Finance operation resources and purchase of assets

 

 

 

 

 

 

 

 

Finance operation and resources

 

 

 

 

 

 

 

 

 

Submission date: 07-Feb-2018 (UTC-0700)

Submission ID:

File name: Finance_operation_resources.doc (69.3K)

Word count: 2040

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Explaining the various resources utilized to finance operations and purchase of assets.

 

Abstract

 

Resources of finance such as equity, debt, debentures, retained earnings, term loans, working capital loans, letter of credit, Euro issue, venture funding etc. These resources are used in different situations. They are classified based on time period, ownership and control, and their source of generation.

On the basis of a time period, resources are classified as long-term, medium term, and short term. Ownership and control classify sources of finance into owned capital and borrowed capital. Internal sources and external sources are the two sources of generation of capital. All the sources of capital have different characteristics to suit different types of requirements. Let’s understand them in a little depth.

An asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity

Introduction

Proper management of financial operations is an important element of building better communities. While the responsibility for an association’s finances rests with the board, there are numerous areas where advice should be sought from qualified financial professionals. The board of directors, particularly the treasurer, is ultimately responsible for any organization’s funds. below are basic guidelines that should be followed to ensure sound financial operations. (1) Banking (2) Planning

Financial Operations

Financial Operations includes management and oversight of Accounts Payable, Student Accounts, the Business Management and Analysis Group, Treasury Management, Risk Management, and the Systems Analytics & Insights Group.  

Accounts Payable Services is responsible for processing university payments to internal and external customers. They establish processes and procedures to ensure the university meets its payment obligations in a timely fashion. They provide guidance and support for internal customers throughout the invoice and payment processing cycle. They also partner with the Procurement, Supplier Maintenance and the Tax departments to ensure the transactions are compliant with the university’s policies and other regulations.

The Student Accounts Office is committed to providing excellent service to students throughout their educational experience at the George Washington University. On our website you can find detailed information about your bill, learn about the variety of payment options, review tuition rates, or request an itemized statement for employer reimbursement.

The Business Management and Analysis Group (BMAG) functions as an internal management consulting group comprised of professionals with experience in the academic, financial, and project management professions. It supports GW departments by providing business continuity and process improvement services, financial and accounting analysis, and new service development. 

Treasury Management is responsible for the management of the university’s financial resources. This includes investment of cash and the administration of debt to ensure resources are available to meet the operating and capital needs of the university as well provides endowment audit management support and manages the relationship with the outsourced investment manager.

Risk Management and Insurance provides the expertise necessary to maintain a safe and healthy campus environment where bodily injury and property damage risk are prevented or controlled and the potential liability from loss is adequately financed. Their work includes identification and analysis of key risk exposures, recommendation of insurance coverage, and managing incident reporting.

The Systems, Analytics and Insights Group (SAIG) is the newest department to join the Finance Division. Started in 2012, this group is dedicated to maintaining and enhancing the financial and operational systems on which employees and customers of the Finance Division depend. SAIG brings together multiple business processes and transactional systems to create a new organizational competency centered around leveraging information for decision making using Business Intelligence and other Advanced Analytical capabilities.

ACCORDING TO TIME-PERIOD

It is based on the time period for which the money is required. The time period is commonly classified into following three:

 

Long-Term Resources of Finance

 

It means capital requirements for a period of more than 5 years to 10, 15, 20 years or maybe more depending on other factors. Capital expenditures in fixed assets like plant and machinery, land and building etc of a business are funded using long-term sources of finance. Long-term financing sources can be in form of any of them:

·                     Share Capital or Equity Shares

·                     Preference Capital or Preference Shares

·                     Retained Earnings or Internal Accruals

·                     Debenture / Bonds

·                     Term Loans from Financial Institutes, Government, and Commercial Banks

·                     Venture Funding

·                     Asset Securitization

·                     International Financing by way of Euro Issue, Foreign Currency Loans, ADR, GDR etc

 

Medium Term Sources of Finance

 

It means financing for a period of 3 to 5 years and is used generally for two reasons. It can be in the form of one of them:

·                     Preference Capital or Preference Shares

·                     Debenture / Bonds

·                     Medium Term Loans from

·                     Financial Institutes

·                     Government, and

·                     Commercial Banks

·                     Lease Finance

·                     Hire Purchase Finance

 

Short Term Sources of Finance

 

It means  financing for a period of less than 1 year.

ACCORDING TO OWNERSHIP AND CONTROL

Resources of finance is as follows.

 

Owned Capital

 

It refers to equity capital. It is sourced from promoters of the company

 

Borrowed Capital

 

It is the capital arranged from outside sources.

ACCORDING TO SOURCE OF GENERATION:

Internal Resources

 

It is the capital which is generated internally by the business.

 

External Resources

 

It is the capital generated from outside the business.

Purchase of Assets

 

An asset is an economic resource. Anything tangible or intangible that can be owned or controlled to produce value and that is held by a company to produce positive economic value is an asset. Simply stated, assets represent value of ownership that can be converted into cash. Purchase of assets can have strikingly different tax, as well as non-tax, consequences for the buyer of the business. It is therefore important for the buyer that the advantages and disadvantages of these two alternative structures be carefully evaluated. The evaluation should then be reflected in the negotiations with respect to both the transactional structure and the price which the buyer is to pay for purchase of the business.

The following checklist summarizes some of the more important factors to be considered

Accounting

It is not necessary to be able to legally enforce the asset's benefit for qualifying a resource as being an asset, provided the entity can control its use by other means.

It is the mathematical structure of the balance sheet. It relates assets, liabilities, and owner's equity:

Assets = Liabilities + Capital (which for a corporation equals owner's equity)

Liabilities = Assets − Capital

Equity = Assets − Liabilities

Assets are listed on the balance sheet. On a company's balance sheet certain divisions are required by generally accepted accounting principles (GAAP), which vary from country to country. Assets can be divided into e.g. current assets and fixed assets, often with further subdivisions such as cash, receivables and inventory.

Current assets

Current assets are cash and other assets expected to be converted to cash or consumed either in a year or in the operating cycle (whichever is longer), without disturbing the normal operations of a business. These assets are continually turned over in the course of a business during normal business activity. There are 6 major items included into current assets:

Cash and cash equivalents – it is the most liquid asset, which includes currency, deposit accounts, and negotiable instruments (e.g., money orders, cheque, bank drafts).

Short-term investments – include securities bought and held for sale in the near future to generate income on short-term price differences (trading securities).

Receivables – usually reported as net of allowance for non-collectable accounts.

Inventory – trading these assets is a normal business of a company. The inventory value reported on the balance sheet is usually the historical cost or fair market value, whichever is lower. This is known as the "lower of cost or market" rule.

Prepaid expenses – these are expenses paid in cash and recorded as assets before they are used or consumed (common examples are insurance or office supplies). See also adjusting entries.

Marketable securities: Securities that can be converted into cash quickly at a reasonable price.

Long-term investments

It are to be held for many years and are not intended to be disposed of in the near future. This group usually consists of three types of investments:

Investments in securities such as bonds,  common stock, or long-term notes.

Investments in fixed assets not used in operations.

Fixed assets

It also referred to as PPE (property, plant, and equipment), these are purchased for continued and long-term use in earning profit in a business. This group includes as an asset land, buildings, machinery, furniture, tools, IT equipment, e.g., laptops, and certain wasting resources e.g., timberland and minerals. They are written off against profits over their anticipated life by charging depreciation expenses (with exception of land assets). Accumulated depreciation is shown in the face of the balance sheet or in the notes. An asset is an important factor in a balance sheet.

These are also called capital assets in management accounting.

Intangible assets

Intangible assets lack of physical substance and usually are very hard to evaluate. They include patents, copyrights, franchises, goodwill, trademarks, trade names, etc. These assets are (according to US GAAP) amortized to expense over 5 to 40 years with the exception of goodwill.

Websites are treated differently in different countries and may fall under either tangible or intangible assets.

Tangible assets

Tangible assets are those that have a physical substance, such as currencies, buildings, real estate, vehicles, inventories, equipment, art collections, precious metals, rare-earth metals, Industrial metals, and crops.

Depreciation is applied to tangible assets when those assets have an anticipated lifespan of more than one year. This process of depreciation is used instead of allocating the entire expense to one year.

Tangible assets such as art, furniture, stamps, gold, wine, toys and books have become recognized as an asset class in their own right and many high-net-worth individuals will seek to include these tangible assets as part of their overall asset portfolio. This has created a need for tangible asset managers.

Conclusion

Financing short-term needs is essentially a financing of current assets using short-term financial resources. Current assets, however, are usually funded in part through long-term financial resources that can fund a permanent as well as transitional part of current assets. Different sources are used to finance current assets. It is mainly the trade credit, which is a natural source of financing of the customer by the supplier. It represents the customer's liabilities arising from the delay payments to suppliers for the receipt of the goods. Short-term bank loans are loans whose lenders are banks. Loans are provided in various forms. Knowledge of forms and parameters of short-term bank loans is a prerequisite for the effective finance operation and the use of bank loans to the fulfillment of the objectives of the company.  Part of the short-term financial resources are a variety of obligations, which form a source from their creation to the time of their payment. Optimal composition of short-term financial resources contributes to ensure the ability to pay as one of the fundamental objectives of the company in its finance operation.