Quiz for FRA
Cash flow statement is concerened with the flow of cash in and out of the organisation. The statement captures both operating results and accompanying changes in the balance sheet. The analysis of the statement is done majorly to determine the short term viability of the organisation to pay the bills. International Accounting Standard 7 (IAS 7) is the standard that deals with cash flow statements. Few of the stakeholders that are interested in the cash flow statement are: 1) Accounting Personnel 2) Potential lenders and creditors 3) Potential Investors 4) Shareholders The cash flow statement has been devided into three components, i.e., cash flow from operations, cash flow from investments and cash flow from financing activities. Operating activies include those activities that are issential to run the organisation, i.e., purchasing raw material, building inventory, advertising etc. Investing activies on the other hand include purchase and sale of asstes, loans given etc. While financing activities include inflows and outflows related to the investors such as banks and shareholders. Outflows majorly include the interest and dividend given. There are two methods of preparing the cash flow statement, i.e., Direct Method and Indirect Method. Under Direct Method, statement reports gross cash receipts and payments. There are certain reportings that are done as per the nature of the transaction which cannot be always defined. On the other hand, Indirect Method uses Net-Income as the starting point and then the adjustments are made from the same. An increase in an asset account is subtracted from net income, and an increase in a liability account is added back to net income. This method converts accrual-basis net income (or loss) into cash flow by using a series of additions and deductions. Apart from this, while prepairing the cash flow statement there are certain rules which one needs to follow and should be clearly understood. Thank You
RATIO ANALYSIS A ratio is a relationship between two numerical values representing something. In case of accounting, a ratio is a relationship between two factors of accountancy. For eg.: Current Ratio= Current Assets/Current Laibilities. Ratio Analysis is a quantitative analysis of information cantained in the financial statements of an organisation. The analysis of ratios is basically done to to evaluate various aspects of the organisations operating and financial performances such as its liquidity, profitability, returns to investment etc. Also the trend of these ratios is analyised to determine if they are growing or falling over period. The ratios are even compared across companies in the same sector and even cross sector to compare these sectors. Hence, ratio analysis is the cornerstone to fundamental analysis. While there are several financial ratios, most investors are familiar with the key ratios namely current ratios, debt to equity ratio, sales turnover ratio, dividend payout ratio, returns to investment ratio etc. For a specific ratio, most companies have values that fall within a certain range. A company whose ratio falls outside the range may be regarded as grossly undervalued or overvalued, depending on the ratio. For example, if the average P/E ratio of all companies in the S&P 500 index is 20, with the majority of companies having a P/E between 15 and 25, a stock with a single-digit P/E would be considered undervalued, while one with a P/E of 50 would be considered overvalued. Of course, this ratio would typically only be considered as a starting point, with further analysis required to identify if these stocks are really as undervalued or overvalued as the P/E ratios suggest. As well, ratios are usually only comparable across companies in the same sector, since an acceptable ratio in one industry may be regarded as too high in another. For example, companies in sectors such as utilities typically have a high debt-equity ratio, but a similar ratio for a technology company may be regarded as unsustainably high. Ratio analysis can provide an early warning of a potential improvement or deterioration in a company’s financial situation or performance. Analysts engage in extensive number-crunching of the financial data in a company’s quarterly financial reports for any such hints. Successful companies generally have solid ratios in all areas, and any hints of weakness in one area may spark a significant sell-off in the stock. Certain ratios are closely scrutinized because of their relevance to a certain sector, as for instance inventory turnover for the retail sector and days sales outstanding (DSOs) for technology companies.
As per the GST law provisions, a person who is registered under GST is required to issue an invoice/voucher at various points of transactions in the course of business. The nature of these invoices and their requirement is explained below :- Tax Invoice – Every registered person who is liable to charge GST on its outward supplies would be required to issue a tax invoice to its recipients and mention his GSTIN along with details of goods and services supplied by him; Bill of Supply – A registered person who is not required to charge GST on its outward supplies , i.e., he has opted to pay GST under composition scheme or is making supplies of exempted goods or services or is making supplies to an SEZ unit or exporting under Bond, would be required to issue a bill of supply, in place of a tax invoice; Receipt Voucher- On receipt of any advance by a registered person, he will be required to issue a receipt voucher to the recipient on the date of receipt of advance; Refund Voucher- Where an advance has been received against which supplies have not been made by the supplier, refund voucher will be issued by the supplier to the recipient along with the details of supplies and amount refunded; Payment Voucher- If any supply has been received from an unregistered person, then the receiver would be liable to issue a payment voucher to the supplier on the date of payment to supplier, with details of goods/services received by him; Credit Note- Where in respect of a supply, the amount charged in the previous issued tax invoice is found to exceed the value of supply of goods or services, or the goods are returned by the recipient or the goods are found to be deficient from the amount charged, then the supplier shall issue a Credit Note to the recipient with details of excess amount charged; Debit Note- Where in respect of a supply, the amount charged in the previous issued tax invoice is found to be less than the value of supply of goods or services, then the supplier shall issue a Debit Note to the recipient with details of additional amount to be charged. The formats of these invoices/vouchers have been prepared considering all the relevant provisions under GST and it is advisable to display all the details as mentioned in the link above. However, the taxpayers can customize the formats as per their business requirements and convenience, keeping all the required details intact.
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