Category: Commerce Notes PPT

Both Cost Accounting and financing accounting are vital for managing the finances of a business firm. Each of them tends to play a distinct role in accounting and facilitates the process of handling and projecting the financial standing of a business firm. Therefore, neither of these should be overlooked in a business setup.

 

With that being said, let’s take a quick look at the points of difference between Cost Accounting and financial accounting and their area of expertise.

What is Cost Accounting?

Cost Accounting is a branch of accounting that deals explicitly with the costs which have been incurred through the course of a production. The information generated through Cost Accounting is used to keep track and adjust the operations effectively to maximise both profit and efficiency. 

 

For instance, with the help of Cost Accounting firm owners identify and record allocation of resources and determine the cost involved with each level of production of goods and dissemination of services. 

 

Therefore, it can be said that Cost Accounting enables business owners to analyse and classify the expenditure of a specific production unit. It also helps to determine the input cost required to appoint labour and purchase raw materials at each level. In turn, it allows firm owners to control and lower unwarranted expenses significantly. 

 

Check Your Progress: Name three expenses that would be recorded and accounted for in Cost Accounting.

Objectives of Cost Accounting 

These are among the significant objectives of Cost Accounting –

1. Determination of the cost per unit of goods that have been produced by the firm.

2. Accurate reporting of both operational and processing costs.

3. Formulating a report on cost-utility and recommendations to maximise profit on production. 

4. Formulating data and guidelines to determine the accurate cost of manufacturing goods and rendering services.

Next, let’s move on to the perks that accompany Cost Accounting.

Types of Cost Accounting systems:

Cost Accounting systems are broad of two major types, that is, integrated accounting systems and non-integrated accounting systems. Both the financial data and cost data are maintained in a single set of books in an integrated accounting system whereas, in non – integrated accounting systems, separate books are maintained for information of cost-related data.

Types of costs involved in Cost Accounting

There are majorly five types of costs involved in Cost Accounting. These are

1. Direct costs: This includes the cost that is directly related to the production of a product. It involves costs related to the raw material of the product, labour, employee wages, and distribution costs.

2. Indirect costs: This includes costs that are not directly associated with the production of products such as electricity bills for a factory.

3. Variable costs: These include those costs that tend to increase or decrease with production volumes.

4. Fixed costs: These include costs that are necessary for keeping the company in a running state. These costs don’t fluctuate about sales and production volumes.

5. Operating costs: These costs include the cost that is involved in the day-to-day operations of the company. 

Benefits of Cost Accounting

The following pointers offer an overview of the perks accompanying the cost of accounting –

1. Cost objects analysis.

2. Analysing trends to identify and lower associated expenses.

3. Cost determination.

4. Analysis of expansion capacity.

To move on to the next step of Cost Accounting vs financial accounting, let’s learn about the aspects of financial accounting in brief. 

Cost Accounting – At A Glance

• Cost Accounting refers to the analysis and reporting of the cost structure of a company.

• Cost Accounting involves costs incurred in products, services, and activities involved in a business.

• Cost Accounting helps the company analyze where they are spending extra money, what is their earning, and in what sectors the company is experiencing losses.

What is Financial Accounting?

Typically, financial accounting is that branch of accounting, which is responsible for recording the aggregate financial data of a firm. It helps to measure the financial outcomes of a given accounting period and further helps to evaluate the position of assets and liabilities held with an organisation accordingly. Such an endeavour helps to measure the precise financial standing of a business firm at any given point in time. 

 

Hence, it can be said that financial accounting is the process, wherein, a business firm records, summarises and reports all the financial transactions that have taken place within a given period. Notably, such transactions are then compiled to work out crucial financial statements of the company, including – the cash flow, balance sheet, profit and loss account, etc.

 

Just like Cost Accounting, financial accounting also tends to follow specific objectives and strives to deliver the same. To gain a fair idea of financial accounting, you should make it a point to become familiar with them as well. 

Objectives of Financial Accounting 

The following are among the primary objectives of this branch of accountancy –

1. Recording all financial transactions within a given period in a systematic manner.

2. Evaluating the financial standing of the firm.

3. Analysing the outcome of business operations.

4. Analysing past performance.

5. Highlighting a firm’s prospects.

Methods of Financial Accounting

Financial accounting can be computed using either the accrual method or the cash method. Accrual method records transactions when they have already occurred and one can recognize the revenue whereas cash accounting records transactions only when the cash is exchanged, that is, the revenue is recorded only after receiving the receipt of the payment and similarly, the expenses are recorded only after the obligation of the payment. 

Benefits of Financial Accounting

Now let’s take a quick look at these benefits of financial accounting to be able to provide the difference between Cost Accounting and financial accounting –

1. Helps to maintain business records.

2. Plays a vital role in formulating financial statements.

3. Helps to compare business outcomes.

4. Serves as legal and financial evidence. 

Financial Accounting – At A Glance

• Financial accounting can follow either of the accounting bases, that is, the accrual basis or the cash basis.

• Financial accountants are generally used by corporations, nonprofits, and small businesses.

• The reporting in financial accounting uses financial statements in five different areas.

Test your knowledge: Which of these would be studied under financial accounting?

1. Fixed cost 

2. Balance Sheet 

3. Overhead Expenses 

4. Selling Price 

Difference Between Cost Accounting and Financial Accounting

Take a look at this table below to learn about the Cost Accounting and financial accounting differences –

 

Learn more about the difference between Cost Accounting and financial accounting and other related topics in detail from App. Our study material and interactive live classes will not just benefit your subject knowledge but will, in turn, help you to prepare for your board examination more effectively.

 

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Capital refers to the wealth, i.e. assets or money that a company owns and which is used to either commence a new business venture or invest in an existing one. Capital is the life force of any corporation; it helps a business to maintain its liquidity while growing in stature. Generally, capital is referred to the physical assets in a company. However, a new concept of human capital has been introduced as well.

The difference between physical capital and human capital is as clear as day. Physical capital refers to a wealth that is tangible like machinery, buildings, money, furniture, etc. On the other hand, the concept of human capital is new. It implies the skill, abilities, and knowledge of individual employees, which is used by companies to meet their future goals. The company does not own this type of capital. Instead, they avail it against adequate remuneration.

While the value of human capital in terms of money is not easy to measure, the influence of investments in it can be calculated and analyzed. Similar ratios used to measure and evaluate the performance of investments in physical capitals are also used in the case of human capital. Investments in both of these capitals lead to fundamental improvements in a business and better chances of achieving long-term goals.

Therefore, before moving on to the difference between physical and human capital, you need to know the definition of these capitals and what they represent.

Physical Capital

In economics, the term ‘physical capital’ represents the inputs, i.e. factors of production or human-made items that are owned by the business like machinery, properties, buildings, furniture, electronic items, and others which are used to convert raw materials into finished goods.

To commence a business, a substantial amount of investments is made to procure the necessary physical capital. It helps a company to start its production of goods and services and helps it to strengthen its position in the market.

After acquiring ample knowledge and calculating the outcome, an investment in physical capital is made. An owner or entrepreneur calculates the expected return from the investments that he/she is making and based on that calculation selects the option, which offers a relatively higher return. Therefore, it can be stated that the ownership of any physical capital is a product of planning and conscious decision-making.

Human Capital

Human capital implies the personal abilities that an employee brings to his/her organization. It is in the form of skills, knowledge, experience, expertise, intelligence, attitude, professionalism, value, and ethics, etc. As a result, employees are considered as assets whose value can be augmented via further training and development.

In simpler words, it portrays the cumulative value of a company’s intellectual capital. This capital is a constant source of innovation and creative solutions. This standard is used to determine the value of an individual’s skill set. However, this concept also makes it clear that every employee is not equal. They are differentiated based on what they bring to the company.

Companies do not own human capital. Instead, they rent it from their employees. Therefore, uncertainty surrounds this capital because when an employee leaves a company, it loses a portion of its human capital.

Physical Capital versus the Human Capital

Physical and Human Capital are different and are both essential for an organization.  There is a substantial difference between these two capitals; they are outlined below –

1. Meaning

Physical capital means an organization’s non-human assets such as buildings, land, plant and machinery, furniture, electronic items, office supplies, etc. In a nutshell, every non-human asset that plays a role in production can be labeled as physical capital.

Contrarily, human capital is classified by the attributes that employees bring to a company. It is a culmination of talent, skill, knowledge, experience, abilities, attitude, etc. 

2. Nature

The nature of physical capital is tangible, which means it can be seen and touched. Whereas human capital is intangible, i.e. it cannot be felt and seen. It can only be visible through the inputs and outputs of individual employees. Human capital can be enhanced through training and skill development. 

3. Formation

The formation process is a significant difference between human capital and physical capital. The formation of human capital is not an industrial process; it is a social one. Additionally, it is also a result of the decision-making of an entrepreneur or manager. Recruitment and training play a big role in building up human capital.

On the other hand, the formation of physical capital is an industrial process along with an economic decision taken by the entrepreneur.

4. Tradability

Physical capital can be sold in the open market like any other commodity. However, human capital cannot be traded. It is the service that is sold.

5. Separability

Physical capital can be separated from its owner, but human capital is inseparable. In other words, physical capital is not bound to a person while human capital is an intrinsic part of a person and cannot be separated from the individual.

6. Financial Statement

Physical capital appears on the financial statement of the company. However, human capital does not appear on any financial statement.

7. Mobility

Mobility is a significant point that distinguishes between physical and human capital. Physical capital may be mobile, apart from certain government restrictions. Whereas, human capital is not portable. It is primarily restricted by nationality and immigration and relocation laws. Human capital cannot be easily transported like physical capital as the will of an individual also becomes a deciding factor for the move.

8. Depreciation

Both of these capitals go through depreciation, but the reasons are not the same. Physical capital is deprecated owing to its regular use. However, human capital is depreciated due to aging. 

Both physical and human capitals are the building blocks of any successful enterprise. Any company that can seamlessly integrate these two will achieve its targets more efficiently. In terms of economics, the difference between physical capital and human capital is a vital chapter. Apart from this, for other topics related to economics and commerce, students can visit the official website of .

Primarily, the fundamental difference between wholesale and retail is the volume of product sales and the nature of end-users. Being two of the most critical elements of the supply chain, wholesale and retail are parts of a single process. 

Therefore, understanding these two key terms becomes essential. As a result, students will be able to grasp the differences between these two processes central to business operations.

What is Wholesale? 

Wholesale is a distribution point whereby a sale of products occurs from one mid-level distributor to another or a retailer. Companies or retailers purchase finished commodities in bulk to fulfil their business requirements. First of all, the sale of products is voluminous, meaning that the purchase of goods occurs in high volume. 

Wholesalers generally park these high-quantity purchases in warehouses and inventories. Besides, they enjoy the leverage of buying these products at comparatively lower market prices due to a high volume of purchase. Also, wholesaler entities buy bulks of products from manufacturers and store them. For example, a wholesaler may choose to purchase a bulk of 2000 bed sheets from a manufacturer.

However, their purpose of storage is to sell these products to retailers. Therefore, retailers become customers of products that wholesalers offer for sale. 

Besides, wholesale provides them with a chance to make higher profits. Since wholesale products have relatively lower cost liabilities, wholesalers primarily benefit from this category of purchase. 

In addition, wholesalers add their margin of profit before reselling these products to retailers. 

What is Retail? 

Simply speaking, retail is the supply chain element that immediately succeeds wholesale. A retail company purchases products from wholesalers as per its requirements. For instance, a successful and established retailer places higher volume of order from a particular wholesaler. Conversely, an emerging retailer who is an entrant to the market has a limited scope for order, due to which placing a high order with a wholesaler is not possible. 

Retail is different from wholesale in terms of its end-user involved. In case of retail, the purchasers are also the final consumers. They procure products from retailers according to their consumption capacity. For example, a small-scale retailer may buy 50 bed sheets from the wholesaler to sell them directly to customers. 

Therefore, retail becomes the only link between a wholesaler and an ultimate consumer. A retailer usually operates via a shop which offers products for sale to consumers who are the last entity in a supply chain. On top of that, retailers add their margin of profit and sell these goods to consumers at a higher price than the one purchased at. 

Differences Between Wholesale and Retail 

As can be seen from their definitions, wholesale and retail are factors of the same process. Therefore, a manufacturer offers its products directly to a wholesaler who stores them as inventories in warehouses. This transaction is conducted at a lower price than a prevailing market rate. 

The next step involves wholesalers offering their stored products for sale to retailers. As a result, retailers occupy the position of buyers while purchasing these products from wholesalers. Contrarily, retailers sell these commodities directly to the ultimate consumer. 

Let’s consider an example to make the differences between these two key concepts clearer. Suppose, a manufacturing company X has produced 1000 laptops. It decides to sell these laptops in a bulk of 500 to two wholesalers, A and B. As the next step, A and B tie up with 5 retailers each. These retailers may be popular laptop brands such as Lenovo, Dell, HP, and many others. 

Thus, each retailer receives 100 laptops from wholesalers A and B which they offer for sale to customers like us. As a result, we get to purchase laptops from retailer showrooms across several brands. This concludes the supply chain management, which begins with the manufacturer and ends with a common customer. 

Therefore, wholesale and retail are the most important links between a manufacturer and an end-user, i.e., the consumer. More specifically, a wholesaler acts as a medium between a manufacturer and a retailer. On the other hand, a retail entity is a necessary bridge between a wholesaler and end consumers.

However, there are some finer points of differences between these elements knowing which will largely benefit individuals. The distinctions are as follows – 

Volume of Purchase – Typically, wholesalers purchase a large amount of products directly from manufacturers at a cheaper rate. These purchases are in bulk. For example, a wholesaler may purchase 5000 kg of rice from a farmer to supply them to retailers. 

Contrarily, retailers buy a limited quantity of goods from wholesalers depending upon their scale of business. For instance, a rice retailer may buy 500 kg from that wholesaler to sell that to several customers. Similarly, when the demand for a certain product is high, retailers procure a higher quantity of that product from wholesalers. On the other hand, the scale of purchase is limited in case a demand is low. It is not the case with wholesalers.

 

Level of Competition – Statistically, the number of wholesalers are lower than retailers. As a result, the scale of competition in the market is divided between a limited number of wholesale companies.

However, the competition between retailers is fierce due to a larger availability of retail entities. Therefore, they have to rely on innovative marketing and promotional measures to attract a maximum number of customers. Wholesalers, however, ideally have their customers defined and competition low.

Additional points of difference between wholesale and retail include their roles in the supply chain. While a wholesaler is closer in order to the manufacturer, a retailer deals directly with the customers. Therefore, the end-user changes as per retail and wholesale definition.

What are the Types of Wholesalers and Retail?

Wholesalers and retailers can be further classified into categories on the basis of their role in a market. Likewise, wholesalers include the following roles – 

• Brokers or Agents – Even though brokers or agents do not purchase from manufacturers, they act as a medium between wholesalers and retailers. Brokers strike deals between wholesalers and retailers, while skimming a percentage of the sales amount as commission.

• Merchant Wholesale Units – Merchant wholesalers usually procure a large volume of products from a manufacturer and sell these among several retailers. Being the most prevailing form of wholesale, merchant wholesalers charge higher while selling goods to retail organisations. 

• Sales and Distribution Wholesale – This category of wholesale is applicable when manufacturers approach wholesalers for distribution of their products. This suggests that manufacturers turn wholesalers into potential clients under this category. 

On the other hand, retail can be classified into the following categories – 

• Supermarkets – Supermarkets purchase different categories of products from different wholesalers and sell these to customers. A perfect example would be retailers such as Big Bazaar, and Spencer. 

• Shopping Malls – Shopping malls are also a fundamental part of the retail system. They obtain products such as groceries, home-kitchen-electronic appliances, and furniture from wholesalers. Customers can, in turn, purchase these goods directly from them. 

• Convenience Stores – Retailers operating convenience stores usually have their shops in residential areas, providing easy access of products to individuals living in a locality.

While this was all about wholesale and retail in a gist, it is a wide concept and requires in-depth study for proper understanding. For a detailed insight into the difference between wholesale and retail, access ’s official website today.

The Latin phrase ‘Caveat Emptor’ means let the buyer beware. The doctrine of Caveat Emptor under the Sale of Goods Act talks about the onus of the buyer in ascertaining the risks in a contract. However, this does not free the seller completely from any responsibility. Let’s understand in detail the Doctrine of Caveat Emptor and its exceptions. 

The Doctrine of Caveat Emptor Meaning

The Doctrine of Caveat Emptor means that the responsibility lies on the buyer of goods and he must perform due diligence before the purchase of the goods. It is expected from the buyer to be alert in a contract of sale. He cannot hold the seller responsible for inferior goods unless the contact is based on fraud. The Doctrine of Caveat Emptor is generally applicable in the case of property transactions but it can also be applied in the sale of goods and other services. 

Section 16 of the Sale of Goods Act, defines it as ‘“there is no implied warranty or condition as to the quality or the fitness for any particular purpose of goods supplied under such a contract of sale“

Let’s explain the Doctrine of Caveat Emptor with an example. The seller makes the goods available in the market and it is the responsibility of the buyer to inspect them well before buying. If the buyer later discovers a defect in the goods that could have been detected earlier by him, he cannot sue the seller for inferior quality.

Though the responsibility lies with the buyer, he can shift it to the seller under the given conditions:

Exceptions to the Doctrine of Caveat Emptor

The Doctrine of Caveat Emptor and its exceptions will help us understand the situations in which the responsibility is not put only on the buyer.

If the buyer informs the seller about his purpose behind purchasing the goods and the seller does not sell the goods according to that knowingly, it relieves the buyer from the responsibility. In this case, it becomes the duty of the seller to supply the right goods to the buyer. For example, A informs B, who is a shoe seller, that he wishes to purchase shoes for running. If B still sells him shoes that are not for running, then B can be held responsible.

If the buyer purchases a branded product or a product sold under a trading name, then he is assured of the quality that is associated with that brand name. The seller in this case cannot be held responsible. In this case, the buyer is not relying on the skill or judgment of the seller but on the implied quality standard that the brand offers. 

If the buyer purchases the goods based on their description which matches the product, then the seller cannot be held liable. The seller will be held liable only if he provides an incorrect description of the goods.

The seller must provide goods of merchantable quality to the buyer. This means that the goods must be fit for resale in the market and must pass the market standards. When the buyer purchases the goods from a seller based on a description and the seller deals in the goods of that description, then the goods must be of merchantable quality. If the goods are not of merchantable quality, then the seller can be held liable for the same.

The Doctrine of Caveat Emptor does not apply if the buyer purchases the goods after careful inspection of a sample of the goods that he intends to buy and the seller supplies goods different from that sample. For example, A inspects a sample carpet manufactured by B. He gives an order of 100 carpets of the same quality as that of the sample. If B supplies carpets that do not match the sample carpet in quality, then he will be held liable. If the sale is made based on a description as well as a sample and the goods do not match both, then the buyer is not held responsible. 

The rule of Caveat Emptor does not apply if the seller deviates from informing the buyer about the quality or the fitness of goods/products. There is an implied condition or warranty on the condition of the goods. 

If the seller provides fraudulent information about the goods or conceals some important information about them, the buyer is not responsible.

Effective Direct Mail Design

Emails are very important in today’s world and are very speedy as well as an effective alternative to traditional mails. Unlike traditional mail, emails are sent via the internet and are hence independent of various factors that may cause hindrance in the case of normal mail. This helps us to get a very quick response and send messages rapidly to the concerned person or organization, just like normal mail. There is an effective direct mail design. Learning an effective direct mail design is very important to make sure one’s emails are to the point and understandable. 

Effective direct mail design is also very easy to learn and very closely resembles that of the normal mail.

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Categories Of Email

Before learning about an effective mail or effective direct mail, let us look at the various categories of emails. Emails are of three types: semi-formal, formal, and informal. The semi-formal email is written with a simple and friendly tone while being modest. The semi-formal email is written to a colleague or a teammate. The formal email is purely professional and is written to the head or an important person of an organization, mainly for business purposes. Informal emails are meant for close friends or relatives, where the tone is casual and friendly and it does not follow any particular rules.

Pros And Cons Of Email Writing

There are various pros and cons of email writing. Let us talk about the pros of email writing. First of all, emails are a lot cheaper than traditional mail and can also be used to send a piece of information to a large number of people at a time. Email can be used at any place, any day without any restrictions, and helps to reduce wastage of paper. Now talking about the cons of email writing, the first disadvantage is that an internet connection is necessary to avail of the facility of emails. Software viruses are also a problem since many times email attachments have malware. Incessant emails make way for spam and junk, and other cybercrimes may also be committed with the use of email Ids.

The Features Of Emails

There are various useful features of emails such as they can be used for replying automatically to various messages. Email ids can be stored and used in the future as well. The person who receives the email gets notified instantly on his or her digital devices. Images, videos, and other documents can be attached to emails and sent to more than one person at a time. Emails, in short, are a rapid, convenient, and modern way of communication.

Effective Direct Mail

Now let us talk about effective direct mail. The secret to writing effective direct emails is to bring clarity to whatever one writes while being logical and expressive. There are some steps in effective direct email writing which include greetings followed by the introduction, providing the required context, and finally the call for action. All these together make an effective direct mail. 

Effective Mail Writing Skills

An effective mail should always start with a subject line that is meaningful and then followed by a message which is on point and understandable. The sender needs to provide proper identification, and the use of official business email ids are recommended for emails for professional purposes. The content should be properly organized, and separate paragraphs should be used for different parts of the messages. Proofreading is very important, and one must make sure there are no grammatical or spelling errors in the email. Finally, writing emails is not just about sending but also responding. While responding to emails, one must always be prompt and respectful.

Solved Example

1. How Important is the Appearance of Emails?

Answer: Emails should be properly organized, with indentations, and informative. One must avoid using too much of coloured fonts and designs. One must focus on simplicity and the information being conveyed in the email.

Did You Know? 

Email or electronic mail was invented by Ray Tomlinson in 1971 who used the ARPANET to allow users to send messages to each other using the ‘@” symbol. Today emails are used on computers, mobiles, and other electronic devices that have access to the internet. The model that today’s systems use to receive and send emails is also known as the store and forward model that is being used extensively nowadays for personal as well as business use. 

The process of developing, launching, and managing a business along with all the financial risks that it carries is known as entrepreneurship. In simple definition, the entrepreneur is someone who is in charge or control of the entrepreneurship venture. He or she is responsible for administering and building the business from the ground up and has to deal with challenges and hardships that are associated with the process. The entrepreneurs are often considered as the agents of change because of the impact that they have on the economy via their ventures.

There are various types of entrepreneurship and it can be broadly classified into four main types: Startups, Social entrepreneurship, Small businesses, and Large company entrepreneurship. Each of these types of entrepreneurship are distinct from the other and mainly varies based on the mode and scale of operation.

Characteristics of Entrepreneurship

Some of the vital characteristics of entrepreneurship are as follows.

1. Innovation: Innovation is precious and a gift in the world of entrepreneurship. This is why individuals who first come up with any idea tend to trump over others that offer the same services. Innovation can either be a new product or a new service. Innovation essentially presents a different and unique perspective on the existing products, or it launches a new product. 

2. Risk-taking capacity: Starting a new business involves an element of risk of failing. The entrepreneur should be completely aware of these risks that are associated and should be ready for evaluation plus tackling it when these risks emerge. This is why an entrepreneur needs courage and capability of taking risks as these are the foundation blocks of any successful business venture.

3. Vision: Every new venture or business needs a clear pathway or plan for the future to become a successful operation. The entrepreneur that has a clear vision for the company tends to have an edge over the competitors. 

4. Leadership quality: The entrepreneur who has an ideal plan for developing the business possesses the essential leadership qualities. A new business involses several factors and they need to work together in sync. This is where the leadership quality of the entrepreneur comes into play.

5. Confidence: The entrepreneurs should be confident of their ideas and have full faith in it. Without this confidence and belief, it would be very difficult to convince or motivate others including prospective partners and investors.

Importance of Entrepreneurship

Entrepreneurship is significant for the development of society in a broader sense. 

• Employment: Every new venture of entrepreneurship generates considerable employment for a significant amount of people. The startups also provide an excellent opportunity for people to sharpen their skills and gain experience.

• New products and ideas: Entrepreneurship is the hub for new innovative ideas. The small scale businesses or  startups always encourage employees to think of innovative ideas. These ideas are not only beneficial for the consumers but also help in the development of the business. 

• Economic development: Entrepreneurship plays a key role for pushing economic development by offering jobs and increasing the per-capita income of the economy. This improves the standard of living and there is an increase in demand for the consumption of goods which boosts the production and economy of the country.