Journal Entries

After a transaction occurs and a source document is generated, the transaction is analyzed and entries are made in the general journal. A journal is a chronological listing of the firm's transactions, including the amounts, accounts that are affected, and in which direction the accounts are affected. A journal entry takes the following format:

Format of a General Journal Entry

Date	Accounts	Debit	Credit
mm/dd	account to be debited	xxxx.xx
	account to be credited		xxxx.xx

In addition to this information, a journal entry may include a short notation that describes the transaction. There also may be a column for a reference number so that the transaction can be tracked through the accounting system.

The Source Document

Source documents are the physical basis upon which business transactions are recorded. Source documents are typically retained for use as evidence when auditors later review a company's financial statements, and need to verify that transactions have, in fact, occurred. 

They usually contain the following information:

• A description of a business transaction
• The date of the transaction
• A specific amount of money
• An authorizing signature

Many source documents are also stamped to indicate an approval, or on which to write down the current date or the accounts to be used to record the underlying transaction. 

A source document does not have to be a paper document. It can also be electronic, such as an electronic record of the hours worked by an employee, as entered into a company's timekeeping system through a smart phone.

The Accounting Cycle

Accounting cycle is a step-by-step process of recording, classification and summarization of economic transactions of a business. It generates useful financial information in the form of financial statements including income statement, balance sheet, cash flow statement and statement of changes in equity.

The time period principle requires that a business should prepare its financial statements on periodic basis. Therefore accounting cycle is followed once during each accounting period. Accounting Cycle starts from the recording of individual transactions and ends on the preparation of financial statements and closing entries.

Major Steps in Accounting Cycle

Bookkeeping

Single Entry Bookkeeping

Most of financial accounting is based on double-entry bookkeeping. To understand and appreciate the advantages of double entry, it is worthwhile to examine the simpler single-entry bookkeeping system. In its most basic form, a single-entry system is similar to a checkbook register and is characterized by the fact that there is only a single line entered in the journal for each transaction. In a simple checkbook, each transaction is recorded in one column of an account as either a positive or a negative amount in order to represent the receipt or disbursement of cash. This system is demonstrated in the following example for a repair shop business:

Single Column System

Date	Description	Amount
Jan 1	Beginning Balance	1,000.00
Jan 2	Purchased shop supplies	(150.00)
Jan 4	Performed repair service	275.00
Jan 7	Performed repair service	125.00
Jan 15	Paid phone bill	(50.00)
Jan 30	Ending balance	1,200.00

Basic Financial Statement

Businesses report information in the form of financial statements issued on a periodic basis. GAAP requires the following four financial statements:

• Balance Sheet - statement of financial position at a given point in time.
• Income Statement - revenues minus expenses for a given time period ending at a specified date.
• Statement of Owner's Equity - also known as Statement of Retained Earnings or Equity Statement.
• Statement of Cash Flows - summarizes sources and uses of cash; indicates whether enough cash is available to carry on routine operations.

Balance Sheet
The balance sheet is based on the following fundamental accounting model:
Assets  =  Liabilities  +  Equity Assets can be classed as either current assets or fixed assets. Current assets are assets that quickly and easily can be converted into cash, sometimes at a discount to the purchase price. Current assets include cash, accounts receivable, marketable securities, notes receivable, inventory, and prepaid assets such as prepaid insurance. Fixed assets include land, buildings, and equipment. Such assets are recorded at historical cost, which often is much lower than the market value.

Account Information for Decision Making

Small business owners are faced with countless decisions every business day. Managerial accounting information provides data-driven input to these decisions, which can improve decision-making over the long term. Small business managers can leverage this powerful tool to help make their business more successful by understanding how management accounting benefits common business decision contexts.

Management accounting is fundamental in strategic planning. When a business is looking to make a strategic decision, for example, whether to develop a new product line, acquire another business or expand into other countries, the CIMA trained management accountant can provide advice. They can use a number of tools to assist decision-making. These include ratio analysis, budgets and forecasts (such as cash flow and variances).

The main ratios used in management accounting are: 

• efficiency or activity ratios, including liquidity - these show whether the business is able to pay its debts. They look at whether the assets of the company (its buildings, land equipment) could repay any debts.
• gearing- shows the long-term financial position of the business. It can show balance of funding in a business i.e. how much money is from loans (on which it needs to pay interest) and how much is from shareholder funds (on which it needs to pay a dividend to shareholders). More money from loans carries more cost and therefore more risk.
• profitability or performance ratios - show how well a business is doing. They relate to the business objectives, which might be to make profit or obtain a return on investment, or collects its debts quickly.

Record Keeping and Basic Concepts

Different Types of Business Entities

• Commercial Organizations (Profit Oriented)
  
  • Sole proprietor
  • Partnership
  • Limited companies
• Non-Commercial Organizations (Non-Profit Oriented)
• NGO’s (Non-government Organizations)
• Trusts o Societies

The Basic Concept of Record Keeping
We can maintain a diary of transactions and note the daily transactions like sale, purchase etc. in it. Problems Faced in Maintaining Diary of Transactions

• How will we come to know the income and expenses from various sources?
• We only have a sheet / page on which daily transactions are listed.
• We do not know which product is selling better and which is not.

Diary of Transactions

Transactions of Jan 20--
P a r t i c u l a r s	Rs.
Sold 5 nos. of Item A	1,000
Purchased 10 nos. of Item B	(15,000)
Sold 1 no. of Item C	2,000
Electricity bill paid	(1,500)
Sold 1 no. of Item A	500
Sold 2 nos. of Item B	4,000
Sold 5 nos. of Item A	1,000
Purchased 10 nos. of Item B	(15,000)
Sold 1 no. of Item C	2,000
Telephone bill paid	(1,000)
Salary paid	(1,500)

Available Alternate
One can go through all the transactions at the end of the month and note different types of transactions on different pages. So that every page gives complete detail for a different type of transaction like sales of different products and expenses of different types

Basic Concepts of Accounting

	What is Financial Accounting?
	It is the maintenance of daily record of All financial transactions in such a manner that it would help in the preparation of suitable information regarding the financial affairs of a business or an individual.
	Why is Financial Accounting needed?
	The need for recording financial transactions arises because the individual or business wants to know the performance of the business and to assist the person in making decisions related to the business.
	What are Transactions?
	In accounting or business terms, any dealing between two persons involving money or a valuable thing is called transaction. Human beings are social animals and are bound to adopt a community living style. Living in a community, essentially means that people interact with other people and are dependant on each other to fulfil their needs. Every person cannot fulfil all his needs like food, clothing, housing etc. on his own. He, therefore, depends on other people for his needs, in return to this providing others with some of theirs. It means that one will fulfil his needs from others and will provide others the things of their need in return. Every instance where one ‘gives something’ to ‘get something’ is called a transaction.

Pricing Decisions

The pricing decision is a critical one for most marketers, yet the amount of attention given to this key area is often much less than is given to other marketing decisions. One reason for the lack of attention is that many believe price setting is a mechanical process requiring the marketer to utilize financial tools, such as spreadsheets, to build their case for setting price levels. While financial tools are widely used to assist in setting price, marketers must consider many other factors when arriving at the price for which their product will sell.

Customer: In a situation where the product has many substitutes, customers decide the price. That is, the demand of customers are the paramount importance in setting the price of the product. In such a situation, the firm should try to deliver the value, in the form of product and/or service, at the target cost so that a reasonable profit can be earned. Similarly, under competitive condition, price is determined by market forces and an individual firm or an individual customer can not influence the price.

Competitors: When there are only few players in the market, competitors usually, react to the price changes and, therefore, pricing decisions are influenced by the possible reaction of competitors. As such management must keep watchful eye on the firm's competitors. That is, knowledge of competitors' strategy is essential for pricing decision in an oligopoly situation.

Product Planning and Development

Most people are unaware of the work and planning that goes into creating a new product. They only see the finished products in stores or showrooms as they make their purchase selections. In reality, most companies take six crucial steps during the new product planning process. They must ensure that their products meet the needs of consumers. There are also product quality and service issues to consider.

Developing a new product shouldn’t feel like you’re fighting in the dark. There’s an easier way. What you need is a structured road-map that gives your business a clear path to follow.

Actually developing the tangible product or service is only a small part of the new product development process, which includes the complete journey from generating the initial idea to bringing the product to market.

By setting out the steps involved, and sticking to them, your product development will become a more focused and flexible approach that can be adapted for all different types of products and services.

#1.   Idea Generation

Marketing Information System

A marketing information system (MIS) is a set of procedures and methods designed to generate, analyze, disseminate, and store anticipated marketing decision information on a regular, continuous basis. An information system can be used operationally, managerially, and strategically for several aspects of marketing.

A marketing information system can be used operationally, managerially, and strategically for several aspects of marketing.

We all know that no marketing activity can be carried out in isolation, know when we say it doesn’t work in isolation that means there are various forces could be external or internal, controllable or uncontrollable which are working on it. Thus to know which forces are acting on it and its impact the marketer needs to gathering the data through its own resources which in terms of marketing we can say he is trying to gather the market information or form a marketing information system.

This collection of information is a continuous process that gathers data from a variety of sources synthesizes it and sends it to those responsible for meeting the market places needs. The effectiveness of marketing decision is proved if it has a strong information system offering the firm a Competitive advantage. Marketing Information should not be approached in an infrequent manner. If research is done this way, a firm could face these risks:

Glossary of Marketing Terms

Aided recall. Respondents are asked if they remember a commercial for the brand being tested.

Alternative hypothesis. A competing hypothesis to the null.

Attitude. A learned predisposition to respond in a consistently favourable or unfavourable manner with respect to a given object.

Audit. A formal examination and verification of either how much of a product has sold at the store level (retail audit) or how much of a product has been withdrawn from warehouses and delivered to retailers (warehouse withdrawal audits).

Balanced scale. Scale using an equal number of favourable and unfavourable categories.

Banner. The variables that span the columns of the cross-tab; generally represents the subgroups being used in the analysis.

Before-after design. Experiment where a measurement is taken from respondents before they receive the experimental treatment condition; the experimental treatment is then introduced, and the post-treatment measurement is taken.

Before-after with control design. Experiment that adds a control group to the basic before-after design; the control group is never exposed to the experimental treatment.

Between-group variations. Between-group differences in scores for groups that were exposed to different treatments - represents "explained" variation.

Blind testing. Tests where the brand name of the product is not disclosed during test.

Core Concept of Marketing

Many people confuse the word marketing with selling and advertising. The reason is that there is widespread advertisement now days in the form of newspaper ads, TV commercials, direct-mail campaigns, sales calls etc. But actually marketing and advertising are only two of many other important marketing functions such as satisfying customer needs, creating long term customer relationship, finding new customers etc. The basic difference between marketing and advertising is that the advertisement starts after the product is produced whereas marketing starts with a well-defined market, focuses on customer needs and establishes long term customer relation to earn profit.

Short Question & Answers

Question:	What is the difference between mass marketing and database marketing?
Answer:	In the data base marketing we have all the relevant information of the our target market and we have made the records of the relevant information in the form of the data bases. Mass marketing means the marketing at the large scale marketing in which we do not have the data base form of record of our customer because our target market is very large and the products are produced by the general common character.
Question:	What is the role of broker and agent in the marketing system?
Answer:	Main function is to facilitate buying and selling, for which they earn a commission on the selling price. Generally, specialize by product line or customer types. BROKERS: Chief function is bringing buyers and sellers together and assisting in negotiation. They are paid by the party who hired them, and do not carry inventory, get involved in financing, or assume risk. Examples: food brokers, real estate brokers, insurance brokers, and security brokers. AGENTS: Represent either buyers or sellers on a more permanent basis than brokers do.
Question:	What is mean by Competitive Advantage? How we will design a Competitive Intelligence System?

Pricing Strategies

One of the four major elements of the marketing mix is price. Pricing is an important strategic issue because it is related to product positioning. Furthermore, pricing affects other marketing mix elements such as product features, channel decisions, and promotion. 

While there is no single recipe to determine pricing, the following is a general sequence of steps that might be followed for developing the pricing of a new product: 

1. Develop marketing strategy - perform marketing analysis, segmentation, targeting, and positioning. 
2. Make marketing mix decisions - define the product, distribution, and promotional tactics. 
3. Estimate the demand curve - understand how quantity demanded varies with price. 
4. Calculate cost - include fixed and variable costs associated with the product. 
5. Understand environmental factors - evaluate likely competitor actions, understand legal constraints etc. 
6. Set pricing objectives - for example, profit maximization, revenue maximization, or price stabilization (status quo). 
7. Determine pricing - using information collected in the above steps, select a pricing method, develop the pricing structure, and defined discounts.