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Profit and loss statement tells about company’s revenues and expenses in a particular period. It tells whether, company gets profit or loss through cash flows. To invest in company investors will look for financial strength of the company. Profit and loss statement serve as one of the instrument to check financial strength of the company.Information required to prepare profit and loss statements is given below −All business transactions.Petty cash & cash receipts.Source of income.Discounts or returns (if any).Common terms in profit and loss statements are mentioned below −Revenue − It includes total sales, cash from property/ equipment sales and refund ... Read More
Trading account is the account which maintains trading activities of the firm. The entries mainly include net sales, cost of goods sold. This tells whether final result is loss or profit.DebitCreditParticularsAmountParticularsAmountTo opening stockXXXXBy sales XXXXTo purchases XXXXLess: return inwards (XXX)XXXXLess: Return outwards (XXX)XXXXBy closing stockXXXXTo wagesXXXBy Gross LossXXXTo Carriage inwardsXXXTo freight inwards/cartageXXXTo Gross profit c/dXXXXXXXXXXXFeatures of trading account are as follows −Preparation of accounting statements of trading activities.Records net sales and cost of goods sold.Balance these accounts to find whether it profit or loss.Transfer balance to profit and loss account.Contents of a trading accounting are as follows −Opening stock − ... Read More
The amount which is kept aside from profits to strengthen financial position of a firm. It is also called retained earnings. Reserves are used buy new assets, pay bonuses, spent for repairs and maintenance, pay off debt etc.They can also use for dividend payments, to meet contingencies, legal requirements, investing etc.Types of reserves are as follows −Capital reserves − Capital revenue created from capital profits. It has no effect on net profit and they are not available for distribution.Profit on sale of fixed asset.Premium charged on issue of debenture/capital share capital.Increase value of asset by revaluation.Gain on redemption of debenture.Revenue ... Read More
Provision is the amount which kept aside to cover future expenses. A provision is a separated fund which kept aside to cover certain expense. A provision is not a reserve. The main purpose is make balance sheet more accurate in accounting period or financial year.A provision can recognised if it meets criteriaAn entity which has present obligation due to past events.It may be cash outflow to settle obligation.Objectives of provisions are as follows −Correct financial statements.Predict losses and liabilities.Meet known losses and liabilities.Examples are as follows −Guarantees.Losses.Deferred tax.Restructuring liabilities.Depreciation.Bad debts.Sales allowances.The amount which is kept aside to pay for firm ... Read More
A derivative is a financial instrument which measures the value of an underlying assets. The value is depending on market conditions. Most common derivatives are forwards, futures, options and swaps.Derivatives provide leverages.Derivatives makes profit.Derivatives mitigate risk.Derivatives create option ability.Hedgers, speculators, margin traders and arbitrageurs participates in derivatives market.Derivative categories are as follows −Forward commitments.Contingent claims.Some of the advantages of derivatives are as follows −Decrease the risk.Market efficiency.Diversification of portfolio.Price lock.Choice of leverage.Some of the disadvantages of derivatives are as follows −High risks.More speculations.More complicated.Hard to value.Sensitive to supply and demand factors.Derivatives used in India are as follows −Forward contracts − ... Read More
Foreign direct investment (FDI) is the investment made by a company (one country) with another company/corporation in another country, either to buy a company in specified country or to expand business in the specified country.If an investor obtains a 10 voting power in a firm is called lasting interest. If a firm has to be considered, its investment as FDI is established its lasting interest. FDI is important for developing countries and emerging markets, as they need funding and expand their sales internationally.Methods of FDI are as follows −Mergers and acquisitions.Joint ventures.Types of FDIs are mentioned below −Horizontal − A ... Read More
The types of factoring are explained below −Recourse factoring − In this, client had to buy back unpaid bills receivables from factor.Non – recourse factoring − In this, client in which there is no absorb for unpaid invoices.Domestic factoring − When the customer, the client and the factor are in same country.Export factoring − It involves four parties, the exporter, the export factor, the import factor and the importer. It is also called as cross border factoring.Disclosed factoring − If factor name is represented on the invoice of the goods or services and asks customer to pay the factor.Undisclosed factoring ... Read More
In international factoring, the exporter will hire the factor who works for a factoring firm. The factor is responsible for all the cash flows. The factor is the guarantee for the import price of goods to the exporter.Functions of international factoring are as follows −Factor hire a local person to deal with the importer.Factor will look into financial aspects between exporter and importer.Factor will look for strong financially potential importer in the market.Factor collect their requirement from importer and he will pay if importer fails.Types of international factoring are as follows −Two factor system.Single factor system.Direct export factoring.Direct import factoring.Some ... Read More
Non – recourse factoring is an agreement made between factor and the client in which, there is no absorb for unpaid invoices.Higher fees.Lower liability.Unpaid invoices are not covered.Rate ranges from 3-5 %.A non – recourse factoring does not offer you protection, if there exists any of the below mentioned conditions −Customer is not satisfied with your service/products.There is delay in payments.There are disputes between invoices and pay.If there are any credit issues or any insolvency, they will make payments.Benefits of Non- recourse financing are as follows −Transfer of insolvency.Strong capital.Administrative costs decreases.Assessment of risk profile is done by factor.Client reliability ... Read More
Recourse factoring is an agreement between client and factor in which, client had to buy back unpaid bills receivables from factor. In case of default payers factor can claim their money, agreement will specify in how many days the payment should refund in advance. Whether money will refund or not, we have to still pay interest and fee.Replace with goods invoice with same value as of unpaid invoice.Pay with the help of withheld fees.Pay in instalments.Uses of recourse factoring are as follows −Creditworthy invoice clients.Need not pay high fees.Access to capital.Access to capital.Regular cash flows.Improves payment flows.Improves competitiveness.Some of the ... Read More