1.Journal: A journal is accounting record of all business transaction.
2. Ledger: A separate record of each similar transaction is called ledger.
3. Trial Balance: A trial balance is a statement of ledger account balances within a ledger at a particular instance.
4. Bank Reconciliation: Bank Reconciliation Statement is a statement prepared mainly to reconcile the difference between the bank balance shown by cash book and pass book.
5. Depreciation : A reduction in the value of an assets with the passage of time due to particular wear and tear.
6. Debit Note : A debit note issued by the purchaser to the seller to inform that we are returning the goods of value …………. Due to damage or whatever and requesting the seller for returning the cost amount of return goods or replace it.
7. Credit Note : The seller issued a credit note to the purchaser that we have received the returned goods by you. And we will replace the goods or will the value amount of return goods.
8. Share : A part of a larger amount that is divided among a number of people or to which a number of people contribute.
9. Intangible Assets :Assets that cannot be physically measured. Eg. Goodwill, patents.
10. Surplus : An amount of something left over requirements have been met, an excess of production or supply over demand.
11. Reserve :
It is credited by debiting the profit and loss appropriation account.
It is created to meet unknown liabilities.
A reserve is created only when there is profit in the business.
It can be distributed among shareholders as dividend.
It is usually shown on the liability side of the balance sheet.
12 Provision :
It is created by debiting the profit and loss account.
It is created to meet a known liability or a specific contingency.
A provision created irrespective of whether there is profit or loss in the business.
It is not available for distribution as dividend among shareholders.
The provision generally shown on the assets side of the balance sheet.
12. TDS : TDS stand for tax deducted at source it is the tax that an assesee to pay at the time of earning an income.
13. Amortization : The reduction of the value of an asset by prorating its cost over a period of years. Amortization is generally known as reduction of intangible assets.
Journal Entry for purchase of intangible assets……….
Intangible Assets A/c ……………………..Dr.
To Cash
When amortization charges on intangible assets………
Amortization Exp. A/c ……………………Dr.
To Intangible Assets
14. Accrued Expenses : An Expenses that is incurred but not yet paid for during a given accounting period.
Journal :
Expenses A/c …………………..…………Dr.
To Accrued Expenses A/c
Or
Expenses A/c……………………………..Dr.
To Creditors
15. Accrued Income : Accrued income is an amount that has been earned there is a right to receive the amount and it has not yet recorded in the general ledger account. It is shown in the assets side of balance sheet.
Journal :
Debtors A/c ……………………………..Dr.
To Services
16. Accounting Equation : The basic accounting equation is the foundation for the double entry system. For each transaction the total debit equal to total credit.
Assets = Liability + Capital
17. Double Entry System : When a transaction effects at least two ledger account in singular transaction called DES.
18. Fixed Assets: A assets that is not consumed or sold during the normal course of business such as land, building, equipment and other such items.
19. Current Assets : Current assets are those assets that will be converted in to cash with in one year, and assets that will be used up in the operation of a business within one year.
20. Fixed Liability : Fixed liability are those liability which has to pay in a long period of time such as long term loan, debenture, capital etc.
21. Current Liability : Current Liability are those liability which has to pay in a very early such as o/s. exp. B/P, B.O. etc.
22. Unearned Income : The income which is related to next year but the amount has received in current year as advance called un earned income. It is shown on the liability side of balance sheet.
Journal :
Unearned Income………………………………Dr.
Source of income.
23.Outstanding Expenses : Outstanding expenses are those expenses which is related to the current financial year but it has not paid yet or which has not recorded in the ledger account. Outstanding exp. Shown in the dr. Side of P/L A/c by adding from its related and in the balance sheet its shown on liability side.
Journal :
Expenses A/c …………………………………..Dr.
To Outstanding Exp.
24.Prepaid Expenses : Prepaid expenses are those expenses which has paid as advance in current year and till the preparing of final account it has not used. Prepaid exp. Shown in the cr. Side of P/L A/c deducting from its related and in the balance sheet its shown on assets side.
Journal :
Prepaid Exp. A/c ………………………………..Dr.
To Exp. A/c.
25. Accounting Principal : The rule or method which is used by an accounting professional to prepare the accurate accounting record or statement is called accounting principal.
Difference Between Secured Loans and Unsecured Loans
Secured Loans vs Unsecured Loans
Secured loans and unsecured loans are two types of loans that bear some differences between them in terms of their rules and regulations, processing and the like.
Secured loans are the loans for which you give some kind of guarantee to the financial institution that lends money regarding the repayment of the loans. Unsecured loan on the other hand is the loan offered to you on the basis of your credit rating that is supposed to be good to be eligible to get the loan.
The type of guarantee that you can give to the financial institution in the case of secured loans may be in the form of assets, car or any other vehicle, documents related to investments made in banks and stocks and the like. On the other hand business people who are not interested in providing their assets as guarantee usually opt for unsecured loan simply by virtue of their existing credit rating.
It is interesting to note that you need not give the assets to the lending institution to get your secured loan sanctioned. The institution believes that it would suffice you own the assets since in case you fail to repay the loan they can initiate action in terms of selling or seizing the assets to compensate the losses. This is the big difference between the two types of loans.
There are some advantages of secured loans in the sense that you get a longer tenure for the repayment of the loans. This is probably the reason why many people would like to opt for secured loans rather than unsecured loans. In the unsecured loans the repayment tenure is usually shorter when compared to the secured loans.
Another advantage of getting secured loans is that they are characterized by lower interest rates. Methods of repayment also are characterized by flexibility in the case of secured loans.
On the other hand unsecured loans are characterized by higher interest rates. This is possibly because of the fact that is normally given by the financial institution without asking for any sort of guarantee.
On the contrary you cannot expect flexibility and options in the methods of repayment of the loans in the case of the unsecured loans. Secured loans are given on the basis of your possession of assets whereas unsecured loans are given on the basis of faith and trust.
Tuesday, January 17, 2012
Saturday, July 24, 2010
Is your insurance company listening to you?
If your complaint have not been addressed by your insurance company please contact.
IRDA Grievance Call Center:-
Toll Free No. 155255
to register your coplaints and track their status or you may email us at:- complaints@irda.gov.in
www.irdaindia.org
IRDA Grievance Call Center:-
Toll Free No. 155255
to register your coplaints and track their status or you may email us at:- complaints@irda.gov.in
www.irdaindia.org
Wednesday, July 21, 2010
Trading Account
Trading Account
As already discussed, first section of trading and profit and loss account is called trading account. The aim of preparing trading account is to find out gross profit or gross loss while that of second section is to find out net profit or net loss.
Preparation of Trading Account
Trading account is prepared mainly to know the profitability of the goods bought (or manufactured) sold by the businessman. The difference between selling price and cost of goods sold is the,5 earning of the businessman. Thus in order to calculate the gross earning, it is necessary to know:
(a) cost of goods sold.
(b) sales.
Total sales can be ascertained from the sales ledger. The cost of goods sold is, however, calculated. n order to calculate the cost of sales it is necessary to know its meaning. The 'cost of goods' includes the purchase price of the goods plus expenses relating to purchase of goods and brining the goods to the place of business. In order to calculate the cost of goods " we should deduct from the total cost of goods purchased the cost of goods in hand. We can study this phenomenon with the help of following formula:
Opening stock + cost of purchases - closing stock = cost of sales
As already discussed that the purpose of preparing trading account is to calculate the gross profit of the business. It can be described as excess of amount of 'Sales' over 'Cost of Sales'. This definition can be explained in terms of following equation:
Gross Profit = Sales-Cost of goods sold or (Sales + Closing Stock) -(Stock in the beginning + Purchases + Direct Expenses)
The opening stock and purchases along with buying and bringing expenses (direct exp.) are recorded the debit side whereas sales and closing stock is recorded on the credit side. If credit side is Jeater than the debit side the difference is written on the debit side as gross profit which is ultimately recorded on the credit side of profit and loss account. When the debit side exceeds the credit side, the difference is gross loss which is recorded at credit side and ultimately shown on the debit side of profit & loss account.
Usual Items in a Trading Account:
A) Debit Side
1. Opening Stock. It is the stock which remained unsold at the end of previous year. It must have been brought into books with the help of opening entry; so it always appears inside the trial balance. Generally, it is shown as first item at the debit side of trading account. Of course, in the first year of a business there will be no opening stock.
2. Purchases. It is normally second item on the debit side of trading account. 'Purchases' mean total purchases i.e. cash plus credit purchases. Any return outwards (purchases return) should be deducted out of purchases to find out the net purchases. Sometimes goods are received before the relevant invoice from the supplier. In such a situation, on the date of preparing final accounts an entry should be passed to debit the purchases account and to credit the suppliers' account with the cost of goods.
3. Buying Expenses. All expenses relating to purchase of goods are also debited in the trading account. These include-wages, carriage inwards freight, duty, clearing charges, dock charges, excise duty, octroi and import duty etc.
4. Manufacturing Expenses. Such expenses are incurred by businessmen to manufacture or to render the goods in saleable condition viz., motive power, gas fuel, stores, royalties, factory expenses, foreman and supervisor's salary etc.
Though manufacturing expenses are strictly to be taken in the manufacturing account since we are preparing only trading account, expenses of this type may also be included in the trading account.
(B) Credit Side
1. Sales. Sales mean total sales i.e. cash plus credit sales. If there are any sales returns, these should be deducted from sales. So net sales are credited to trading account. If an asset of the firm has been sold, it should not be included in the sales.
2. Closing Stock. It is the value of stock lying unsold in the godown or shop on the last date of accounting period. Normally closing stock is given outside the trial balance in that case it is shown on the credit side of trading account. But if it is given inside the trial balance, it is not to be shown on the credit side of trading account but appears only in the balance sheet as asset. Closing stock should be valued at cost or market price whichever is less.
Valuation of Closing Stock
The ascertain the value of closing stock it is necessary to make a complete inventory or list of all the items in the god own together with quantities. On the basis of physical observation the stock lists are prepared and the value of total stock is calculated on the basis of unit value. Thus, it is clear that stock-taking entails (i) inventorying, (ii) pricing. Each item is priced at cost, unless the market price is lower. Pricing an inventory at cost is easy if cost remains fixed. But prices remain fluctuating; so the valuation of stock is done on the basis of one of many valuation methods.
The preparation of trading account helps the trade to know the relationship between the costs be incurred and the revenues earned and the level of efficiency with which operations have been conducted. The ratio of gross profit to sales is very significant: it is arrived at :
Gross Profit X 100 / Sales
With the help of G.P. ratio he can ascertain as to how efficiently he is running the business higher the ratio, better will be the efficiency.
Closing Entries pertaining to trading Account
For transferring various accounts relating to goods and buying expenses, following closing entries recorded:
(i) For opening Stock: Debit trading account and credit stock account
(ii) For purchases: Debit trading account and credit purchases account, the amount being the et amount after deducting purchases returns.
(iii) For purchases returns: Debit purchases return account and credit purchases account.
(iv) For returns inwards: Debit sales account and credit sales return account
(v) For direct expenses: Debit trading account and credit direct expenses accounts individually.
(vi) For sales: Debit sales account and credit trading account. We will find that all the accounts as mentioned above will be closed with the exception of trading account
(vii) For closing stock: Debit closing stock account and credit trading account After recording above entries the trading account will be balanced and difference of two sides ascertained. If credit side is more the result is gross profit for which following entry is recorded.
(viii) For gross profit: Debit trading account and credit profit and loss account If the result is gross loss the above entry is reversed.
Profit and Loss Account
The profit and loss account is opened by recording the gross profit (on credit side) or gross loss (debit side).
For earning net profit a businessman has to incur many more expenses in addition to the direct expenses. Those expenses are deducted from profit (or added to gross loss), the resultant figure will be net profit or net loss.
The expenses which are recorded in profit and loss account are ailed 'indirect expenses'. These be classified as follows:
Selling and distribution expenses.
These comprise of following expenses:
(a) Salesmen's salary and commission
(b) Commission to agents
(c) Freight & carriage on sales
(d) Sales tax
(e) Bad debts
(f) Advertising
(g) Packing expenses
(h) Export duty
Administrative Expenses.
These include:
(a) Office salaries & wages
(b) Insurance
(c) Legal expenses
(d) Trade expenses
(e) Rates & taxes
(f) Audit fees
(g) Insurance
(h) Rent
(i) Printing and stationery
(j) Postage and telegrams
(k) Bank charges
Financial Expenses
These comprise:
(a) Discount allowed
(b) Interest on Capital
(c) Interest on loan
(d) Discount Charges on bill discounted
Maintenance, depreciations and Provisions etc.
These include following expenses
(a) Repairs
(b) Depreciation on assets
(c) Provision or reserve for doubtful debts
(d) Reserve for discount on debtors.
Along with above indirect expenses the debit side of profit and loss account comprises of various business losses also.
On the credit side of profit and loss account the items recorded are:
(a) Discount received
(b) Commission received
(c) Rent received
(d) Interest received
(e) Income from investments
(f) Profit on sale of assets
(g) Bad debts recovered
(h) Dividend received
(i) Apprenticeship premium etc.
As already discussed, first section of trading and profit and loss account is called trading account. The aim of preparing trading account is to find out gross profit or gross loss while that of second section is to find out net profit or net loss.
Preparation of Trading Account
Trading account is prepared mainly to know the profitability of the goods bought (or manufactured) sold by the businessman. The difference between selling price and cost of goods sold is the,5 earning of the businessman. Thus in order to calculate the gross earning, it is necessary to know:
(a) cost of goods sold.
(b) sales.
Total sales can be ascertained from the sales ledger. The cost of goods sold is, however, calculated. n order to calculate the cost of sales it is necessary to know its meaning. The 'cost of goods' includes the purchase price of the goods plus expenses relating to purchase of goods and brining the goods to the place of business. In order to calculate the cost of goods " we should deduct from the total cost of goods purchased the cost of goods in hand. We can study this phenomenon with the help of following formula:
Opening stock + cost of purchases - closing stock = cost of sales
As already discussed that the purpose of preparing trading account is to calculate the gross profit of the business. It can be described as excess of amount of 'Sales' over 'Cost of Sales'. This definition can be explained in terms of following equation:
Gross Profit = Sales-Cost of goods sold or (Sales + Closing Stock) -(Stock in the beginning + Purchases + Direct Expenses)
The opening stock and purchases along with buying and bringing expenses (direct exp.) are recorded the debit side whereas sales and closing stock is recorded on the credit side. If credit side is Jeater than the debit side the difference is written on the debit side as gross profit which is ultimately recorded on the credit side of profit and loss account. When the debit side exceeds the credit side, the difference is gross loss which is recorded at credit side and ultimately shown on the debit side of profit & loss account.
Usual Items in a Trading Account:
A) Debit Side
1. Opening Stock. It is the stock which remained unsold at the end of previous year. It must have been brought into books with the help of opening entry; so it always appears inside the trial balance. Generally, it is shown as first item at the debit side of trading account. Of course, in the first year of a business there will be no opening stock.
2. Purchases. It is normally second item on the debit side of trading account. 'Purchases' mean total purchases i.e. cash plus credit purchases. Any return outwards (purchases return) should be deducted out of purchases to find out the net purchases. Sometimes goods are received before the relevant invoice from the supplier. In such a situation, on the date of preparing final accounts an entry should be passed to debit the purchases account and to credit the suppliers' account with the cost of goods.
3. Buying Expenses. All expenses relating to purchase of goods are also debited in the trading account. These include-wages, carriage inwards freight, duty, clearing charges, dock charges, excise duty, octroi and import duty etc.
4. Manufacturing Expenses. Such expenses are incurred by businessmen to manufacture or to render the goods in saleable condition viz., motive power, gas fuel, stores, royalties, factory expenses, foreman and supervisor's salary etc.
Though manufacturing expenses are strictly to be taken in the manufacturing account since we are preparing only trading account, expenses of this type may also be included in the trading account.
(B) Credit Side
1. Sales. Sales mean total sales i.e. cash plus credit sales. If there are any sales returns, these should be deducted from sales. So net sales are credited to trading account. If an asset of the firm has been sold, it should not be included in the sales.
2. Closing Stock. It is the value of stock lying unsold in the godown or shop on the last date of accounting period. Normally closing stock is given outside the trial balance in that case it is shown on the credit side of trading account. But if it is given inside the trial balance, it is not to be shown on the credit side of trading account but appears only in the balance sheet as asset. Closing stock should be valued at cost or market price whichever is less.
Valuation of Closing Stock
The ascertain the value of closing stock it is necessary to make a complete inventory or list of all the items in the god own together with quantities. On the basis of physical observation the stock lists are prepared and the value of total stock is calculated on the basis of unit value. Thus, it is clear that stock-taking entails (i) inventorying, (ii) pricing. Each item is priced at cost, unless the market price is lower. Pricing an inventory at cost is easy if cost remains fixed. But prices remain fluctuating; so the valuation of stock is done on the basis of one of many valuation methods.
The preparation of trading account helps the trade to know the relationship between the costs be incurred and the revenues earned and the level of efficiency with which operations have been conducted. The ratio of gross profit to sales is very significant: it is arrived at :
Gross Profit X 100 / Sales
With the help of G.P. ratio he can ascertain as to how efficiently he is running the business higher the ratio, better will be the efficiency.
Closing Entries pertaining to trading Account
For transferring various accounts relating to goods and buying expenses, following closing entries recorded:
(i) For opening Stock: Debit trading account and credit stock account
(ii) For purchases: Debit trading account and credit purchases account, the amount being the et amount after deducting purchases returns.
(iii) For purchases returns: Debit purchases return account and credit purchases account.
(iv) For returns inwards: Debit sales account and credit sales return account
(v) For direct expenses: Debit trading account and credit direct expenses accounts individually.
(vi) For sales: Debit sales account and credit trading account. We will find that all the accounts as mentioned above will be closed with the exception of trading account
(vii) For closing stock: Debit closing stock account and credit trading account After recording above entries the trading account will be balanced and difference of two sides ascertained. If credit side is more the result is gross profit for which following entry is recorded.
(viii) For gross profit: Debit trading account and credit profit and loss account If the result is gross loss the above entry is reversed.
Profit and Loss Account
The profit and loss account is opened by recording the gross profit (on credit side) or gross loss (debit side).
For earning net profit a businessman has to incur many more expenses in addition to the direct expenses. Those expenses are deducted from profit (or added to gross loss), the resultant figure will be net profit or net loss.
The expenses which are recorded in profit and loss account are ailed 'indirect expenses'. These be classified as follows:
Selling and distribution expenses.
These comprise of following expenses:
(a) Salesmen's salary and commission
(b) Commission to agents
(c) Freight & carriage on sales
(d) Sales tax
(e) Bad debts
(f) Advertising
(g) Packing expenses
(h) Export duty
Administrative Expenses.
These include:
(a) Office salaries & wages
(b) Insurance
(c) Legal expenses
(d) Trade expenses
(e) Rates & taxes
(f) Audit fees
(g) Insurance
(h) Rent
(i) Printing and stationery
(j) Postage and telegrams
(k) Bank charges
Financial Expenses
These comprise:
(a) Discount allowed
(b) Interest on Capital
(c) Interest on loan
(d) Discount Charges on bill discounted
Maintenance, depreciations and Provisions etc.
These include following expenses
(a) Repairs
(b) Depreciation on assets
(c) Provision or reserve for doubtful debts
(d) Reserve for discount on debtors.
Along with above indirect expenses the debit side of profit and loss account comprises of various business losses also.
On the credit side of profit and loss account the items recorded are:
(a) Discount received
(b) Commission received
(c) Rent received
(d) Interest received
(e) Income from investments
(f) Profit on sale of assets
(g) Bad debts recovered
(h) Dividend received
(i) Apprenticeship premium etc.
Friday, July 9, 2010
What is the difference between Direct expenses and Indirect expenses?
Direct Expneses relate with Production, for example Raw
Material cost is Rs. 80/- freight cartidge Rs. 20/- and
Labour expnese Rs. 30/- the total production expenses will
be Rs. 130/- and the freight and labour expenses will be
considered as Direct Expenses. The Formula for GP (Gross
Profit is Opening stock + Purchase -Sale+Closing Stock-
Direct Expnese = GP, then for NP GP+Indirect Income -
indirect Expneses = NP, then it will be distributed between
partners to affect their Capital Value.
INDIRECT EXPNESES : After finished product is ready, the
cost of ADVERTISING and Business Promotion expenses for
that product will be add up in Indirect Expnese. other
examples fo indirect expenses are Printing and Stationary
Exp, Telephone Exp. Office Expneses etc.
Material cost is Rs. 80/- freight cartidge Rs. 20/- and
Labour expnese Rs. 30/- the total production expenses will
be Rs. 130/- and the freight and labour expenses will be
considered as Direct Expenses. The Formula for GP (Gross
Profit is Opening stock + Purchase -Sale+Closing Stock-
Direct Expnese = GP, then for NP GP+Indirect Income -
indirect Expneses = NP, then it will be distributed between
partners to affect their Capital Value.
INDIRECT EXPNESES : After finished product is ready, the
cost of ADVERTISING and Business Promotion expenses for
that product will be add up in Indirect Expnese. other
examples fo indirect expenses are Printing and Stationary
Exp, Telephone Exp. Office Expneses etc.
Saturday, July 3, 2010
Wednesday, June 23, 2010
The Accounting Equation
The resources controlled by a business are referred to as its assets. For a new business, those assets originate from two possible sources:
* Investors who buy ownership in the business
* Creditors who extend loans to the business
Those who contribute assets to a business have legal claims on those assets. Since the total assets of the business are equal to the sum of the assets contributed by investors and the assets contributed by creditors, the following relationship holds and is referred to as the accounting equation :
Assets = Liabilities + Owners' Equity
Resources Claims on the Resources
Accounting equation is a statement of equality between the debit and credit showing that the assets of a business are always equal to the total of liability and capital.
Example :- (1)Started business with capital INR 1,50,000/-
Assets = capital/cash 1,50,000/- = capital 1,50,000/-
(2)Purchases goods on credit 50,000/-
(a)Assets = Liability + Capital
Cash 1,50,000/- + Stock 50,000/- = Capital 1,50,000/-
(b)Liability = Assets - Capital
Liability50,000 = (cash1,50,000+stock50,000)-Capital1,50,000
(c)Capital=Assets-Laibility
Capital1,50,000=(Cash1,50,000+Stock50,000)-Liability50,000
(d)Assets-Capital-Liability=0
(Cash1,50,000=Stock50,000)-Capital 1,50,000-Liability 50,000=0
* Investors who buy ownership in the business
* Creditors who extend loans to the business
Those who contribute assets to a business have legal claims on those assets. Since the total assets of the business are equal to the sum of the assets contributed by investors and the assets contributed by creditors, the following relationship holds and is referred to as the accounting equation :
Assets = Liabilities + Owners' Equity
Resources Claims on the Resources
Accounting equation is a statement of equality between the debit and credit showing that the assets of a business are always equal to the total of liability and capital.
Example :- (1)Started business with capital INR 1,50,000/-
Assets = capital/cash 1,50,000/- = capital 1,50,000/-
(2)Purchases goods on credit 50,000/-
(a)Assets = Liability + Capital
Cash 1,50,000/- + Stock 50,000/- = Capital 1,50,000/-
(b)Liability = Assets - Capital
Liability50,000 = (cash1,50,000+stock50,000)-Capital1,50,000
(c)Capital=Assets-Laibility
Capital1,50,000=(Cash1,50,000+Stock50,000)-Liability50,000
(d)Assets-Capital-Liability=0
(Cash1,50,000=Stock50,000)-Capital 1,50,000-Liability 50,000=0
3 Basic Rules in Accounting.
1.personal account
debit the receiver
credit the giver
2.nominal account
all expence and loses debit
all incomes and gains credit
3.real account
what comes in debit
what goes out credit
debit the receiver
credit the giver
2.nominal account
all expence and loses debit
all incomes and gains credit
3.real account
what comes in debit
what goes out credit
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