Inventory is a current asset that is held by an entity either to be used in production or to be sold. Inventory that is held at the begining of the financial year is known as opening inventory. The inventory that remains unused or unsold at the end of financial year is known as closing inventory.
There are three forms of inventory.
1. Raw material
2. Work in progress (WIP)
3. Finished goods
Saturday, December 18, 2010
Ordering stock
The store manager will decide that an order needs to be placed and the number or the units to order. The amount to be ordered will be determined by the future plans for production and sales.
It is calculated as follow
Ordering stock = required for sales + closing stock – opening stock
Question:
Hussy Ltd makes a product which requires 2 kg of material X. Hussy Ltd always keep closing inventory of 200 kg of material X each month. As the production of last three months were 500 hundred units. Hussy Ltd is planning to increase its sale to 600 hundred units from the present month.
Required:
How many kg of material X should be ordered?
Solution:
Closing stock 200 kg
Opening stock 200 kg
Requirement for sale 600/2= 300 kg
Now put in formula:
Ordering stock = 300+200-200
Ordering stock = 300 kg of material required.
It is calculated as follow
Ordering stock = required for sales + closing stock – opening stock
Question:
Hussy Ltd makes a product which requires 2 kg of material X. Hussy Ltd always keep closing inventory of 200 kg of material X each month. As the production of last three months were 500 hundred units. Hussy Ltd is planning to increase its sale to 600 hundred units from the present month.
Required:
How many kg of material X should be ordered?
Solution:
Closing stock 200 kg
Opening stock 200 kg
Requirement for sale 600/2= 300 kg
Now put in formula:
Ordering stock = 300+200-200
Ordering stock = 300 kg of material required.
Friday, December 17, 2010
Cash and Cash Flows
Money in terms of notes, bills, currency and coins is called cash. Also includes current accounts, deposits etc.
Cash Flows: It is the money that is flowing into the business and out of the business. OR A term which shows the receipt and payments of cash.
It is a measure of a company’s financial health.
Deficit: When cash outflows exceed cash inflows it is called as negative cash flows or deficit.
Surplus: When cash inflows are greater than cash outflows.
Types of Cash flows:
1. Cash flows from operating activities: Amount of cash a company generates from the revenues and expenses e:g cash flows from sales and cash payments to suppliers.
2. Cash flows from investing activities: Is a measure of the total cash generated or lost by a company’s investments it includes buying and selling assets, lending money etc.
3. Cash flows from financing activities: Funds related to the financing of the company. This includes any dividend payments, borrowing money etc.
4. Capital receipts and payments: Related to issue of shares and acquisition of fixed assets.
5. Drawings & Dividends: Cash payments to shareholders as dividends
Sources of Cash: Cash can be obtain from finance activities i:e increase long term debt, equity etc and also from selling assets i:e decrease in current assets and fixed assets.
Uses of Cash: Uses of cash are vice versa of sources of cash. Paying payables that decrease in long term debt. equity. Buying assets that results increase in current assets, fixed assets.
Cash Accounting: A method in which receipts and expenses are recorded in the period in which they are actually receive and paid.
Cash Forecast: Cash forecasting is a method that forecasts cash position in future it ensures that sufficient funds will be available when they are needed. It provides an early warning of liquidity problems. Enables management to plan strategies to deficits and surpluses.
Objectives of Cash Budget: The main objectives of cash budget is:
To help management what to do with surpluses and deficits i:e where to invest the surpluses and for deficits where to get finance.
For working capital management.
To set borrowing limits and minimize cost of funds.
To compare actual cash flows with budgeted cash flows which allows business to decide whether it will have enough cash or new sources of borrowing will be necessary.
Types of Forecast:
1. Balance sheet base forecast
2. Financial statement base forecast
3. Receipt and payments base forecast
Cash Flows: It is the money that is flowing into the business and out of the business. OR A term which shows the receipt and payments of cash.
It is a measure of a company’s financial health.
Deficit: When cash outflows exceed cash inflows it is called as negative cash flows or deficit.
Surplus: When cash inflows are greater than cash outflows.
Types of Cash flows:
1. Cash flows from operating activities: Amount of cash a company generates from the revenues and expenses e:g cash flows from sales and cash payments to suppliers.
2. Cash flows from investing activities: Is a measure of the total cash generated or lost by a company’s investments it includes buying and selling assets, lending money etc.
3. Cash flows from financing activities: Funds related to the financing of the company. This includes any dividend payments, borrowing money etc.
4. Capital receipts and payments: Related to issue of shares and acquisition of fixed assets.
5. Drawings & Dividends: Cash payments to shareholders as dividends
Sources of Cash: Cash can be obtain from finance activities i:e increase long term debt, equity etc and also from selling assets i:e decrease in current assets and fixed assets.
Uses of Cash: Uses of cash are vice versa of sources of cash. Paying payables that decrease in long term debt. equity. Buying assets that results increase in current assets, fixed assets.
Cash Accounting: A method in which receipts and expenses are recorded in the period in which they are actually receive and paid.
Cash Forecast: Cash forecasting is a method that forecasts cash position in future it ensures that sufficient funds will be available when they are needed. It provides an early warning of liquidity problems. Enables management to plan strategies to deficits and surpluses.
Objectives of Cash Budget: The main objectives of cash budget is:
To help management what to do with surpluses and deficits i:e where to invest the surpluses and for deficits where to get finance.
For working capital management.
To set borrowing limits and minimize cost of funds.
To compare actual cash flows with budgeted cash flows which allows business to decide whether it will have enough cash or new sources of borrowing will be necessary.
Types of Forecast:
1. Balance sheet base forecast
2. Financial statement base forecast
3. Receipt and payments base forecast
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