An income statement demonstrates how income is transformed into net income through accounting for the expenses for the same period and indicates operating performance of the company during that period. Along with expenses income statement also provides for some portion of the income as doubtful expenses or expenses than can not be determined exactly but have to pay in future. Non cash expenses such as depreciation and amortization also form part of the expense pool. Unlike balance sheet it contains a time period usually six months or twelve months related to which time horizon revenues and expenses are accounted for. Income statement is required to be prepared and disclosed under the international financial reporting standards by listed companies and large organizations. It is labeled as income and expenditure account or receipt and payment account in not for profit organizations. Through this statement such organizations need to show the receipts of donations, subscriptions, and other income during a period along with representing the related administrative...

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The Different Definitions of the words “Mission & Vision”

The Different Definitions of the words “Mission & Vision” “For one thing, the term “vision” had been tossed around by so many people and used in so many different ways that it created more confusion than clarification. Some viewed vision as about having a crystal-ball picture of the future marketplace. Others thought in terms of a technology or product vision, such as the Macintosh computer. Still others emphasized a vision of the organization-values, purpose, mission, goals, images of an idealized workplace. Talk about a muddled mess! No wonder so many hardnosed practical businesspeople were highly skeptical of the whole notion of vision; it just seemed so –well–fuzzy, unclear and impractical.” -Jim Collins Kenneth Blanchard defines purpose in a dialogue as: “As you see the first principle of ethical power is Purpose…By purpose, I mean your objective or intention—something towards which you are always striving.” Values/mission statements: Articulation of what the company stands for. Best Practice Framework, p. 35, Business Ethics. “…Businesses must have a vision about what they exist for, which is shared by everyone in the company.” Moon and Bonny in the Introduction of Business Ethics: facing up to the issues. Gouillart and Kelly write: ‘A strategic intent is the picture of the company’s ultimate purpose’. There are many classic examples of strategic intent: – AT&T’s aim for universal telephone service; Coca-Cola’s drive to put its product within...

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The Elements of Meaningful Life

Meaningful life has the following four elements: 1. Strategic Visions: A long term sound vision in our life. A sound vision is defined as a vision which has clarity and correctness. 2. Strategic Time Management: Strategic Time Management is defined as our ability to prioritize our lives in light of a long term vision and then to accomplish these priorities with determination. 3. Competence: Competence is the knowledge, skills and abilities (KSAs) that are required for our visions. For example, our vision of scaling Mount Everest requires a minimum set of knowledge, skills and abilities. 4. Leadership: Leadership is defined as the ability to share our vision with others and to inspire and facilitate others in pursuing the shared vision. The key element behind the ability to inspire others to pursue the shared vision is a character worthy of that vision. Reference...

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Leadership in the Light of Vision

The ability to share our vision with others and the ability to inspire others to pursue the shared vision. The ability to share our vision with others can be summarized as the ability to influence and the key element behind the ability to inspire others to pursue the shared vision is a character worthy of the vision. According to the above definition, leadership is a basic survival skill and begins from day one when an infant exercises his innate ability to convince his caregivers of giving him what he wants, whether it is nursing or changing his diapers. As the child grows, this skill progressively improves through education and various learning experiences. As we continue in life we find ourselves in a continual process of sharing our visions with others whether it is at our work, our home or our social circle. When an adolescent tries to convince us to accept his vision of the very near future of having entertainment through a particular video game, he is exercising his leadership skills. When we convince our children to aspire for a particular choice of an academic field, then we set out to encourage them to continue and provide them with means, we are practicing our skills of leadership. Leadership, like swimming, is a skill. And just as some people swim better than others, some are better leaders than others....

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CIPPA – Constant Item Purchasing Power Accounting

Constant Item Purchasing Power Accounting (CIPPA) is the International Accounting Standards Board’s basic accounting alternative authorized in International Financial Reporting Standards in the Framework for the Preparation and Presentation of Financial Statements (1989), Paragraph 104 (a)  which states: “Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing power.”   It is the IASB-approved alternative to traditional Historical Cost Accounting whereunder only constant real value non-monetary items (not variable real value non-monetary items) are measured in units of constant purchasing power; i.e. inflation-adjusted by applying the monthly change in the Consumer Price Index during low inflation and deflation. Monetary items, variable real value non-monetary items and constant real value non-monetary items are the three fundamentally different basic economic items in the economy. Examples of constant items are issued share capital, retained income, capital reserves, all other items in shareholders´ equity, trade debtors, trade creditors, provisions, deferred tax assets and liabilities, all other non-monetary payables, all other non-monetary receivables, salaries, wages, rentals, all other items in the income statement, etc. Examples of variable items are property, plant, equipment, listed and unlisted shares, inventory, foreign exchange, etc. Variable items are valued in terms of IFRS at for example fair value, market value, recoverable value, present value, net realizable value, etc. or Generally Accepted Accounting Principles (GAAP) during non-hyperinflationary periods. Monetary items are always valued at their...

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What is Balance Sheet/Statement of Financial Position

Balance sheet is the statement of financial position of a company. It depicts the financial position (sound or weak) of a company on a specific date. The basic concept involved in balance sheet is that the assets are equal to outside liabilities and owners’ equity. The resources or asset of an organization are always generated through financing. This financing is provided by two sources which internal or external. Internal sources are owners or shareholders who provide capital through investment and reinvesting the profits earned over the periods. External sources on the other hand provide financing through extended credit usually called creditors and granting loans to the firm. It makes sense that the whole financing must be utilized some where in generating resources or assets for the firm, therefore, the value of the firm’s resources must equate the value of whole financing whether internal or external. The balance sheet forms an integral part of financial statements and extensively used by many stakeholders to judge the financial strength of the company. It demonstrates that how the financial resources are being utilized to generate resources for the firm and what type of resources the firm actually generated over the period. It further guides in inventing whether the financing has generally been employed in high return assets or it may have been wasted in assets with lower potential. The items in the balance...

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GAAP / International Financial Reporting Standards

Generally Accepted Accounting Principles (GAAP) is an international recognized and accepted concept of standard framework and rules to ensure uniform financial reporting across the globe. GAAP is the general term which covers all the standards, principles, conventions, and assumptions used in recording the financial transitions and reporting the financial information worldwide enabling the readers to make homogeneous judgments and inferences about the companies. The standards covered in GAAP were labeled as International Accounting Standards (IASs) up to 2001 and after that they are referred to as International Financial Reporting Standards (IFRSs). International Accounting Standard Board (IASB) is the body issuing the IASs and IFRS. There are forty one IASs and nine IFRSs. These IFRSs are the sets of standards, interpretations, guidelines, rules, and procedures required to be followed in preparation and reporting the financial statements. They elaborate the disclosure requirements such as accounting policies adopted by the companies and other matters of financial significance. These standards are gaining acceptance in most of the countries where they are followed by the listed companies in financial statements and financial reporting to ensure accurate and reliable information to the stakeholders around the world. Along with standards there are some basic principles and assumptions covered under the GAAP for financial reporting. Such principles are:  Consistency The uniformity or consistency of the accounting policies over the periods is referred to as principle of consistency....

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Financial Reporting Standards

Financial reporting standards are periodically issued by International Financial Reporting Standard Board. These standards are meant to ensure uniformity in financial reporting to protect the interests of the investors worldwide. Earlier called International Accounting Standards (IASs) issued up to year 2001. After the changes in governing bodies, standards issued after 2001 are referred to as International Financial Reporting Standards (IFRS). These standards are gaining acceptance in all the countries but yet there are many countries which haven’t yet adopted the standards in full or in parts. Currently there are nine financial reporting standards and forty one international accounting standards. Both are enlisted below: IFRS No Description (Name of IFRS) 1 First time adoption of international financial reporting standards 2 Share based payments 3 Business combinations 4 Insurance contracts 5 Non current assets held for sale and discontinued operations 6 Exploration and evaluation of mineral resources 7 Financial instruments and disclosures 8 Operating segments 9 Financial instruments   IAS No Description (Name of IAS) 1 Presentation of financial statements 2 Inventories 3 Consolidated financial statements (suspended) 4 Depreciation accounting (introverted) 5 Information to be disclosed in financial statement (suspended) 6 Accounting responses to changing prices 7 Cash flow statements 8 Accounting policies, changes in accounting estimates and errors 9 Accounting for research and development activities 10 Events after the balance sheet date 11 Construction contracts 12 Income taxes 13 Presentation...

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What is Accountant?

In history landlords used to appoint a literate person to write their financial information and to maintain accounts of their customers. The reason behind was that landlords himself were not capable for such functions or they had not enough time to write their accounts personally due to their other engagements. The persons appointed for record keeping were labeled as accountants. Their scope remained limited historically but as the economic horizons changed and businesses started flourishing the dire need for accountants emerged. In the 19th century when ventures of joint stock companies has been materialized and companies expanded operations from cities to cities and from countries to countries, the need for uniform accounting and reporting standards was terribly sensed to protect the interest of investors.  The investors have to make their investment decisions based on financial information provided by the company. Therefore, accurate decisions are not expected if investors do not possess concrete, reliable, and same pattern information for comparing the performance of the companies. Moreover, due to increased regulations and tax complications reliable information is required to the Governments. All these reasons pushed the historically limited role of accountants into more broadened responsibilities and surfaced them into an important member of the management team. In the current era accountancy became charming career path for most of the youth in new generations and they serve as a practitioner of the...

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Fair Value Accounting

Assets are shown in the balance sheet at the historical cost i.e. cost at which they were acquired. But it is not the case always that the assets presenting the values in the balance sheet are actually worth for that. There may be the case that actual value based on current market price is worth more or less than the value in the balance sheet. Some assets in the balance sheet such as land and building are generally worth more in the market than the value shown in the balance sheet at which they had been acquired many years ago. Therefore, conventional balance sheets often undervalue the companies’ assets. To overcome the issue fair value accounting has been widely supported for where it is required that assets in the balance sheet should be presented at their current market value also called fair value. Formally speaking fair value is the rationalized and impartial approximation of the impending market price. Fair value is determined through the following aspects. • At what cost the same asset in the same condition can be acquired, produced, replaced, or substituted. • What is the actual utility of the asset? It means present value of future cash flows generated from current asset. Example Firm A purchased a piece of land in 1990 for $10 million. The historical-cost financial statement would still record the land at $10...

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