11 Commonly Used Finance Management Terminologies Defined!

Definition of finance management are given below:

(1) Budget:

It is a plan for the allocation of resources.

(2) Balance Sheet:

It is a statement showing the assets and liabilities of the school/college in a classified and summarized manner at a given date.

An asset is defined as property of every description owned by the institution and which has an exchange value, e.g. building, furniture, vehicles, machinery, etc.

A liability is a monetary obligation. It is the amount of money owned by the school/college to others, e.g. loans taken, deposit/caution money taken from students, goods and services obtained from creditors etc.

The difference between the assets and the liabilities represent the capital or the funds owned by the institution.

(3) Income and Expenditure Account:

It is the statement showing the sources of income and the items of expenditure of the institution during a given period. It is also known as financial statement.

Income includes fees, interest, rent, sale of items/good prepared by students etc.

Expenditure includes the cost of material consumed, salaries paid to staff, electricity, travelling, telephones, hospitality, interest on loans, depreciation, uniforms of staff (peons), maintenance and repairs of building, equipment and vehicles etc.

(4) Accounting:

It is a system of recording expenditures and income to give a true measure of the financial worth of a school/college and its adherence to its budget.

(5) Cost:

It is that which is given up. i.e. the resources which are consumed and which are, therefore, not available for alternative uses.

(6) Opportunity Cost:

It is the cost of not doing the next best thing e.g. if a new computer is purchased, more books for the library cannot be purchased.

(7) Individual Cost:

It is the money spent by the student or his/her parents for acquiring education. It includes fees, books and stationery, travel to school/college, hostel fees, uniforms etc.

(8) Institutional Cost:

It is the amount spent by the institution for carrying out educational activities from its own funds.

(9) Social Cost:

It is the grant-in-aid given to institution; from the money collected by the government from tax-payers. It is also the amount spent by the government in setting up and maintaining schools, colleges and universities.

(10) Formula-based Budget:

It is the allocation of resources based on a specified formula, e.g. Rs. xxx per student.

(11) Incremental Budget:

It assumes that resource allocation will be the same as previous year and that each unit will propose some necessary increases.

Let us now look at the different aspects of financial management.

Submitted by : Professor Harsha, Category : Knowledge, Tag : Essay on Finance