1 What is Inflation Accounting

1 What is Inflation Accounting? Accounting?

the financial statements prepared under historical accounting are generally proved to be statements of historical historical facts and do not reflect the current worth of business. This may lead to overstated profits, under priced assets and misleading picture of Business etc. Inflation accounting is accounting is a term describing a range of accounting systems designed to correct problems arising from historical cost accounting in the presence of inflation. Techniques of Inflation Accounting Current Purchasing Power (CPP) Method OR General Price Level Approach: Under this method of adjusting accounts to price changes, all items in the financial statements are restated in terms of a constant unit of money i.e. in terms of general purchasing power. For measuring changes in the price level and incorporating the changes in the financial statements we use General Price Index, which may be considered to be a barometer meant for the purpose The index is used to convert the values of various items in the Balance Sheet and Profit and Loss Account. Current Cost Accounting (CCA) Method The CCA method matches current revenues with the current cost of the resources which are consumed in earning them. Under this method, asset are valued at current cost which is the cost at which asset can be replaced as on a date

What is fund flow statement?

A financial statement that reported the changes in a company's working capital. The funds flow statement has been replaced by the statement of cash flows The cash flow statement reports the heading.

cash generated

and used during the time interval specified in its

The cash flow statement organizes and reports the cash generated and used in the following categories:

4. What is BEP? Contribution Margin

Definition of Break-Even Point The break-even point is the level at which total sales are equal to total costs. Finding the break-even point begins with determining a product's contribution margin, calculated by subtracting variable costs from revenues. Contribution margin can be expressed in dollars (to find break-even in units) or as a  percentage ratio (for break-even in dollars). T otal fixed costs are then divided by the contribution margin to find the  break-even point.

What is Ratio Analysis?

Ratio analysis is based on line items in financial statements like the balance sheet, income statement and cash flow statement; the ratios of one item  – or a combination of items - to another item or combination are then calculated. Ratio analysis is used to evaluate various aspects of a company’s operating and financial performance such as its efficiency, liquidity, profitability and solvency

What is Target Costing? Target costing is a system under which a company plans in advance for the price points, product costs, and margins that it wants to achieve for a new product. If it cannot manufacture a product at these planned levels, then it cancels the design project entirely. With target costing, a management t eam has a powerful tool for continually monitoring products from the moment they enter the design phase and onward throughout their product life cycles. It is considered one of the most important tools for achieving consistent profitability in a manufacturing environment. 7. Explain Activity Based Costing.

Activity based costing (ABC) assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of machine hours. Activity based costing first assigns costs to the activities that are the real cause of the overhead. It then assigns the cost of those activities only to the products that are actually demanding the activities.

An accounting method that identifies the activities that a firm performs, and then assigns indirect costs to products. An activity based costing (ABC) system recognizes the relationship between costs, activities and products, and through this relationship assigns indirect costs to products less arbitrarily than traditional methods. 8. Define ‘Budget’.

9 Define Trail balance The trial balance is a report listing the ending debit and credit balances in all accounts at the end of a reporting period. The trial balance has three uses:

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Debits equal credits. The total of all debits should equal the total of all credits, resulting a report balance of zero.

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Worksheet . Depending on the report format, the t rial balance can be used as a worksheet for planning adjusting entries.

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Source of financial statements. The information on t he report can be aggregated to create the financial statements, though accounting software handles this task automatically.

What is Transfer price

The price at which divisions of a company transact with each other. Transactions may include the trade of supplies or labor between departments. Transfer prices are used when individual entities of a larger multi-entity firm are treated and measured as separately run entities. Also known as "transfer cost". In managerial accounting, when different divisions of a multi-entity company are in charge of their own profits, they are also responsible for their own "Return on Invested Capital". Therefore, when divisions are required to transact with each other, a transfer price is used to determine costs. Transfer prices tend not to differ much from the price in the market because one of the entities in such a transaction will lose out: they will either be buying for more than the prevailing market price or selling below the market price, and this will affect their performance.