Q1)- MEANING OF FINANCE:
Finance may be defined as the art and science of managing money. It includes financial service and financial instruments.
Finance also is referred as the provision of money at the time when it is needed.
Finance function is the procurement of funds and their effective utilization in business concerns.
The concept of finance includes capital, funds, money, and amount.
Q2)-DEFINITION OF BUSINESS FINANCE:
“Business finance is that business activity which concerns with the acquisition and conversation of capital funds in meeting financial needs and overall objectives of a business enterprise”
Q3)-TYPES OF FINANCE:
Finance is one of the important and integral part of business concerns, hence, it plays a major role in every part of the business activities. It is used in all the area of the activities under the different names. Finance can be classified into two major parts:
Private Finance, which includes the Individual, Firms, Business or Corporate Financial activities to meet the requirements.
Public Finance which concerns with revenue and disbursement of Government such as Central Government, State Government and Semi-Government Financial matters
Q4)-What is the scope of finance function?
The finance function is concerned with three types of decisions:
Financing decisions are the decisions regarding the process of raising funds.
Investment decisions are the decisions regarding the investment of funds.
Dividend Policy decisions are strategic financial decisions and they are based on the profits earned by the organization. As the shareholders are the owners of the organization thus they are entitled to receive profits in the form of dividend.
Q5)-What are the goals of finance function?
– Profit Maximization - Wealth Maximization what is the relation of finance function to other functions of a business enterprise?
A business enterprise has many functions apart from finance function such as production, marketing and personnel. All these functions are related to the finance function as they all require funds for their execution. For example: In production function, to produce good quality of goods and proper functioning of various operations involved in the production function involves investment either in terms of fixed capital or working capital, which is a finance function. The personnel function deals with the availability of proper kinds of laborers at proper time, their training etc. All these activities need funds. All the activities or functions are finally related to the finance function. The success of a business depends on the coordination between these functions.
Q6)-What do you mean by accounting concepts? List them.
Accounting concepts are those basis assumptions upon which basic process of accounting is based. Following are the basic accounting concepts:
a) Business Entity Concept: According to this concept, the business has a separate legal identity than the person who owns the business. The accounting process is carried out for the business and not for the person who is carrying out the business. This concept is applicable to both, corporate and non corporate organizations.
b) Dual Aspect Concept: According to this concept, every transaction has two affects. This basic relationship between assets and liabilities which means that the assets are equal to the liabilities remains the same.
c) Going Concern Concept: According to this concept, the organization is going to be in existence for an indefinite period of time and is not likely to close down the business in the shorter period of time. This affects the valuation of assets and liabilities.
d) Accounting Period Concept: According to this concept, the indefinite period of time is divided into shorter time periods, each one being in the form of Accounting period, in order to facilitate the preparation of financial statements on periodical basis. Selection of accounting period depends on characteristics like business organization, statutory requirements etc.
e) Cost Concept: According to this concept, an asset is recorded at the cost at which it is acquired instead of taking current market prices of various assets.
f) Money Measurement Concept: According to this concept, only those transactions find place in the accounting records, which can be expressed in terms of money. This is the major drawback of financial accounting and financial statements.
g) Matching Concept: According to this concept, while calculating the profits during the accounting period in a correct manner, all the expenses and costs incurred during the period, whether paid or not, should be matched with the income generated during the period.
Q7)-What are capital expenditures?
Is it Ok to consider these expenditures while calculating the profitability of during a certain period?
Capital Expenditure is an amount incurred for acquiring the long term assets such as land, building, equipment’s which are continually used for the purpose of earning revenue. These are not meant for sale. These costs are recorded in accounts namely Plant, Property, Equipment. Benefits from such expenditure are spread over several accounting years.
E.g. Interest on capital paid, Expenditure on purchase or installation of an asset, brokerage and commission paid.
No, Capital expenditure should not be considered while calculating profitability as benefits incurred from the capital expenditure are long term benefits and cannot be shown in the same financial years in which they were paid for. They need to be spread over a number of years to show the true position in balance sheet as well as profit and loss account.