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This document outlines essential finance and accounting practices for new software engineers starting their own businesses, including the need for capital, sources of funds, budgeting, sales monitoring, costing, pricing strategies, annual financial statements, capital maintenance, and auditing. It emphasizes the importance of financial management in ensuring business success and provides guidance on creating a business plan, managing funds, and maintaining accurate financial records. Key topics include the types of costs, pricing scenarios, and the role of auditors in verifying financial accuracy.

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Zeeshan Ahmad
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2 views3 pages

week4

This document outlines essential finance and accounting practices for new software engineers starting their own businesses, including the need for capital, sources of funds, budgeting, sales monitoring, costing, pricing strategies, annual financial statements, capital maintenance, and auditing. It emphasizes the importance of financial management in ensuring business success and provides guidance on creating a business plan, managing funds, and maintaining accurate financial records. Key topics include the types of costs, pricing scenarios, and the role of auditors in verifying financial accuracy.

Uploaded by

Zeeshan Ahmad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Professional Practices: Finance and Accounting

Contents
1. The Need for Capital
2. Sources of Funds
3. Budgeting and Monitoring
4. Sales and Order Intake
5. Costing
6. Pricing
7. Annual Statements
8. Capital and Its Maintenance
9. Auditing

Introduction
Every organization needs strong financial management to succeed. This chapter
covers key finance and accounting topics relevant to new software engineers,
especially those starting their own businesses.

1. The Need for Capital


Starting a business (e.g., software services or product development) requires
money for:
• Salaries
• Rent & bills
• Equipment
• Advertising
• Miscellaneous expenses
• Loan interest
Business Plan Requirements:
• Description of the company’s work and feasibility.
• Market size and competition analysis.
• Financial performance predictions.

2. Sources of Funds
Three main ways to get money:
1. Grants
o Free money (no repayment).
o Must be used as agreed.
2. Loans
o Borrowed money (must repay + interest).
o If the company fails, lenders recover funds from assets.
3. Equity Capital
o Investors give money in exchange for ownership (shares).
o Advantage: No repayment. Disadvantage: Loss of control.

3. Budgeting and Monitoring


• A budget is a financial plan (usually yearly) predicting income and
expenses.
• Helps track performance by comparing actual spending vs. planned
spending.
• Adjustments are made until profits are realistic.
Process:
1. Create a draft budget.
2. Compare monthly actuals vs. budget.
3. Fix overspending issues quickly.

4. Sales and Order Intake


• Sale: Exchange of goods/services for money.
• Order Intake: Customer requests to buy products/services.
• Sales levels affect pricing, costs, and overheads.
Why Monitor Sales?
• Ensures the business stays profitable.

5. Costing
Pricing depends on:
• Production costs.
• Market competition.
• Demand elasticity.
Cost Types:
• Raw Materials: Items processed into products.
• Bought-in Items: Pre-made parts used in products.
• Equipment & Labor: Cost of tools and employee wages.
• Overheads: Indirect costs (e.g., marketing, management).

6. Pricing
Setting prices involves balancing:
• Costs (must be covered).
• Market competition.
• Customer willingness to pay.
Software Pricing Scenarios:
1. Service-Based (e.g., consultancy, paid by effort).
2. Fixed-Price Contracts (e.g., custom software).
3. Product Sales (e.g., pre-developed software).

7. Annual Statements
Companies must file yearly financial reports, including:
1. Balance Sheet
o Shows assets (what the company owns) and liabilities (what it owes).
o Must balance (assets = liabilities).
2. Profit & Loss Account
o Tracks income and expenses.
o Shows if the company made a profit or loss.

8. Capital and Its Maintenance


• Capital acts as a financial safety net for obligations.
• Rules to protect capital:
o No selling shares below value.
o No refunding shareholders’ initial investments.

9. Auditing
• Auditors check if financial records are accurate and legal.
• They:
o Review financial procedures.
o Sample-check transactions.
• Directors are responsible for fraud prevention, but auditors must report any
fraud found.

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