Capital Budgeting is the process by which the firm decides which long-term investments to make.

The decision to accept or reject a Capital Budgeting project depends on an analysis of the cash flows generated by the project and its cost. The following three Capital Budgeting decision rules will be presented: Payback Period it is the exact amount of time required for a firm to recover its initial investment by a firm in a project as calculated from cash inflows. Net Present Value (NPV) - The difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project. Internal Rate of Return (IRR) - The discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero. Generally speaking, the higher a project's internal rate of return, the more desirable it is to undertake the project. Accounting Rate of Return-ARR provides a quick estimate of a project's worth over its useful life. ARR is derived by finding profits before taxes and interest. Discounting pay back period Profitability index What is difference between fund flow and cash flow statement? Difference Between Cash Flow and Funds Flow Statement Many people think that both cash and fund are same, however they both are different and so is the case with cash flow statement and funds flow statement. Lets look at some of the differences between cash flow and funds flow statement 1. While funds flow statement reveals the change in the working capital of a company between two balance sheet dates while cash flow statement reveals the change in the cash position of the company between two balance sheet dates. 2. As funds flow statement shows the change in working capital it deals with all the components of working capital while cash flow statement deals only with cash and cash equivalents. 3. In case of funds flow statement schedule of changes in working capital is prepared while in case of cash flow statement no such schedule is prepared. 4. While cash flow statement there is classification of cash flows as cash flow from operating activities, cash flow from investment activities and cash flow from financing activities, but as far as funds flow statement is concerned there is no such classification. 5. As cash flow statement is only concerned with cash related transactions it is can be easily understood by a person who does not have accounting knowledge which is not the case with funds flow statement. What is difference between balance sheet and cash flow & fund flow statement? What is difference between amortization, depreciation and depletion? Amortization: Gradual repayment of a loan in equal (or nearly equal) installments which include portions of interest and principal amounts.

Depreciation is used in accounting to try to match the expense of an asset to the income that the asset helps the company earn.

An accrual accounting method that companies use to allocate the cost of extracting natural resources such as timber, minerals and oil from the earth. What r preliminary expenses and how it is treated? Costs incurred in the formation of a firm, and in advertising, promotional activities, employee training, etc., before the firm can open its doors for business. Also called preliminary expenses or startup expenses. What is accounting equation? How is double entry better then single entry accounting? Advantages of Double Entry Over Single Entry System: In double entry system of bookkeeping as two fold aspect of each transaction is recorded in the books, a trial balance can be prepared to prove the arithmetical accuracy of the transaction. No trial balance can be prepared under single entry system and hence accuracy of books cannot be proved. In double entry system the risk of fraud or its non discovery is less. But under single entry system chances of fraud or mistake remaining undetected are very high. In double entry system a trading and profit and loss account can be prepared very easily. The proprietor can know the profit earned or loss suffered by has business. Under single entry system no trading and profit and loss account can be prepared scientifically and, hence, the proprietor will have no firm idea of profit earned or loss suffered. In double entry system a balance sheet can be prepared from the books of accounts. The correctness of assets and liabilities can be proved. The balance sheet called statement of affairs in a single entry system is prepared in an unsatisfactory manner. The assets and liabilities are not proved from records. Hence the correctness of assets and liabilities cannot be relied upon. what is contra entry? Book keeping entry that is entered on the opposite side of an earlier entry to cancel its effect on the account balance. What is bank reconciliation statement? Types of GAAP and difference between Indian and US GAAP? What is capital expenditure and revenue expenditure? Concept of business entity. What is bad debt? What is credit and debit balance? A debit balance is what you owe. It's entered as accounts receivable on the books of the lender and appears on your account statement as a liability. A credit balance is what you own. It's entered as accounts payable on the books of the lender and appears on your account statement as an asset.