As a juniormarketing agency executive it’s important to consider all possibilities anddevelop a good understanding of all principles required with relation tofinancial and management accounting.
Initially the understanding of general definitionsis vital such as a current liability or current asset. A current liability isan amount due to be paid to creditors within twelve months an example of thisis short term borrowings, whereas a current asset is an asset which can beconverted to cash within one year or within operating cycle of the business. Anexample of a current asset is cash. When understanding financial accounting itsvital to then understand investment, a lot of businesses purchase equipment ona finance scheme with that will then let them know if investments are worthinvesting into, the lifespan and depreciation of an item will provide a furtherindication of if it’s worth putting your money into. There are several ways ofcalculating depreciation, these are named straight line depreciation andreducing balance depreciation.
Straight line depreciation is generally based aroundthe original cost of the item, furthermore the price of the asset never changesso the amount will be the same every year. The formula used is cost – residualvalue / useful economic life. Reducing balance involves a depreciated valueevery time, this is based on the netbook value left over the depreciated amountis taken out. Non-current assets are usually depreciated in costs as they costtoo much to purchase in one, so their cost is spread over the lifetime or anamount of years so it’s cheaper for the business. Break even analysis isusually adopted by management teams to then separate costs of production intothose that are “variable” (costs that change when production volume changes)and “fixed” costs (costs that are no linked to volume produced). The totalvariable and fixed costs are compared with sales revenue in order to determine thelevel of sales volume, sales