Back to: Store Management SS 2
Welcome to today’s class!!
We are thrilled to have you in our class!!
In today’s Store Management class, we will be focusing on Revision
Revision
As students, if there is a moment that you can look forward to to refresh your memory before writing your exams, is the Revision period. And because Revision is a very important step in fostering adequate preparations for examinations, it is important to enjoy it.
Let’s take a look at some of the topics we’ve covered so far.
Indexing
Indexing is the process of organizing data according to a specific plan or framework. The indexing of data can have a variety of different uses in finance and economics, and it typically involves using a common point of reference or benchmark for the purposes of comparison.
An index establishes parameters for the data, as well as a time frame for the comparison. Over time, it allows businesspeople and economists to observe a variety of different trends and better understand the relevance of the data. Indexes can also calculate the relative value of an economic concept, such as a nation’s currency.
Some indexes allow for the comparison of data, even if the magnitude of that data varies greatly.
For example, if you want to compare data between a city with eight million people and a city with one million people, an index can help you account for the differences in scale between the two cities. By creating an index, you can determine which city is experiencing the most growth over time.
Indexing also helps track economic trends, allowing for more informed decision-making. The Consumer Price Index (CPI) is an example of an index that tracks the relative value of money.
The relative value of a certain dollar amount is likely to change over time due to inflation, as witnessed in Nigeria.
As the cost of goods rises, what you can purchase with that dollar amount is likely to decrease. The CPI can inform economists whether inflation is rising and allow them to assess the latest consumer trends more easily.
The CPI can also help economists measure the relative increase or decrease in real wages or the amount a person earns after adjusting for inflation. This type of index can also make it easier to track employee raises to determine the ideal size of a raise.
Some companies use the CPI to ensure that the relative value of their employees’ salaries remains constant.
Have you heard of the Labour Union? These people advocate for how well workers in the country should be treated. So, when unions negotiate contracts, they also use the CPI to request an annual cost-of-living wage adjustment as part of their contract.
In summary, each index allows investors to evaluate the current performances of some of the largest companies and compare them to their past performances. Investors are able to evaluate past trends because the statistical measures for each index remain constant.
Purchase Order
A purchase order is a commercial source document that is issued by a business’ purchasing department when placing an order with its vendors or suppliers.
In simple terms, a purchase order is that document that a business purchasing department – a department responsible for buying materials and equipment – gives out when there is a need to buy anything.
The document indicates the details on the items that are to be purchased, such as the types of goods, quantity, and price. In simple terms, it is the contract drafted by the buyer when purchasing goods from the seller.
Let’s consider the benefits of Purchase Orders
- Avoids Duplicate Orders
Purchase orders bring several benefits to a company. The most important is that it helps avoid duplicate orders. When a company decides to scale the business, POs can help keep track of what has been ordered and from whom.
Also, when a buyer orders similar products, matching the invoices can be difficult. The PO serves as a check for the invoices that need to be paid.
- Keeps Track Of Incoming Orders
In addition, Purchase Orders also called PO help keep track of incoming orders, and a well-organized purchase order system can help simplify the inventory and shipping process.
- Serves As Legal Documents
Purchase orders serve as legal documents and help avoid any future disputes regarding the transaction.
In summary, while the purchase order shows what goods were ordered from the supplier, the sales order is generated by the supplier and sent to the buyer. It signifies the confirmation or approval of the sale. Nowadays, the Purchase Order process is no longer paper-based, and the buyer usually sends its suppliers an electronic Purchase Order.
Cash Book
One of the simplest ways to tell what a Cash Book is goes this:
A Cash Book is a financial newspaper which includes all cash receipts and disbursements, including bank deposits and withdrawals. After that, entries in the cash book are added to the general ledger.
Easy, right?
Cash Book is the one in which all the cash receipts and cash payments, including the funds deposited in the bank and funds withdrawn from the bank, are recorded according to the date of the transaction. All the transactions recorded in the cash book have two sides, which includes, debit and credit.
The difference between the sum of balances of the debit and credit sides shows the cash balance on hand or bank account. Cash Book plays a dual role as it is the book of the original entry of the company and the book of the final entry.
The Cash Book is a separate book of accounts in which all the company’s cash transactions are entered concerning the corresponding date, and it is different from the cash account where posting is done from the journal. There is no requirement to transfer the balances to the general ledger, which is required in the case of the cash account. Entries are then posted to the corresponding general ledger.
In Accounting, a Cash Book has two sides, and they are: the left-hand side and the right-hand side, where all the receipts in cash are recorded on the left side, whereas all the payments in cash are recorded on the right side. Therefore, a Cash Book helps in effective cash management as management can know the balances of cash and bank and take the necessary decisions accordingly.
In summary, a Cash Book is the one in which all the cash receipts and cash payments, including the funds deposited in the bank and funds withdrawn from the bank, are recorded according to the date of the transaction.
Meaning of Risk Management
When an entity makes an investment decision, it exposes itself to a number of financial risks. The level of such risks depends on the type of financial instrument. These financial risks might be in the form of high inflation, volatility in capital markets, recession, bankruptcy, and so on.
Risk management refers to the practice of identifying potential risks in advance, analyzing them and taking precautionary steps to reduce the risk.
So, in order to minimize and control the exposure of investment to such risks, fund managers and investors practice risk management. Different levels of risk come attached with different categories of asset classes.
To reduce risk, an organization needs to apply resources to minimize, monitor and control the impact of negative events while maximizing positive events. A consistent, systemic and integrated approach to risk management can help determine how best to identify, manage and mitigate significant risks.
By focusing attention on risk and committing the necessary resources to control and mitigate risk, a business will protect itself from uncertainty, reduce costs and increase the likelihood of business continuity and success.
Three important steps of the risk management process are risk identification, risk analysis and assessment, and risk mitigation and monitoring.
- Risk Identification
Risk identification is the process of identifying and assessing threats to an organization, its operations and its workforce. For example, risk identification may include assessing Information Technology security threats such as malware and ransomware, accidents, natural disasters and other potentially harmful events that could disrupt business operations.
- Risk Analysis And Assessment
Risk analysis involves establishing the probability that a risk event might occur and the potential outcome of each event. Risk evaluation compares the magnitude of each risk and ranks them according to prominence and consequence.
- Risk Mitigation And Monitoring
Risk mitigation refers to the process of planning and developing methods and options to reduce threats to project objectives. A project team might implement risk mitigation strategies to identify, monitor and evaluate risks and consequences inherent to completing a specific project, such as new product creation. Risk mitigation also includes the actions put into place to deal with issues and effects of those issues regarding a project.
In summary, not giving due importance to risk management while making investment decisions might wreak havoc on investment in times of financial distress in an economy.
Forms of Shareholders
The term ‘shareholder’ is used to refer to any person, institution or company that has ownership of at least one share of a company’s stocks, also referred to as equity.
A shareholder is also known as stockholders, and as such are partial owners of a company and are entitled to a share in the profits that the said company generates.
Now, let’s take a look at the Forms of Shareholders
- Preference Shares
Preference shares are one of the financial instruments that a company uses to raise capital for their operations. They are the general exclusive share options that enable the shareholders of a company to get dividends before the equity shareholders when it gets announced. It also allows them to claim a special right to the dividends during the lifetime of the company, along with the option for claiming repayment of capital when the company winds up. Preference shares are seen as a hybrid security option simply because they represent the traits of both debt as well as equity investments. The capital that a company raises by issuing preference shares (to individuals and investors) is called preference share capital. The preference shareholders are also regarded as the owners of the company, like equity shareholders. The only difference, however, is that they do not have any voting rights.
- Ordinary Shares
Ordinary shares are a financial instrument that organizations use to raise capital for their short term as well as long term operations. The shareholders (both individuals and organizations) have the right to vote and participate in the management of the company as well. However, they get the returns on their shares after the preference shareholders and only if a company makes a profit. They also have the last right to claim the repayment of capital in case the company goes into liquidation. Ordinary shares represent equity investments. The capital that an organization manages to raise by issuing ordinary shares is known as equity share capital. Like the preference shareholders, the holders of ordinary shares are also the owners within the organization.
In summary, both preference and ordinary shares allow investors to become part owners of the company. Organizations also prefer to raise capital through them as compared to the debt instruments.
Evaluation
Explain what Risk Management is and highlight three importance.
Reading Assignment
- What is Indexing?
- Explain three benefits of Purchase Order
Weekend Assignment
What is a Cash Book?
Explain these terms: Shares, Shareholders, Ordinary Shares and Preference Shares.
We hope you enjoyed today’s class. See you in the coming term.
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