Entrepreneurship Development (KOE-083)

Unit 3 Notes
Accountancy
Accounting is defined as the process of reporting, recording, interpreting, and summarizing
financial transactions of any business entity. The accounting is the “art of recording,
classifying, and summarizing in a significant manner and in terms of money, transactions, and
events, which are, in part at least, of financial character, and interpreting the results thereof”
Business Entity Concept: This accounting concept separates the business from its owner. As
far as accounting is concerned the owner and the business are two separate entities.
Money Measurement Concept: This accounting concept states that only financial
transactions will find a place in accounting. So only those business activities that can be
expressed in monetary terms will be recorded in accounting2.
Going Concern Concept: The going concern concept assumes that a business will continue to
operate indefinitely.
Accounting Period Concept: Every organization, according to its needs, chooses a specific
period of time to complete an accounting cycle. Generally, the time chosen is a year we call
the accounting year.
Cost Concept: This accounting concept states that all assets of the firm are entered into the
books of account at their purchase price (cost of acquisition + transport + installation etc)
Neccessity of Accounting
The primary neccessity of accounting include systematic maintenance of records of
transactions summarising and analysing business reports to assess the financial standing of the
business entity. The following are the various objectives of accounting –
1- Maintaining systematic financial records: One of the most important accounting
objectives is that accounting helps the business organisation keep a systematic and accurate
record of the day-to-day transactions, which helps to understand the working of the business,
payments made, income received, etc.
2- To estimate and ascertain profits or losses: Recording transactions concerning revenues
and expenditures helps us ascertain the profit/ loss at the end of the financial year. Ascertaining
profits or losses is important to make payments, making it one of the important objectives of
accounting.
3. Preparing financial reports to assess the financial position: Accounting involves the
preparation of a balance sheet which is a record of the assets and liabilities of a business entity.
This helps in the analysis of the financial position of the business organisation. Ascertaining
profitability can help us understand the strengths and weaknesses of the business organisation
and formulate various policies and strategies to correct the weaknesses and improve the
organisation’s strengths.
4. Auditing of financial reports: Another objective of accounting is that it helps in
understanding the financial position of a company in the form of assets, debts, profits and
losses, etc. These records are made available to the auditor, who can then analyse the reports to
find any discrepancies and suggest the required corrective reforms. These reports also help the
higher authorities formulate plans and make rational decisions.
5. To forecast future payments, expenditures and budgets: Accounting helps to predict the
future profitability of a business entity. This helps plan future payments, debts, expenditures
and budgets accordingly. It also helps in distributing funds among different departments of the
business organisation based on past allocations and profitability.

Economic Viability
Economic viability, also known as commercial viability, is a term used to evaluate whether a
business, project, idea, or even an entire economic system can become profitable, self-
sustaining, self-supporting, or financially viable. In simple terms, if something is economically
viable, it means it can financially support itself.
Profitability: If a project or business is economically viable, it should bring in enough money
through sales or operations to cover all of its costs. These costs include everything, such as
salaries, buying materials, paying rent, utilities, maintenance and repairs, insurance premiums,
marketing and advertising, and other operational expenses.
Sustainability: Ideally, an economically viable venture should have some extra funds left
over, called profit, that can be reinvested for growth or paid out to owners as a return on their
investment.
Importance: Economic viability is important for businesses, projects, and investors. If a
business or project cannot demonstrate potential for future profitability, it will not attract
investment.
Evaluation: There are several tools and methods to determine whether something is
economically viable. These include financial projections, cost-benefit analysis, and market
research.

Methods to access economic viability:

Economic viability is informed by financial analysis but takes a broader approach to costs and
benefits than just financial considerations. The economic analysis typically encompasses a
larger geographic scale, examining the national or regional implications of the project and
social and environmental externalities. The importance of economic viability assessment lies
in its ability to provide decision-makers with the information necessary to make informed
choices about resource allocation. By assessing the viability of a project or investment,
decision-makers can determine whether it is likely to be profitable, sustainable, and beneficial
in the long term.
There are several techniques for assessing economic viability, including:
Net Present Value (NPV) analysis: This technique involves calculating the present value of
expected cash flows, and comparing them to the initial investment. If the NPV is positive, the
investment is considered economically viable.
Internal Rate of Return (IRR) analysis: This technique involves calculating the discount rate at
which the present value of expected cash flows equals the initial investment. If the IRR is
greater than the required rate of return, the investment is considered economically viable.
Cost-Benefit Analysis (CBA): This technique involves comparing the costs of a project or
investment to its expected benefits. If the benefits outweigh the costs, the project is considered
economically viable.
Payback Period Analysis: This technique involves calculating the amount of time it will take
to recoup the initial investment through expected cash flows. If the payback period is shorter
than the required time frame, the investment is considered economically viable.
In conclusion, assessing economic viability is essential for decision-making processes related
to investment, project development, and business ventures. It enables decision-makers to
evaluate the profitability, feasibility, and sustainability of a venture, and make informed
choices about resource allocation. Techniques such as NPV analysis, IRR analysis, CBA, and
payback period analysis can be used to assess economic viability.

Balance Sheet
A balance sheet, also known as a statement of financial position, is a financial statement that
provides a snapshot of what a company owns and owes, as well as the amount invested by
shareholders. It’s one of the three core financial statements used to evaluate a business.
The key components of a balance sheet are:
Assets: These are resources owned by a company that are expected to provide future benefits.
Assets are classified into two categories: current assets (like cash and inventory) and non-
current assets (like property and equipment).
Liabilities: These are obligations that a company must pay in the future. Like assets, liabilities
are also classified into two categories: current liabilities (like accounts payable) and non-
current liabilities (like long-term debt).
Shareholders’ Equity: This represents the net worth of a company, which is the difference
between its assets and liabilities. It includes share capital and retained earnings1.

The balance sheet adheres to the following accounting equation:

Assets = Liabilities + Shareholders’ Equity
This equation means that a company pays for all the things it owns (assets) by either
borrowing money (taking on liabilities) or taking it from investors (issuing shareholder
equity).

Classification of Assets:
1. Fixed Assets: Fixed Assets are those assets which are not to be sold by the firm and to be
used for a long period of time, such types of assets are also known as Long-term Assets.
For example, land and building, plant and machinery, vehicles, equipment, patents, trademarks
etc, are examples of Fixed Assets.
2. Current assets: Currents assets are those assets which can be converted into cash easily
from the market. Generally within a year. For example cash in hand, cash at bank, trade
receivables, inventory, etc.
3. Liquid Assets: Liquid Assets are those which are already in the form of cash or can easily
be convertible into cash and has a negligible effect on the price available in the market.
For example marketable securities, government bonds, certificates of deposits etc.
4. Wasting Assets: Wasting Assets are the assets that have a useful life and as we use it
depreciates with the time and after some time or years, it becomes useless.
For example Natural resources such as gas, timber, coal. The value of these assets goes down
as we take out the contents. And when we take out these completely, it will become useless.
5. Intangible assets: Intangible Assets are the assets which cannot be seen or touched. These
are not necessarily useless. For example goodwill, patents, copyrights, etc.
6. Fictitious Assets: The assets which are valueless but are shown in the financial statements
or the expenses which are treated as assets are known as Fictitious Assets. For example,
preliminary expenses which incur at the time of establishment of the company.
Classification of Liabilities:
1.Long-term liabilities: Long-term liabilities are those which exists for one or more than one
year. For example a long-term loan from the bank.
2. Fixed Liabilities: Liabilities which are paid at the time of termination of the business are
known as Fixed Liabilities. For example proprietor’s capital.
3. Current liabilities: Current liabilities or short-term liabilities are those which are to be
settled within a year. For example trade payables, creditors, outstanding expenses, etc.
4. Contingent Liabilities: Liabilities which are not actual liabilities but these can become the
actual liability and it depends on the happening of certain events.

Classification of Share holder equity

1. Common Shares: These are the ordinary shares that a corporation issues to the investors13.
Common shareholders have voting rights in the company and may receive dividends, which
are a portion of the company’s profits distributed to shareholders.
2. Preferred Shares: Preferred shareholders have a higher claim on the company’s assets and
earnings than common shareholders. They receive dividends before common shareholders and
have a fixed dividend rate.
3. Additional Paid-In Capital: This is the amount of money that shareholders have paid into
the company above the par value of the shares.
4. Retained Earnings: These are the net earnings that have not been distributed to
shareholders as dividends. Instead, they are reinvested back into the company.
5. Treasury Stock: These are the shares that a company has repurchased from the
shareholders. Treasury stock is subtracted from shareholders’ equity because it represents a
reduction in equity
Proforma of Balance Sheet

Decision Making Process

Decision-making in management is important because you may encounter situations where
you have several options that may impact the workplace in different ways. They may affect
employees, other members of management or the company's reputation. Here are some other
reasons why decision-making in management is important:
• Ensuring the company keeps growing: You might make critical decisions that ensure
your workplace continues growing, like making financial decisions.
• Choosing business partners: Management may decide on valuable business partners,
like suppliers or stakeholders, that your workplace may partner with to bring in a
higher amount of profit.
 • Choosing effective operations and strategies: You can decide on effective strategies
and operations to optimize efficiency and reach workplace goals.
Decision making in operations management is the process of choosing among alternatives. It
involves considering various factors, assessing the costs and benefits of each option, and
making a decision that takes these factors into account.
1. Decision-making is based on rational thinking. The manager tries to foresee various possible
effects of a decision before deciding a particular one.
2. It is a process of selecting the best from among alternatives available.
3. It involves the evaluation of various alternatives available. The selection of best alternative
will be made only when pros and cons of all of them are discussed and evaluated.
4. Decision-making is the end product because it is preceded by discussions and deliberations.
5. Decision-making is aimed to achieve organizational goals.
6. It also involves certain commitment. Management is committed to every decision it takes.

Planning and Production Control

Planning and Production control ensure the resources for production are ready when needed.
Materials, equipment, and labor must be available at the right time to keep production
optimized. It is the central part of a manufacturing business. The larger a business gets, the
more PPC becomes essential for a smooth-running operation.
1. Planning: Planning determines what will be produced, by whom, and how. It formulates the
plan for labour, equipment, work centres, and material requirements needed for production.
Relevant information from various sources helps to develop a production plan. For instance,
data from sales on order quantities and promised delivery dates. Product specifications from
the engineering department may also be needed. The planning step helps to keep a streamlined
approach to the production process.
2. Routing: Routing determines the path raw materials flow within the factory. Using the
sequence, raw materials are transformed into finished goods. Coordinating every production
process and scheduling every step is important to measure the production process duration.
Routing shows the quantity and quality of materials and resources needed. It systematizes the
process and optimizes resources for the best results.
3. Scheduling: Scheduling emphasizes “when” the operation will be completed. It aims to
make the most of the time given for the completion of the operation. Organizations use
different types of schedules to manage the time element. These include Master Schedule,
Operation Schedule, Daily Schedule, and more.
4. Loading: Loading looks into the amount of work loaded against machines or workers. The
total time to perform new work is added to the work already scheduled for the machine or
workstation.
If a machine or workstation has capacity available, more orders can make up the underload. If
there is a capacity overload, proactive measures can prevent bottlenecks. Adding a shift,
requesting overtime, bringing in operators from another shop, or using a sub-contractor are
possible options.
5. Dispatching: Dispatching is the release of orders and their instructions. It follows the
routing and scheduling directions. This step ensures all items are in place for the employees to
do their jobs.
6. Follow-up: Also known as expediting, follow-up locates fault or defects, bottlenecks, and
loopholes in the production process. In this step, the team measures the actual performance
from start until the end and then compares it with the expected performance.

Quality Control:
Quality control is a deliberate and planned activity in order to determine the quality of a
product with a view to accepting it as such. If it does not satisfy these requirements, then
appropriate remedial measures are taken to correct the process or activity. Quality control is
best exercised during the course of production of an article – actually starting with the raw
materials, going through the various processing stages and ending up with the final product
and paying due attention to packing, storage and transport. Ultimately, there are two crucial
goals of quality control: (1) to ensure that products are as uniform as possible and (2), to
minimize errors and inconsistencies within them.
Methods of quality control:
There are two methods of quality control, namely,
1. In-process quality control and
2. Consignment-wise inspection.
In-process quality control: In-process quality control covers certain products like paints, and
allied products, linoleum, ceramic sanitary ware, printing ink, chrome figments, etc. Under this
method, the manufacturers themselves are responsible for producing export consignments
conforming to the standard specification. Proper control should be exercised at various levels
like raw materials control, process control, preservation control and packing control. Adequate
controls are taken by periodic inspection and testing of export consignments at random.
Consignment-wise inspection: Each export consignment in packed condition is subject to
detailed inspection to ensure conformity to the recognized specification. If the consignment is
found export-worthy, a certificate is issued to the exporter. Under consignment-wise
inspection, certain recognized agencies inspect actual export consignments and issue
certificate. Only consignments accompanied by this certificate are allowed to be exported.
Small scale manufacturers who cannot afford to have their own facilities and skilled personnel
make use of consignment-wise inspection.

Marketing
Marketing increases brand awareness among the target audience and aids brand visibility while
roping in new consumers. Strong marketing campaigns help in increasing market share. The
business world is strongly competitive, and these marketing campaigns help in boosting the
market shares. Marketing is strongly based on market research, and one of the primary
objectives of marketing is to launch products and services based on the market's needs and
improve return on investments strategically.
1. Creation of Demand: The marketing management’s first objective is to create demand
through various means. Goods and services are produced to satisfy the needs of the customers.
Demand is also created by informing the customers the utility of various goods and services.
2. Customer Satisfaction: The marketing manager must study the demands of customers before
offering them any goods or services. Selling the goods or services is not that important as the
satisfaction of the customers’ needs. Modern marketing is customer- oriented. It begins and
ends with the customer.
3. Market Share: Every business aims at increasing its market share, i.e., the ratio of its sales to
the total sales in the economy. For instance, both Pepsi and Coke compete with each other to
increase their market share. For this, they have adopted innovative advertising, innovative
packaging, sales promotion activities, etc.
4. Generation of Profits: The marketing department is the only department which generates
revenue for the business. Sufficient profits must be earned as a result of sale of want-satisfying
products. If the firm is not earning profits, it will not be able to survive in the market.
Moreover, profits are also needed for the growth and diversification of the firm.
5. Creation of Goodwill and Public Image: To build up the public image of a firm over a period
is another objective of marketing. The marketing department provides quality products to
customers at reasonable prices and thus creates its impact on the customers.

Industrial Relation
Industrial relations, also known as employment relations, is a multidisciplinary academic field
that studies the complex interrelations between employers and employees, labor/trade unions,
employer organizations, and the state1. It’s concerned with the relationship between
management and workers within organizations where they earn their living.
Industrial relations play a crucial role in the smooth functioning and growth of any industry.
Here are some reasons why industrial relations are important:
Production Enhancement: Good industrial relations mean that the workforce is content and
continues to work in their respective positions for the industry’s growth and betterment. This
consistent, continuous work enhances productivity.
Dispute Resolution: If the management (employer) and the employees have good industrial
relations, this means that they don’t have any disputes. In such a scenario, they work
harmoniously and productively, without any disputes.
Employee Satisfaction: When there is a beneficial and good industrial relation between the
employers and the employees, the employees feel that their interests coincide with that of the
management and so they happily put their efforts for the betterment of the industry1.
Economic Growth: Industrial relations are beneficial for the growth of the industry and
economy as a whole1. They ensure mutual trust and good relationships between the employers
and their employees and other associated bodies.
Communication and Support: Industrial relations establish communication between workers
and management to maintain a sound relationship between the two. They also establish support
between managers and employees.
Contribution of Trade Unions: Industrial relations ensure the creative contribution of trade
unions to avoid industrial conflicts

Sales and Purchases

Sales and purchases are fundamental concepts in business and accounting.
Sales: Sales refer to the act of exchanging goods or services for money. It is the primary way
through which businesses generate revenue. Sales are focused on generating revenue and
building customer relationships. When goods are sold, then it is represented as Sales A/c.
Purchases: Purchases involve acquiring goods or services in exchange for money1. Purchases
are focused on managing expenses and acquiring necessary goods or services1. Goods are
denoted as ‘Purchases A/c’ when goods are purchased.

The key differences between sales and purchases are:

Direction of Flow: Sales and purchases represent opposite sides of a transaction, with each
term referring to a different party’s involvement. When we talk about sales, we are referring to
the act of selling goods or services. This action is typically carried out by a business, which
acts as the seller. On the other hand, purchases refer to the acquisition of goods or services by a
consumer or business. In this case, the consumer or business is the buyer.
Goals and Objectives: Sales are focused on generating revenue and building customer
relationships, while purchases are focused on managing expenses and acquiring necessary
goods or services.
Financial Implications: There are key differences in the financial implications between sales
and purchases. Sales contribute to the revenue of a business, while purchases contribute to the
expenses.

Advertisement
Advertising plays following major roles in the business world in selling a product;
Marketing Role: advertising plays a big role in marketing the products, services, company. As
we all know, marketing is a business process that aims to satisfy the consumer needs and wants
through goods and services. And in order to do so, advertising lets the message out to take that
big role in marketing to promote the goods and services.
Communication Role: no product and/or service can move without the proper dissemination
of information. This is one role of advertising that transmits the needed information about the
goods or services to the target market.
Economic Role: advertising plays a big part in the price elasticity of products and services.
Societal Role; shows what the trend in society is or what could be the next big thing in
society. It can be both reflecting the society or start to engage what the society can expect in
the near future.
For businesses and its expansion
Demand creation: Companies mostly undertake advertising and promotional activities for
churning demand.
Competitive strength: One important reason that several companies worldwide have large
advertising budgets is growing competition industrywide.
Reputation building: For a large number of brands, advertising is one of the leading options to
build a strong market reputation.
Faster growth: The promotional strategies of businesses are mostly a core pillar of their
business growth strategies. It helps them find faster growth by extending their reach to new
customers and helping them build stronger relationships with the existing ones.
Brand recall: Advertising also drives higher brand recall. In a large number of cases,
businesses keep running promotions and marketing campaigns just to drive higher brand
recall
Customer engagement: Higher customer engagement generally results in higher sales and
better revenues.
For customers knowledge
Access to and knowledge of more products and services: Advertising has several benefits for
customers and the leading benefit is that customers find access to and knowledge of a large
variety of new products and services.
Increased convenience: Advertising is also related to customer convenience and helps
customers obtain products and services more conveniently whether online or offline
Time saving: Advertising also saves customers a lot of time by reducing the time spent upon
searching and finding the required products and services as well as their purchase.
Increased bargaining power: With time the bargaining power of customers has increased a lot
driven by several factors including growing competition, changing consumption patterns, and
increased availability of information.

Inventory Control:
Inventory control, also called stock control, is the process of managing a company’s inventory
levels, whether that be in their own warehouse or spread over other locations. It comprises
management of items from the time you have them in stock to their final destination (ideally to
customers) or disposal (not ideal). An inventory control system also monitors their movement,
usage, and storage.
Inventory control means managing your inventory levels to ensure that you are keeping the
optimal amount of each product. Proper inventory control can keep track of your purchase
orders and keep a functional supply chain. Systems can be put in place to help with forecasting
and allow you to set reorder points, too.
The two main types of inventory control methods are perpetual inventory and periodic
inventory. Both are widely used across industries, and businesses often choose one over the
other due to the size of their inventory and scope of their distribution model (rather than one
system functioning better than the other).
For example, periodic inventory is better suited for small businesses who have fewer processes
and generally a reduced amount of stock to handle opposed to large-scale businesses that
operate across multiple distribution centres.
Perpetual Inventory System: Perpetual inventory systems are designed to record and manage
inventory data in real time, and this is done by auditing inventory at every point of contact in
the distribution cycle, documenting each time inventory is received, moved, stocked, or sold.
This recursive process continually updates your inventory so it essentially gets double-checked
each time it goes through a different process. We know mistakes, waste, and damage occur as
inventory moves through the supply chain. With perpetual inventory systems, you can account
for exactly where those mistakes happen during the process. The downsides to perpetual
inventory systems are they generally require more effort, take longer, and are more costly to
maintain. For example, your labor requires more training or equipment, and a typical process
takes longer because it includes processes like cycle counts or inventory audits.
Periodic Inventory System: A more cost-effective system to maintain, the periodic inventory
system operates with a before-and-after approach that’s based on scheduled inventory audits.
For example, inventory might be checked periodically (once a month, for example), and at that
point your inventory data would be corrected to reflect any fluctuations due to human error,
damage, or waste.

Preparation of financial Reports

Financial reports, also known as financial statements, are formal records that communicate a
company’s financial activities over a specific period. They are essential for understanding the
financial health of a business and making informed decisions. The steps to prepare financial
reports are:
Income Statement: Start by preparing an income statement, which shows the company’s
revenues and expenses during a particular period. Begin by listing your income for the period
covered by your report. Then, determine the cost of goods or services you sold1. Finally,
compute your gross profit, which is the gross revenue minus the direct cost of the goods or
services you sold.
Statement of Retained Earnings: This statement shows how much of the company’s net
income was retained in the business rather than paid out in dividends.
Balance Sheet: The balance sheet provides a snapshot of a company’s assets, liabilities, and
shareholders’ equity at a specific point in time. It adheres to the following accounting
equation:
Assets = Liabilities + Shareholders’ Equity.
Statement of Cash Flows: This statement shows how changes in balance sheet accounts and
income affect cash and cash equivalents, and breaks the analysis down to operating, investing,
and financing activities

Preparing financial reports involves several steps.

1- Identify All Business Transactions: The first step is to identify all business transactions for
the period1. This includes all sales, purchases, expenses, and other financial activities.
Record Transactions: Record these transactions in a general journal. This is a chronological
record of all financial transactions.
2- Resolve Anomalies and Make Adjusting Entries: If there are any discrepancies or
anomalies in the recorded transactions, resolve them and make the necessary adjusting entries.
3- Post Adjusted Entries to the General Ledger: The adjusted entries are then posted to the
general ledger. The general ledger is a complete record of all financial transactions over the
life of the company.
4- Prepare an Income Statement: The income statement shows the company’s revenues,
costs, and expenses during a particular period. It helps determine the company’s profitability2.
5- Prepare a Balance Sheet: The balance sheet provides a snapshot of a company’s assets,
liabilities, and shareholders’ equity at a specific point in time. It shows what the company
owns and owes.
6- Prepare a Cash Flow Statement: The cash flow statement shows how changes in balance
sheet accounts and income affect cash and cash equivalents. It breaks the analysis down to
operating, investing, and financing activities.
7- Prepare a Statement of Shareholders’ Equity: This statement shows how much of the
company’s net income was retained in the business rather than paid out in dividends.
8- Close the Books for the Period: Finally, close the books for the period. This involves
finalizing all entries and preparing the books for the next accounting period.

Store Studies
This could refer to the study of retail management or store operations, which involves
managing and optimizing the various processes in a retail store. Topics can include inventory
management, merchandising, store layout and design, customer service, sales strategies, and
more
Store studies, often referred to as retail studies, focus on the strategic arrangement of
merchandise, aisles, displays, and other elements to create an inviting and efficient space1.
The key elements of store studies:
1- Visual Merchandising: The goal of visual merchandising is to boost sales by drawing
customers into the store first through the persuasiveness of window displays as well as through
in-store display and layout.
2- Store Layout: The term “retail store layout” refers to how retailers arrange their inventory,
product displays, and store fixtures. A retail store design layout requires carefully utilizing the
available space to impact the customer experience.
3- Five Senses: Retail store design also takes into account the five senses of sight, sound,
smell, touch, and taste. The aim is to create a shopping environment that appeals to the
customer’s senses and enhances their shopping experience.
4- Store Design: Store design involves five key elements: exterior, interior, fixtures,
merchandise, and people. The exterior includes entrances, architectural features, and windows.
The interior comprises ceilings, walls, floors, and lighting to house fixtures and merchandise.
5- Technology Integration: As technology continues to evolve, incorporating innovative
solutions such as AR, VR, and data-driven personalization will become increasingly crucial for
staying competitive and meeting the expectations of modern consumers