Category: Commerce Notes PPT

Controlling is a crucial activity of managers. Controlling plays a vital role in management which involves several procedures, principles, methods, etc. All the managers are required to understand the importance of controlling and the methods involved in it. Let us know about the principles of control in management and explaining each principle in detail makes the readers have prior knowledge on this.

Definition and List of the Principles of Control

The Principles of control can be defined as different methodologies, techniques used by the managers to control and monitor various business activities which help for the growth of the organization. These principles also help to protect and safeguard the organization, its assets, liabilities, resources, etc. Given below are the list of principles of controlling:

• Principle of Reflection of Plans – Planning and controlling go hand in hand. If any entity has a proper plan then it is much easier to make a control system for that entity. Overall, a proper plan means the control will be more effective. It is the basic principle of control. The principle of reflection of plants plays a predominant role in the organization for its growth in terms of quality and quantity. Planning and controlling are like side by side of a coin. This principle helps to reflect all the plants that were designed in the first stage of the organization.

• Principle of Prevention – There is a concept named as prevention is better than cure. This will apply to the control function as well. Hence, control does not always focus on the improvement but also on solving the problems as well. It is another important principle of control that helps to prevent the negative aspects of the firm at the initial stage. From the ancient days as we believed prevention is better than cure, this principle helps to realize defects in the beginning and also tries to find remedies for them. Feedforward control is a famous technique used in the principle of prevention.

• Principle of Future Directed Control – Control is a function which looks forward. With the help of relevant information controls can be directed towards the future and can help in making things much better.

• Principle of Efficiency of Control – It is very necessary and important that there needs to be efficiency in the approaches and techniques of the system of control. 

• Principle of Action – Control function will only be justified only when there will be remedial action to take. Pointing out the drawbacks will not be enough. There is a need to take action as well to make the management effective and efficient. Every task cannot be made with a plant design on paper. It should take a physical form and put it into action. Then only we can move forward either in Life or in work. This principle of action is also an extension of finding out defects and deviations. It helps to take necessary remedial actions for the findings.

• Principles of Standards – There are predetermined standards which are already being set up by the company and that needs to be achieved by the workers. 

• Principles of Assurance of Objectives – Just by detecting the deviations in the work, the company’s objectives can be achieved on a quick and more efficient and effective basis. 

• Principle of Organizational Suitability – For having an efficient and effective control, the business organisation structure must be well integrated and clear. It is the most important principle of control in management. Every organization needs to choose a set of principles that are suitable for that particular organization because every organization may vary from its type, size, methodologies, etc.

• Principle of Responsibility:- Apart from the principles of control, responsibility is the basic duty that should be owned by every employee from a lower level to a higher level of the organization for its smooth and safe growth. It was also helpful in gaining name and fame for the organization.

• Principle of Critical Points:- Each organization plays several critical points because of various factors. At that time, the principles of control in management help the managers to pay more attention to these critical points, whether they are expected or unexpected.

• Principle of the Pyramid:- It is also one of the principles of control that explains the delegation of authority as well as the direction of a message which can pass from the lower level to a higher level. Even though it seems to be General, it plays a very significant role as certain issues may arise for the middle-level employees because of superiors and subordinates.

• Principle of Future-directed Control:- This principle of control is completely contrasted to the above principle, which is the feedback principle. It is simply known as the feed-forward principle. Along with the low-level employees, planning and controlling the action, the high-level employees will forecast and monitor the activities going on in The firm, and it takes care of all the activities that need to move smoothly without any deviations or disturbances.

• Principle of the Standard:- Every organization has a set of standards that need to be obeyed and followed by all levels of the organization. These should be productive and qualitative, for example, punctuality, delegating work, reporting to the required people, etc., all these Commander standards should be transparent and specific to their organization.

• Principle of Objective:- It is the most common principle of control. Because every organization’s motive is to achieve its objective either monetary benefit or fame or any other, this principle always monitors the works for the final objective. It also controls all the deviations and looks after the remedies facilitated to that particular deviation.

Meaning of Controlling

Controlling is one of the important elements in the field of management process and is one of the managerial functions. Controlling is the last managerial function after planning, organizing, staffing and directing. Basically, controlling makes sure that the activities which are already planned are accomplished or not. It helps in achieving the desired goals by planning. Controlling is all about comparing the actual results with the standards which are pre determined and take necessary corrective measures. In other words, it is the process of analysing the work by comparing it with the goals and taking steps to make it better. 

Nature of Controlling

• Controlling is a function of management or we can say that actually is actually a follow up action for the other functions of management. 

• Under control, actual performance is determined against the predetermined standards and makes necessary changes or actions. Its work is based on the actual plan which was made at the start. Hence, control is based on planning. 

• Controlling is all about reviewing the standards of performance on a continuous basis and taking corrective measures based on that. Hence, it is a dynamic process. 

• Controlling works on comparing the actual work and the standards made for it. Corrective actions are also made for improving its future performance. Hence, it is to be said that controlling aims at the future. 

• Controlling is a continuous process and not only one step process as it involves constant analysis of actual and planned performance. 

There are certain assets that are a part of the company. These assets are constantly in use. However, there are some cases when the assets used particularly in some businesses are promptly sold during their life. It is not completely essential for the company to have an asset until it is utilized to its full potential and is scrapped. This is a particular case when the company can find out the Profit or Loss on Disposal of Asset. When the disposal of the asset occurs, there are some accounting entries that are to be passed on. It is entirely possible that there might be a profit on disposal of the asset or there might be a loss. With the help of the notes we have here, students can understand the entire concept in an easy manner.

An Overview of the Profit and Loss of an Asset

Whether it is a sole proprietorship or a proper and large multinational corporation, there are businesses that always have to take the entire concept of depreciation into consideration when it comes to carrying out certain commercial ventures on a regular basis. These principles often have to be acquitted to auditing, accounting as well as taxation. So, in order to understand the profit on sale of fixed assets or loss, students need to understand the concept of depreciation.

What is the Meaning of Depreciation?

In order for the students to understand properly about the loss or profit on sale of fixed asset journal entry, it is imperative that they get a clear understanding of the term depreciation. This is exactly what we are doing.

When it comes to some of the tangible assets, there are certain monetary values attached to every single one which might reduce with the passage of time. This might be due to functions such as wear and tear. The rate at which there is a drop in the value is called depreciation. Hence, it helps in the comparison of the current value of an asset with the original cost of the asset. This is a term that will clearly help the students in grabbing a correct idea on the accounting treatment of profit on sale of fixed assets or loss on fixed assets.

The entire concept of depreciation will be applicable to all the fixed assets and the tangible ones in a general sense. These are the assets that have a reduction in value with time. Some of the main examples might include machinery, buildings, office equipment, vehicles, furniture, and much more. However, land cannot come under this particular list because the value of the land only goes through an increase. There might be a reduction in land value but that only happens during adverse economic turns.

Different Causes of Depreciation

One of the most important causes of depreciation which might decide the value of profit and loss on disposal would have to be wear and tear. However, that is definitely not the only cause. Here we are going to provide a list of some of the main reasons why depreciation of an asset might occur.

Main Purposes of Calculating Depreciation

There are some important reasons why depreciation of any tangible or fixed asset might be taken into account. In the notes for Profit and Loss on Disposal of asset, we are going to walk you through some of the important purposes. With the assistance of these notes, students will be able to gain in-depth knowledge on the depreciation of assets.

• To measure the income or the loss that is often generated from tangible or fixed assets.

• To determine the actual or real value that an asset might have.

• To ascertain the correct expenditure that is incurred during the entire process of production.

• The avail certain tax deductions and benefits.

These are some of the important reasons why the depreciation can be really important in terms of finding out different facts about the asset.

Quasi Contract laws have been derived from the Latin statement “Nemo debet locupletari ex aliena jactura” which proclaims that no human being should gain an unjust benefit from another’s loss. It was one of the main principles of Roman law.

The word ‘Quasi’ means having some resemblance to but not all. Similarly, Quasi Contract means laws that are like regular contract law but not quite so. A regular contract should have some essential components to be considered valid. It includes offers, acceptance, consideration, two or more parties who are legally and mentally capable etc.

Whereas Quasi-contract definition is based more on the principles of natural law such as moral conscience, justice, honesty, duty towards another human being etc.

The main difference between Contract and Quasi Contract is that in the case of the latter, there is no exchange of offer, acceptance, or consideration between two or more parties. However, it is still legally enforceable.

For example, if a package belonging to A is delivered to M, then M is legally obligated to return it to A. If M uses up the contents of the packaging for himself, then A has the right to sue him. In that case, the court can order M to reimburse A under Quasi-contract law.

Types of Quasi Contracts

According to the Indian Contract Act of 1872, there are five types of Quasi-contract laws. These have been discussed below:

Supply of Necessities

An individual who is legally incapable of entering into any agreement, or if the person is unable to support themselves, then another individual who is legally responsible for supporting the former, then the latter will be reimbursed from the estate of the dependent. Instances of Quasi-contract cases include, If C supports the family of his friend D, who is mentally incompetent, then C should be provided with reimbursement from D’s property.

Payment by an Interested Party

Under Quasi-contract in business law, if any individual wishes to make payment of money which the other party is legally bound to pay and who eventually bears the cost, shall receive retribution from the latter. For Instance, if person A pays off B’s outstanding debt, then the latter must reimburse A under Quasi-contract law.

Obligation to Pay for a Non-Gratuitous Act

In circumstances, when a person performs an act for another which he or she is legally bound to do and which is not performed out of gratitude, then the person for whom it is being done must compensate the former.For Instance, if a shopkeeper delivers some goods to B’s house, then B is bound to pay the shopkeeper for services performed. However, if the shopkeeper returns goods that B had forgotten, then B is not liable to compensate him or her as it was an act of gratuity.

Finder of Goods

A person who comes across any item belonging to another individual, and takes it under his custody, then he or she must take proper care of the thing as much as he or she would take care of an item of the same value, bulk, and quality until the appropriate owner is found. If the owner is not found, then the finder can retain the item as their own according to Quasi-Contract.

A mistake of Coercion

Section 71 of contract law states that an individual who receives any item by mistake or through coercion is legally bound to return the items or repay the person who initially made the payments. For example – if a parcel is delivered belonging to B, is delivered to A, then A must return it to B promptly.

Unjust Enrichment

One of the main features of Quasi-contract is unjust enrichment. In the case of unjust enrichment, one party derives benefits either by mistake or through the other party’s misfortune or loss. Additionally, when an individual enjoys advantages for which he or she has made proper payments or has not worked for it, and which was not intended as a gift, then it is also termed as unjust enrichment. However, courts consider several other aspects while deciding whether an unfair enrichment has taken place or not under Quasi-contract in the Indian contract Act. These elements are mentioned below:

Capital and reserves tend to have an integral role in maintaining and safeguarding the financial health of a business organisation. The fact that they ensure continuity of everyday business operations and aid to meet both unexpected and long-term liability, make them indispensable. 

On that note, let’s take this opportunity to find out more about reserves in accounting and become familiar with its vital aspects.

What is a Reserve in Accounting?

In the literal sense, a reserve can be defined as earnings that have been kept aside for a specific purpose. One can explain reserve meaning in accounting by describing it as the portion of available earnings that business owners keep aside to meet any sort of financial contingencies.

 For instance, firm owners may use their reserves to invest, purchase fixed assets, install new equipment, pay dividends to shareholders, settle legal obligations, etc. Here, the portion of reserve that is invested outside the firm is termed as a reserve fund.

Reserves are mostly created to improve the financial standing of an organisation. They are also popularly known as the ploughing back of profits. Notably, they are created to meet an unforeseen financial obligation or expansion purpose.

Funds for expansion, general reserve, dividend equalisation reserve, etc. are some of the most common examples of reserves.

 

Types of Reserves 

Reserve in accounting is mainly of 3 types. Read along to find out more about them.

1. Revenue Reserve

Popularly known as retained earnings, this particular reserve is created with the help of the earnings generated through the primary operations of a business firm.  Revenue reserve is mostly used for two purposes; for expansion of the scale of production for the business units and to pay dividends to company shareholders. 

2. Capital Reserve

The said reserve is created straight from capital earnings. Unlike revenue reserves, these earnings aren’t distributed to a firm’s shareholders (as dividends) and do not tend to occur frequently. Notably, a capital reserve is created as per the Companies Act. However, firms can use this reserve to write off their capital losses.

Generally, capital reserves are created with the help of profits generated through –

• Forfeiture of shares

• Sale of fixed assets

• Revaluation of existing assets

• Earnings at hand before incorporating the firm.

• Redemption of preference shares or debenture.

3. Specific Reserve

Special reserves are funds that are created by business owners to meet specific financial obligations. The dividend equalisation reserve, reserve for asset replacement, reserve for debenture redemption and reserve for capital redemption are among the most common examples of specific reserves. 

Now that we have become familiar with the type of reserves in accounting let’s find out how they are created and treated in the books of account. 

 

How are Reserves Created?

A reserve in accounting is an appropriation of earnings and usually is not charged on them. It must be noted that when a reserve is created, it does not reduce the aggregate of net profit. However, a significant share of divisible profit gets reduced. 

Since reserves are created from earnings generated through a firm’s core operations, it is recorded in its Profit and Loss Account. On the other hand, in the balance sheet, reserves appear on the liability side under the header of ‘Reserves and Surplus.’

Subsequently, the reserve account is created by debiting the firm’s retained earnings and then crediting the concerned reserve account. 

The journal entry below offers a clear idea of how reserves are treated in the books of accounts

 Profit and Loss A/C       Dr. To Reserve A/C 

On that note, let’s check out the perks reserves in accounting.

 

Benefits of Reserves in Accounting

1. Reserves of a company help to improve its financial position.

2. They serve as sources of internal financing and facilitate the expansion of a firm’s scale of operation.

3. They help to pay timely dividends to shareholders. This directly helps to increase a company’s goodwill and fosters a good relationship between the company and its shareholders.

4. Reserves prove effective in meeting financial obligations and losses. 

5. With the help of reserves, business owners can replenish their working capital and maintain the firm’s everyday operations smoothly.

6. By investing the number of reserves in new equipment and additional assets, business owners can improve their operational productivity.

Test Your Knowledge: Find out if there are any limitations of reserves accounting and list them in your own words.

 

Difference Between the Capital Reserve and Revenue Reserve

Check out this table to find out the basic differences –

 

You can learn more about reserves in accounting by joining our live online classes; avail the classes to get your doubts cleared accordingly. Also, by practising our compact solutions, you would be able to pick up some effective tips and techniques for solving accounting problems effectively. So, make the most of the quality learning experience by joining our online portal. 

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Reserve Accounting

Reserve accounting has a term reserve that means a source where we can save and can use when needed or it refers to those earnings that are kept aside for a specific purpose. So, reserve accounting means that some portion of the earnings are kept aside and can satisfy the financial losses or financial needs. 

For example, if the owner of the firm wants to purchase more assets like machinery for more production the reserves can be used, if the owner was to invest in any other prospect of the business reserves will be helpful, reserves will be helpful to pay the dividends to the shareholders, or to settle any legal obligations like situations. And if the owner invests the reserves out of the business that is called reserve funds. 

According to a common perspective, the reserves are created to become secure or to improve the financial standing of any organization. The term ploughing back of profits is also used for these reserves. Hence, the reserves are created to face any financial loss, obligation, or expansion of business. 

Reserves and Their Types

There are mainly three types of reserves. Those reserves are mentioned below –

1. Revenue reserves 

Revenues are commonly popular with the term retained earnings. The revenue reserves are created by the earnings generated through the primary business of an organization. The most common use for the revenue reserve is to expand the organization to increase the scale of production of business units or to pay dividends to the shareholders of the organization. 

2. Capital reserve

As the name suggests the capital reserve originates straight from the capital itself. Unlike the revenue reserve, the capital reserve is not distributed among the shareholders of the organization and occurs only once throughout the life of an organization. The capital reserve is used to write off the capital losses and it is created as per the companies act. The capital reserve is created through forfeiture of shares, revaluation of existing assets, the redemption of preference shares or so-called debenture, sale of fixed assets, and from the earnings at hand before incorporating the firm. 

3. Specific reserve

As the name suggests the specific reserves are used for the specific operations. The special reserves are created by the owners to clear their specific financial obligations. The specific reserve is moreover used for asset replacement, debenture redemption, and capital redemption. The specific reserves originated from the earnings gained by the main purpose of the organization. 

Risk management is a process through which an organisation identifies, assesses and controls threats, if any, to its earnings and capitals. The source of threats could be due to a variety of causes like uncertainties in finances, legal liabilities, errors in strategy by the management, accident or a natural disaster. For digitised organisations, protection of data and threats to their IT security are of major concern.

Thus they have adopted risk management plans so that they can combat the threats against their important information and identify them to take strict actions. The importance of international business is huge for global organisations and they cannot take the risk of unexpected events causing major mayhem to their earnings. Risk management helps in this regard and helps them prepare for unexpected events with fewer software risks and extra costs.

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Strategies of Risk Management and its Processes

One of the principal features of international business is the risk management process, which comprises several risk management plans combined.

It is important to understand the circumstances under which the remainder of the process shall take place. Before the evaluation of risk, the criteria to be used must be established, and how the analysis structure will be carried out must be defined.

The company needs to identify potential risks which may act as a stumbling block and cast a negative impact on the company projects and earnings.

After identifying the possible risks, the company then needs to understand the odds of their occurrences and how much damage they may cost. The main aim of risk analysis is to get an idea about every instance of risk and the influence it may have on the projects and ambitions of the company.

After determining the likelihood of occurrence of the risk along with its consequences, the company should focus on whether they are equipped enough to accept that risk to move forward.

The companies rank the risks according to their severity and look to come up with a strategy to tackle them if the day comes. For this purpose, companies use many risk controls to develop a plan which includes various risk mitigation processes, tactics to prevent risks as well as contingency plans.

The risks, as well as the plans to tackle those risks, must be followed up at regular intervals so that specific actions can be taken in case there are any changes needed to be made. Companies should also always keep an eye on new risks.

The risk management process should be carried out in the presence of the internal as well as external shareholders and they should be consulted before every step.

Approaches to Risk Management

Companies can adopt different strategies for different risks following their identification and implementation of the risk management process. It has a major impact on maintaining the importance of the international business environment.

Eliminating risk is a near-impossible task. As a result, companies tend to take the strategy of minimising risks to the maximum attainable level so that they cannot damage the company reputation and projects.

Often companies come up with a plan to reduce the risks on the processes of the company considerably. This can be attained by making certain adjustments to some aspects of the plan or reducing the scope of occurrence.

In some occasions, the consequences of risk may be shared with the participants of the project, other departments of the business, with a business partner or someone outside the business. As a result of risk sharing, the company does not have to go through a tough time alone.

Sometimes companies take the bold decision of accepting the risks for the better good. They do so if they believe the profits or stakes of the project are higher and could be beneficial for the company and they have the funds to deal with the damages.

Conclusion

The importance of international management depends largely upon the risk management process, which helps in maintaining the significance of the international business environment. It helps to face the unexpected without causing much negative impact on the company. Thus it helps in maintaining the relevance of international business across the world.

Sales Promotion and Publicity is one of the main criteria in a business. A business makes the consumers aware of their goods and services offered by them. They also make the consumers acknowledge the beneficial needs that they can satisfy by using their goods or services.

Without Sales Promotion and Publicity a business will not find potential customers nor they can expand their customer segment. Publicity and Promotion is a hot topic and resourceful study in today’s economic market, hence we detail knowledge on this sector as well. 

Sales Promotion Definition

Sales promotion done by a business means simply persuading the potential customer to avail their products or services. Sales promotion, though a short-term tactic to attract the consumers and boost their sales yet it is a mandatory one. For long-term tactics, a business might use Customer Relation Management as a strategy. 

Sales Promotions are targeted both at the consumers and also at the distributaries or intermediaries like the wholesaler, retailer or agents who help their product to reach the customers. While taking the decision about the Sales promotion campaign, a business need to make sure:

1. What is the cost of the sales promotion that is going to be incurred by the business? This is to be answered as they need to know whether the investment is worth the return from the sales promotion.

2. Second is, the business should take note of this that the business does not merely perform the sales promotion strategy, they also need to check whether the sales promotion strategy is in sync with the brand image or not. They should need to analyze its heavy discounts and premium price rise.   

3. Lastly, they should overview whether the sales promotion will be able to attract the consumers after their campaign is done. 

Publicity

Publicity is the public visibility or the public awareness for any product or service that is offered by the business. It is the flow down of the product related information from the business to the local customers. Publicity includes general public, goods and services, and other important sectors. 

There is a difference between a publicist and a PR. Publicist is someone who does publicity for the business while PR or Public Relations is a strategy that helps an organization to maintain communication with the public. This can be done either internally or with the help of the media. Publicity ranks as an important component in a marketing perspective. The other elements include the promotional mix. Organizations will also design the media coverage to attract the public positively, which is known as publicity stunts.  

Consumer Sales Promotion

The marketing technique that tempts the customers to purchase a product of their business is known as Sales Promotion. These kinds of promotions last for a destined time period which is used to achieve a specific goal or purpose. Unveiling a new product or even increasing their market share the ‘Consumer Sales Promotion’ strategy is used. Various kinds of promotional techniques are used by product manufacturers and sellers. 

One of those is – Providing free samples. This technique is generally used when the business introduces a product in the market. Free samples of the product are given to the consumers to make them taste or test their features. Sampling is also used as a part of a large marketing campaign. 

Offering a Free Trial, in this promotional campaign, consumers are offered a free trial. Based on this trial the consumers decide to continue to avail their products or services or not. This campaign is mostly common in television infomercials where the customer is allowed a 30-day free trial during this time he needs to decide about further buying the product or not.

Free gift, these entice the customers to buy the product in interest of the free gifts gifted to them which are in the package. This also serves as a visual attraction which might draw willingness to buy the product.

Sales Promotion Examples

Sales Promotion is a technique to attract the customers about the sale of their product. 

Few Common Examples of Sales Promotion Are As Follows

1. Flash sales

2. The buy one, get one free offer.

3. Coupons or Discounts

4. Giveaways or Free Samples.

5. Recurring sales.

6. Tripwires

7. Limited time offers.

All these promotional techniques will help the business to grow and get all the customers in their zone. A business is always keen in expanding their territory, and this will happen when they capture a larger market share which means when they are able to persuade a lot of customers to buy their products, they can achieve this goal.

The Promotional Techniques and Sales promotional Ideas thus helps a business to get their customers. Also, vice versa the customers get to know about the goods offered through this sales promotion done.