Evolution of Management Thought

Management is a recent discipline and it draws from the disciplines of Economics, Psychology, Sociology, Anthropology, etc. However, as we have seen earlier, management has evolved as an independent discipline.

• Scientific management theory : The focus of this thought is increase in productivity and efficiency through applying scientific methods on the shop floor or workplace. It tries to identify one best way of doing a job; however, emphasizes on worker’s cooperation, management-labor relations and developing workers and motivating. However, the focus is on shop floor efficiency through scientific methods and even motivation is proposed to be executed through piece rate system or paying based on the number of pieces of work produced.
• Operational management theory : This thought was led by Henri Fayol. The thought identified six groups of activities in an organisation, i.e., technical, commercial, financial, security, accounting, and managerial. He recognized the need for teaching management and identified 14 principles in 1916 which enabled the management to grow as a discipline and is therefore often called the ‘father of modern management’.
• Behavioral science theory : The thought was originated by Vilfredo Pareto in 1896, and he researched on organisation and management relationship. Later, Hugo Munsterberg applied psychology to increase industrial production in 1912 and around the same time, Walter Dill Scott applied psychology to advertising, marketing, and personnel in 1910 and 1911. But it was Elton Mayo and F.J Roethlisberger who made an impact on the behavioral science theory through their Hawthorne experiments in Western Electric Company in 1933. These experiments proved that good working relationship with the supervisor and colleagues and the idea of challenge in the job accounted for higher productivity. Challenge is created through setting high goals which cannot be normally achieved but which can be achieved with a little additional effort. These experiments brought to fore the importance of behavioral science in management. Extending the idea sometime in 1946 and 1947, Max Weber propounded the theory of bureaucracy.
• Systems theory : Though the systems theory can be traced to biology, where we have cardiovascular system, nervous system, etc which are fairly independent yet interdependent, it was Chester Barnard who extended this into management area through his writing ‘Functions of the Executive’ in 1938. In systems theory, we perceive that organisations have a number of fairly independent systems such as purchase system, operations system, marketing system, financial system, etc. The working of these are independent, but it has to be integrated by the manager. This theory, perhaps, brings the idea of integration as a key component of management.

Previous Topic : Introduction to Management and Management Process

Introduction to Management and Management Process

During the prehistoric days of man living on hunting, life was rather simple but then too, men hunted and women tended for food. They chose a leader who could lead them into hunting, and they chose someone to make their hunting equipment sharp and precise. They stored food for the lean days and sought new places to find food.

At a very rudimentary level, this was planning, specialization, and division of labor, all of which are part of management. As man progressed, his activities became more complex and multi functional teams came into being. His management techniques, perhaps, became more complex too, but its fundamental remained the same.

According to Harold Koontz, “Management is an art of getting things done through and with people in formally organised groups. It is an art of creating an environment in which people can perform as individuals and can co-operate towards the attainment of group goals”. According to F.W. Taylor, “Management is an art of knowing what to do, when to do, and see that it is done in the best and cheapest way”.

Importance of Management

• It helps in achieving group goals
• Optimum utilization of resources
• Reduces costs
• Establishes sound organisation
• Establishes equilibrium
• Essentials for prosperity of society

Previous Topic : Understanding an Organization
Next Topic : Evolution of Management Thought

Changing Role of Human Resource in India

In the previous post we have discussed about HRM in India. Let us now look at the changing role of HR in India.

The role of HR has evolved from a compliance checking body to a strategic partner to the organization. Thei role is not limited to meet the changing the market demands, attract high performing talent, evaluating performance, retaining top talent and ensuring that employees are motivated adnd engaged.

They are the change agents, counselors, motivators, trainers and the spokeman of the employees.

HRM Challenges :

Upgrading Skill Set : One of the challenges faced by HR is upgrading the skill set of the employees through training and development.

Changing Business : Every little challenge in the business or market bring along a change in the workforce. This poses a challenge to HR to attract the right talent who meet the international work standard, to create high performing teams, to create faster communication patterns, to device innovative employee recognition patterns and to ensure that top talent is retained.

Managing Technology : All organizations want to be technologically oriented. They want their employees to quickly adapt and learn the new technologies. HR personnel have to attract the right people with required knowledge and train the employees, motivate them to learn, absorb and come out of their comfort zones.

Developing Accountability : With the advent of Six Sigma methodologies, tolerance for mistakes are lowered. It is hard to train people to shoulder responsibility.

Managing Workforce Stress and Employment Relations : HR is the face of the organization. If HR is not emphatic towards its workforce, it is not helping the organization.

Managing Inter-functional Conflict : With organization restructuring becoming more common, HR has to reduce the inter-functional conflicts.

Managing Workplace Diversity : Organizations hire as well as depend on people from different countries, cultures and ethnicity. To manage such a workforce with diverse physiological and psychological influences is also a challenge for HR.

Progressive HR Policies 

Today employers are increasingly realizing the importance of the role of HR. Some organizations change their policies to retain employees. MNCs provide flexible options like an extended maternity leave, sabbatical from corporate life, working form a different city so that female employees, at various life stages, benefit from these policies.

Entrepreneurship by Employees 

Organizations encourage 'entrepreneurship' among their employees so that people with ideas that could become an asset. HRM has a leading role in Corporate Social Responsibility (CSR) activities at all levels. Corporate presentation and regular newsletters are tools used by HR to keep the employees energized and interested towards CSR activities. Over the decade, India's large manpower has played a crucial role in its economic success. Indeed, the success of Indian organizations is based on human skill rather than superior raw material or technology. The synergy between the strategic planning and innovative HRM practices will be pivotal as India embarks on a global journey.

Globalization and Its Impact on HR :

Business have a tendency to expand to newer markets and a well trained and high performing workforce attracts new business, brings in new investments and employment and in turn generate additional training and experience.

Technology : to use and maintain the organization's Human Resource Information System.

Trends in the nature of work : technological and globalization are producing change in the nature of jobs. Following are a few trends:

• Increase use of part-time employees
• IT and computers have allowed organizations to relocate work to locations with lower wages

A Service Society : 

• A shift from manufacturing jobs to service jobs.
• new types of knowledge workers and new HRM methods to manage them

Knowledge Work and Human Capital :

• Growing emphasis on human capital, their training and development
• Companies are relying more on employees creativity and skills.

Other Trends affecting HRM :

• Equal employment opportunities that bar discrimination based on any race, age, sex etc.
• Mandated health benefits, occupational  safety and health requirements
• Union-management relations

Workforce Diversity :

Managing diversity means establishing a heterogeneous workforce to perform to its potential where no members have an advantage or disadvantage. Young, skillful employees occupy positions of importance. HRM has to listen to senior employees to draw from their experience and devise appropriate programmes to attract and retain young brains.

Previous Topic : Human Resource Management in India

Human Resource Management in India

After Indian government liberalized the economy in 1991 and allowed foreign competition, domestic organizations were forced to raise the bar on their products and services. More private organizations emerged bringing along the global HR practices.
The critical HR issues today are performance management, employee motivation and retention, career and succession planning.

HRM in India :
The economic liberalization created a massive change in HRM perspective in India forcing organizations to think and implement innovative measures to attract and retain employees.
Indian workforce is globally acknowledged for its talent. However, there is an equally strong cultural impact on hiring practices, compensation standards, benefits and statutory benefits etc. Listed below are a few differentiators that impact HRM in Indian organizations :

• Indian culture is deeply rooted in its societal and collectivistic values whereby there is a natural urge to collaborate at workplace, work in teams with ease.
• The natural ability to work hard and long hours, perseverance and the need to earn money impacts the way the work is organized in Indian Organizations. There is an overwhelming sense of Service that manifests itself in the workplace.
• Indians are quick at accepting diverse views and ideas as a result of their diverse culture.
• Tolerance for ambiguity and uncertainty is however low in Indian workforce. Hence there is a need to establish boundaries, roles and responsibilities, authority.
• Availability of large workforce of different knowledge and skills enable them to undertake different kinds of work starting from BPO and moving up the value curve to KPO.
• Availability of large employable individuals, compensation and benefit costs continue to provide a competitive advantage for India.
• There is a lot more scope for socializing that exists in the Indian organizations.

HRM in India is not well-researched. There is a lot of dependency on developed countries to emulate best practices in the way people are hired and managed. Today Indian organizations have their own HR strategies. Work more and earn more is a common philosophy at Indian workplace. Work is revered and respected. There is an increased focus on cash in hand rather perks and benefits.

Previous Topic : Human Resource Management Introduction
Next Topic : Changing Role of Human Resource in India

Classification of Communication Channels

In the previous posts we have written about two broad types of communication - verbal and non-verbal. Based on this we could classify the communication channels into :

• Two-way, face-to-face channels : here the communication is oral and non-verbal. Immediate feedback is possible and the communication is of personalized nature. Ex: meetings, gatherings or video-conferencing.
• Advantages:
• Non-verbal communication such as gestures, facial expressions and tone of voice can be used to make the communication more effective.
• Immediate feedback is possible with questions, clarification or suggestions.
• The personal quality of communication is enhanced.
• Disadvantages :
• Getting people together for a fact-to-face meeting is difficult.
• Personal meeting is time consuming and expensive especially when people are separated by distance.

• Two-way, but not face-to-face channels : With technology, communication can now be two way without being face-to-face. Ex :Teleconferencing and E-mail communication.  Due to lack of face-to-face contact, the personal nature of meetings is reduced.  Also communication oral without non-verbal cues.
• One-way, face-to-face channels : All forms of written communication such as letters, reports, memos, notices, e-mails etc. No instantaneous feedback, largely one-way communication.

Selecting the Appropriate Channel :

Though there is no hard and fast rule to select an appropriate channel of communication, the following guidelines would be useful :

• When trying to solve problems or improve relations, oral face-to-face communication is most effective.
• When visual presentation for explaining an idea is required, oral face-to-fact is better.
• To command a high degree of control over receiver or when there is a need for immediate feedback, oral face-to-face works best.
• When the tone of the communication needs to be more formal, written communication is more appropriate.
• To explain complex ideas in detail, written communication is more preferred.
• To communicate large amount of information, written communication must be preferred.
• Written communication is also appropriate when you want to keep a record of the communication.

Comparison of Oral and Written Communication Channels :

Charateristic	Oral Communication	Written Communication
Interactivity	High	Low
Level of Feedback	High	Low
Formal Nature	Low	High
Personal Nature	High	Low
Permanent Nature	Low	High
Cost	High	Low
Control over Receiver	High	Low
Effectiveness for Complex Messages	Low	High
Effectiveness for Detailed Messages	Low	High

Previous Topic : Characteristics of Non-Verbal Communication

Characteristics of Non-Verbal Communication

The characteristics of non-verbal communication are :

• Non-verbal communication cannot be avoided : Verbal communication can be avoided by refusing to speak but Non-verbal communication cannot be avoided. It is not always intentional. Sometimes silence, other actions like nodding head or yawning any itself communicate a message.
• Non-verbal communication is powerful : Non-verbal communication helps us form first impressions which generally tend to last longer.
• Non-verbal communication is ambiguous : using precise words can convey a clear message but Non-verbal communication is not always clear. Ex: sitting in a relaxed posture may be a signal of boredom or fatigue.
• Non-verbal communication cannot express all messages : Non-verbal communication can only express a person's attitude, level of interest, feelings but their ideas can only be expressed orally or in written form.
• Non-verbal communication varies across cultures : certain types of non-verbal behavior is universal but others may be different in different countries. Ex: handshake, while physical contact is not common in some countries;bowing to your superiors as a mark of respect is common in Japan but might not be in other countries. 

Classification of non-verbal communication :

Non-verbal communication can employ audio and video signals. Ex: audio - a blaring siren, visual signals - drawings, charts graphs etc. These can be used to overcome language barriers.

Non-verbal communication is not only synonymous with body-language. It includes several aspects like :

Body Language	Communication Terminology
Body Language	Kinesics
Touching	Haptics
Personal space and distance	Proxemics
Use of time	Chronemics
Toen of Voice	Paralanguage
Physical environment	Physical context

Kinesics : 

• Facial expressions : can convey feelings of sadness, surprise, happiness and anger.
• Eye movements : eye movements such as wide open pupils cann indicate  surprise, excitement or fear. Direct eye contact indicates intensity and interest, while lack of it can convey guilt and nervousness.
• Gestures : movement of hands while giving a presentation can indicate level of involvement, where as hands in your pocket can mean rude or casual.
• Head movements : like nodding your head can indicate that the message has been received.
• Posture : carriage or attitude can indicate feelings. An erect posture while sitting may convey that you are attentive while a relaxed position can indicate various things such as boredom, tiredness etc.
• Physical appearance : the outward appearance of a person can indicate a lot a about the person. Jewelry, make-up or sticking to ca dress code can tell a lot about a person.

Haptics : communication through touch. Through touch we can covey feeling like affection, assuarance, famialiarity, comfort, sympathy and other emotions. Touchin is used for following :

• Working : hair dresers, security staff, doctors etc. touch people in the course of work
• Greeting : using handshakes to greet people
• Establishing friendships : a freindly pat
• Guiding
• Managing interaction

Proxemics : derived from the word 'proximity' or closeness. The space we keep from people is also part of non-verbal communication. Different types of spaces are :

• Intimate space : our inner most circle, family and close freinds
• Personal space : other freinds, colleagues or co-workers
• Social and public space : official or workplace relations

In a business context :

• Fixed space : physical features of work environment such as seating arrangement, furniture etc.
• Semi-fixed space : some features that can be changed like the seating arrangement

Chronemics : Study of usage of time. Includes our attitude towards punctuality and willingness to wait.

Paralanguage : means 'similar to'. This is the closest to verbal communication. This includes tone of voice.

Physical Context : is the physical environment within which we communicate. This includes :

• Color and layout : colors have symbolic meaning and association with feelings. Black and Grey are associated with mourning and death while Yellow and Green can convey positive feelings.
• Design : types of chairs, desk or carpets etc.
• Space management  : arrangement of work spaces of people who work together. It can influence communication.
• Location  : while giving a speech, a podium is optimum for communication. Similarly, office location in the financial district can indicate success.
• Distance : physical distance between people communicating also influences the nature of communication.

Previous Topic : Types and Channels of Communication
Next Topic : Classification of Communication Channels

Types and Channels of Communication

There is a saying, 'the medium is the message', which tells a lot about the channel we select for the communication.

Types of communication :

1. Verbal communication : occurs with the help of words, opportunity for personal contact and two-way flow of information. These are two types :
1. Oral communication : a speaker interacts verbally with one or more listeners in order to influence their behavior in some manner. Ex : meetings, presentations, performance reviews
2. Written communication : correspondence made in writing. It can be hand written, printed or typed. This takes several forms such as letters, memos, circulars, notices, reports and email. Ex : an apology letter to a customer in response to his complaint.
2. Non-verbal communication : communication without words or any way of conveying meaning without the use of verbal language. This can have more impact than verbal communication as 'how you say' is sometimes more important than 'what you say'.

Verbal communication have some drawbacks such as the message may not be properly worded or the message is misunderstood or interpreted differently. We can avoid this by following some simple guidelines :

• Avoid words with multiple meanings
• Ensure clarity through highly specific statements
• Avoid overuse of jargon
• Avoid biased language and offensive word

Previous Topic : Business Communication Introduction
Next Topic : Characteristics of Non-Verbal Communication

Accounting Concepts, Principles, Bases and Policies

Generally Accepted Accounting Principles (GAAP)

Accounting principles are basic rules of action, which are adopted by the accountants while recording transactions and preparing and presenting financial statements. These are the doctrines associated with theory and current practices of accounting.

GAAP are accepted universally and consists of :

• Accounting Concepts : basic assumptions or conditions guiding the accountants while preparing accounting statements. There are five basic concepts of accounting :

1. Business entity concept states that the business is a separate entity and it is different from the owners or proprietors. This has legal as well as accounting implications. The business transactions of the company can be segregated from those of the owners.
2. Going concern concept states that the business is assumed to continue fairly for a long period of time and that there is no need to shut it down.
3. Money measurement concept : All transactions of a business are recorded in terms of money. Some transaction like cost of input or profit are already in terms of money, but some that cannot be monetized are ignored like brand value of a company.
4. Periodicity concept : as per going concern, a business is meant to be ongoing. But to look back on performance, take corrective actions the operating period is split into regular intervals called accounting periods.
5. Accrual concept states that expenses incurred and income earned for an accounting period must be recorded in the same period whether expenses are paid and income is actually received or not.

• Accounting Conventions : customs and traditions that guide the accountants while preparing accounting statements. There are ten types of accounting conventions :

1. Convention of income recognition : revenue is considered as being earned on the date on which it is realized, that is the date on which goods and services are transferred to customers for cash or on promise.
2. Convention of matching cost and revenue : revenue earned during a period is compared with the expenses incurred to earn that income, irrespective of whether the expense was paid or not.
3. Convention of historic cost : says that all transactions are recorded at the value at which they were incurred and all assets are recorded at the value of acquisition irrespective of market value etc. Such a value is called Historical Cost and this principle is called convention of 'Cost'.
4. Convention of full disclosure : requires a business to disclose :
1. All accounting policies adopted in preparing and presenting the financial statements.
2. Any change in accounting policies and the reasons thereof.
3. The implication(in terms of money) of the change in policies.
5. Convention of double aspect : states that every transaction has two aspects. One is the receiving aspect and the other one is the giving aspect, debit and credit.
6. Convention of modifying
7. Convention of materiality : states that the benefit derived from measuring, recording and processing a transaction must justify the cost of doing it.
8. Convention of consistency : requires that the accounting policies be same from year-to-year. This helps in easy comparison of financial data with previous data. The accounting policy can only be changes when :
1. It is justified by law
2. the new policy better reflects the financial standing or position
9. Convention of conservatism : accountants follow the rule "anticipate no profits but provide for all anticipated losses". When a loos is anticipated, sufficient provision must be made. IF a profit is anticipated, it should not be recorded until it is actually realized.

Accounting Policies : are specific accounting principles and methods of accounting adopted by a business while preparing and presenting the financial statements. Major considerations in the selection and application of accounting principles :

• Prudence
• Substance over form
• Materiality

Change in accounting policy : is recommended only if

1. If it is required by statute for compliance with an accounting standard.
2. If it is considered that the change would results in a more appropriate presentation of statements

Disclosure in case of change in accounting policies : must be done irrespective of whether the change has material effect in current period and irrespective of whether the effect of change is ascertainable.

Mandatory and Voluntary disclosures : 

The minimum disclosure a business must and should give as required by government, statutory or accounting bodies is called mandatory disclosure.

The company may decide to disclose additional information over and above the mandatory disclosure which is known as voluntary disclosure.

Previous Topic : Financial Accounting Basic Terminologies

Business Communication Introduction

Communication in simple terms is a transfer of information between people, resulting in common understanding between them.

• It is unavoidable
• It is a two-way exchange of information
• It is a process
• It involves a sender and a receiver of information
• It could be verbal or non-verbal
• It is successful when the receiver interprets the meaning in the same way as that intended by the sender.
• It is a dynamic process
• It enables understanding

Communication Process and its key elements :

• Sender or Encoder : the person who transmits a message
• Receiver or Decoder : the person who notices and decodes or attaches some meaning to a message.
• Message : any signal that triggers the response of a receiver.
• Channel : the medium or method used to deliver the message.
• Feedback : Receivers respond to messages.
• Context :
• Physical : the physical surroundings.
• Social : the relationship between the sender and receiver.
• Chronological : time related factors that could influence the communication
• Cultural : similarity of the backgrounds like age, language, nationality and gender etc. of sender and receiver.

Barriers to Communication :

A communication fails when the message received is not the same as that is sent. 'Noise' refers to these external factors that disrupt the communication and can be classified as :

• Physical : poor acoustics, disturbing sounds or information overload.
• Physiological : fatigue, hearing disability or physical illness.
• Psychological : emotions within the sender or receiver like lack of interest, fear etc.

Some other barriers to communication :

• Environmental barriers 
• Individual barriers 
• Organizational barriers 
• Channel barriers 
• Linguistic and cultural barriers 
• Semantic barriers 
• Non-verbal barriers 

Overcoming the barriers to communication :

Certain steps can be taken at both organizational level as well as individual level to overcome the barriers to communication.

Organizational action:
Some of the steps which an organization can take to overcome the barriers to effective communication are :

• Encourage feedback 
• Create a climate of openness
• Use multiple channels

Individual action:
An individual can take certain steps to overcome the barriers to effective communication. These could help improve interpersonal relationships. These are :

• Active listening
• Careful wording of messages
• Selection of appropriate channels
• Avoidance of technical language
• Right feedback

Classification of communication

Interpersonal Communication : usually involves direct face-to-face contact between the sender and receiver. Interpersonal communication classified based on number of people involved are:

• Dyadic communication : involves two people
• Group communication : involves three or more people, usually happens for decision making or problem solving.
• Public communication : involves large number of people, usually happens for information sharing.

Intrapersonal Communication : is self-communication, usually happens in analysis or clarifying ideas. It involves the following activities :

• Internal discourse : analysis, concentration and contemplation
• Vocal communication : talking loud to oneself
• Written communication : making entries in journals or diaries

Group Communication : Usually happens between three to twenty members. The basic resource of any group is its members. Hence communication is really important for creating and sustaining groups. It can be achieved in the forms :

• Verbal
• Non-verbal
• Written
• Electronic

The various factors that affect group communication are :

• Nature of task
• personalities and abilities of the members in a group
• Environmental factors

Mass Communication : the type of communication that employs some form of medium to communicate to a very large audience. The characteristics of mass communication are :

• Source
• Message
• Channel : radio, television, transmitters etc
• Audience 
• Feedback : communication is one-way, so feedback is usually minimal and delayed.
• Noise

Importance of communication in workplace : communication is very important in this age of technology. A huge amount of money is spent on training higher management in communication skills. Effective communication is more vital to job success. Effective communication can serve the following purposes :

• Greater awareness of organizational goals and teamwork
• Better employer-employee relationships
• Problem solving
• Improved performance
• Stronger link between managers and external environment

Next Topic : Types and Channels of Communication

Human Resource Management Introduction

Every organization is essentially a mixture of materiel and human resource. Human resource refers to the knowledge, ability, education, skill and training of the members of the organization.

HRM involves all management decisions and practices that directly affect or influence the people working for the organization.

A HR manager has to build an effective workforce and handle expectations of the employees to ensure maximum productivity. The actual management of human resources is the responsibility of all the managers in an organization, not the a select group of HR executives.

HRM must act as a link between top management and its employees, arrange and maintain adequate manpower inventory, develop skills and enhance productivity of manpower, ensure and enhance quality of work-life balance.

Scope of HRM :

• HRM in personnel management : involves manpower planning, hiring, training and development, induction and orientation, transfer, promotion, compensation, layoff and retrenchment and productivity.
• HRM in employee welfare : deals with working conditions and amenities at workplace.
• HRM in industrial relations : interact with labour and employee unions, address their grievances and settle disputes if any to maintain order and peace in the organization.

Functions of HRM :

1. Managerial Functions
1. Planning
2. Organizaing
3. Staffing
4. Directing
5. Controlling
2. Operative Functions
1. Employment
1. Job Analysis
2. HR Planning
3. Recruitment
4. Placement
5. Induction
2. Development
1. PErformance Appraisal
2. Training
3. Management Development
4. Career Planning and development
3. Compensation
1. Job Evaluation
2. Wage and Salary Administration
3. Incentives
4. Fringe Benefits
4. Employee Relations

Next Topic : Human Resource Management in India

Financial Accounting Basic Terminologies

1. Transaction : the transfer of money, goods or services from one person or account to another person or account. These are :
1. Cash Transactions
2. Credit Transactions
3. Paper Transactions
2. Capital : Funds brought in to start a business
3. Share : one unit of the total company's capital
4. Assets : a resource legally owned y the enterprise. Assets can be classified based on purpose :
1. Fixed Assets : resources help for use in production of goods or services and are not for resale. Ex : land, plant, machinery etc.
2. Current Assets : resources held or receivable withing the year or the company's operating cycle. These are intended to be converted into cash. Ex: stocks, bill receivable cash at bank etc.
3. Liquid Assets : those which can be easily converted into cash.
4. Fictitious Assets : those which cannot be written off during the period of their incidence. Ex: promotional expenses
5. Liability : a financial obligation of an enterprise, which when settled results in an outflow of resources. Ex: loans payable
6. Current Liability : an obligation that has to be satisfied within a year.
7. Equity :  the residual interest in the asset of the enterprise after deducting all its liabilities.
8. Joint Stock Company : the capital for this company is contributed by shareholders.
9. Goods : merchandise, commodities, products etc in which a trader deals. Goods account is divided into :
1. Purchases
2. Sales
3. Purchases return or returns outward
4. Sales returns or returns inward
5. Opending stock
6. Closing stock
10. Inventory : goods held by a business for sale or consumption in production. Ex : raw materials
11. Drawings : goods, money or any asset withdrawn by the owner for his own personal expenses.
12. Debtor : A debtor is a person who owns money to a business. Types of debtors :
1. Trade Debtor
2. Loan Debtor
3. Debtor for asset sold
4. Debtor for service rendered
13. Debt : amount due from a debtor to this business. Types of debts:
1. Good Debt
2. Bad Debt
3. Doubtful Debt
14. Creditors : a person to whom business owes money. Types of creditors :
1. Trade Creditor
2. Loan Creditor
3. Creditor for asset pyrchased
4. Expenses Creditor
15. Loss : money or woth of money given up without any benefit in return. A situation when expenses exceed th expenditure.
16. Profit : a situation where revenue earned by the business is greated then its expenses.
17. Journal : a dail record of all business transactions. The first entry into the accounting system.
18. Ledger : an account book where all transactions are grouped and all accounts are maintained. Books of final entry.
19. Narration : breif explanation of a journal entry.
20. Posting : transferring the information from journal to ledger.
21. Voucher : a document which serves as an evidence for transactions.
22. Trial Balance : a list of all ledger account balances on a given day.
23. Balance Sheet : a financial statement which shows the amount and nature of a business' assets and liabilities.

Previous Topic : Financial Accounting Introduction 
Next Topic : Accounting Concepts, Principles, Bases and Policies

Financial Accounting Introduction

Accounting is one of the oldest, structured management information system. Accounting as an information system deals with the identification, measurement and communication of economic information to enable decision making.

Accounting : is the application of various accounting principles and methods of book-keeping.

Accounting is the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by the users of the information.

Book-keeping : is defined as the science and art of recording business transactions in a systematic manner in a certain set of books known as book of accounts.

Functions of book-keeping :

• Identifying the transactions and events : When goods, services or money is transferred from one person or account to another, it is called a transaction. The first step in the accounting process is to identify transaction with financial character that must be recorded in the book of accounts.
• Measuring : expressing the value of events and transactions in terms of money.
• Recording : recording of identified transactions. The book in which transactions of financial character are first recorded is called Journal.
• Classifying : grouping of transactions of similar nature. The book in which groups of similar transactions are periodically entered is called Ledger. This transfer of recorded transactions to Ledger is also called Posting.
• Summarizing : summarizing all the transactions is required to know if the business has made any profit or loss. This step prepares the income, expense, balance etc statements.
• Analyzing : establishing relationship among various items from the statements produced in above step. This helps to identify the financial strengths and weaknesses of the business.
• Interpreting : the step where end users make judgements about their finanacial positions.
• Communicating : communicating the analyzed and interpreted data in the form of financial statements of reports to users of that information.

Next Topic : Financial Accounting Basic Terminologies

Introduction to Managerial Economics

Economics affects our daily lives. Economic conditions affects businesses positively and/or negatively. Economics helps decision making.

Managerial Economics is the science that deals with the application of various economic theories, concepts, principles and techniques to business management in order to solve management and business problems.

Features :

1. Helps in decision making. Focuses on decision making process, models, variables and their relationship.
2. It is both conceptual and metric in nature.
3. Uses various economic variables like national income, inflation, deflation, trade cycles etc. to understand the business environment.
4. Gives importance to non-economic factors that affect the business like socio-political and cultural factors, technology etc.
5. Uses other related services like accounting, mathematics, statics etc to assist in decision making.

Note : It provides only the logic and methodology to arrive at solutions, no the ready-made solutions itself.

Scope :

• Objectives of a firm
• Demand Analysis & Forecasting
• Production & Cost Analysis
• Pricing decisions, policies and practices
• Profit Management
• Capital Management
• Linear programming and theory of games
• Market Structure & Conditions
• Strategic Planning
• External environment

The scope keeps growing with the growth of modern business and business environment.

Significance :

The main concern is to apply theories to find solutions to day-to-day problems faced by a business, not to study the theoretical economic concepts.

1. Provides guidance to identify key variables in decision making.
2. Helps understand various intricacies of business and managerial problems to make informed decisions.
3. Provides us the necessary skill and tools of analysis and techniques.
4. Helps become proactive and competent.

Functions of Managerial Economist :

• Decision Making
• Forward Planning

Understanding an organization

What is an organization ?

An organization is a social system of people who are structured and managed to meet some goals. Organizations are ongoing and the structure determines the relationship between the functions and positions. Structure also subdivides roles,responsibilities, and authority to carry out the tasks. Organizations are open systems which are affected by the environment outside its boundary.

• Social System
• Business is something that society creates to fulfill its needs. In an organization people come from diverse backgrounds of religion, education, gender etc. Therefore it is a social system
• Goals
• All organizations or businesses have goals. This is generally expressed through a vision and mission statement.
• Ongoing
• Businesses are designed to be forever, but some may die.
  
• Relationship
• In any organization there are workplace relations among roles like employee, supervisor, manager, CEO etc. Various levels of reporting, communication exists.
• Structure and Management
• In an organization there may be various groups of people who are responsible for specific tasks.  By creating a structure and grouping similar tasks, efficiency is achieved.
  
• Open System 
• Any business is affected by external factors, some impede business while some provide opportunities. 

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