Found 96 Articles for Academic Content

According to International Financial Reporting standards (IFRS), Liabilities are present obligations of the enterprises arising from past events, the settlement of which is expected to result in an outflow from the enterprises of resources embodying economic benefits.In simple words, it is amount owned by the company to the creditors.Classification of liabilities is as follows −Current liabilities − Payment period is less than one year. It is also called as short term liability.Examples − Accounts payable, interest payable, income tax payables, bills payable, bank account overdrafts, accrued expenses, short term loans.Non – current liabilities − Payment period is more than one ... Read More

An asset is a resource which has an economic value which can generate future cash flows. It is owned or controlled by individuals, corporation or a government. Asset can be a property, inventory, trademarks or patents.Based on its liquidity, assets are recorded in the balance sheet in descending order. More the asset is liquid takes more time to convert into cash.Classification of assetsThe assets are classified as follows −ExamplesThe examples of assets as per convertibility are as follows −Currents assets − Cash, cash equivalents, short term deposits, stock, office supplies, marketable securities etc.Non- current assets − Land, building, equipment, machinery, ... Read More

The main difference between accrual base accounting and cash base accounting is as follows −Cash based accountingAccrual based accountingIt is a single entry accounting.Only cash transactions are recognised.Doesn’t recognise account receivables or accounts payable.Useful for small companies.Easy to understand.Focus on liquidity.Not recognised by companies act.Not a holistic approach.Not more accurate.Matching concept can’t be applicable.Low degree of accuracy.Shows lower income in income statement.Doesn’t meet GAAP requirements.Can mislead financial status.It is double entry accounting.Revenue and expenses are recorded irrespective of cash.Commonly used method.Complex and difficult to understand.Recognised by companies act.Focus on revenue, expenses, profit and loss.It has holistic approach.More accurate method.Match concept ... Read More

Cash based accounting means, it records only those transactions relates to cash. That means transactions of revenue and expenses are recorded when payments are made or received through cash only. It is a single entry accounting.It is useful for simple accounting system.It is used, if inventory is to be valued.It is useful, when audit is not necessary.It is useful in services business.Reasons why companies prefer cash based accounting are given below −Single entry accounting.Few financial transactions.Very few employees.Few valuable physical assets.Very few inventory, supplies and cash in bank.Sole proprietorship.Privately held.Legal reporting includes −Supports company’s income tax reporting.Paid government taxes.Forecast future ... Read More

Bookkeeping is keeping the record of business transactions on day to day basis. It includes identifying, measuring and recording of transactions. Bookkeeping is basis of preparing accounting statements. It records below transactions, but not limited to, Payments to suppliers.Loan payments.Invoice payments.Asset depreciation.Generating financial reports.In olden days, that means days before digitalisation. Bookkeeping starts with entries in general ledgers, later in place of general ledgers special ledgers and day books were introduced. Special ledgers are separated ledgers for sales, purchases, cash receipts, cash payments etc. these entries were made on day wise.Likewise, ledgers for sales, rent, wages, loans etc. are maintained ... Read More

Accounting is process of recording financial transactions of a firm. These recordings are classified into assets, liabilities, revenue, expenses, transactions and reporting. Recording the transactions can be done into −System of book keeping.Tracking transactions.Making financial reports.Objectives of accounting are as follows −Maintain records.Utility resources.Profit and loss.Financial position.Decision making.Different types of accounting are as follows −Managerial accounting.Tax accounting.Financial accounting.Auditing.Forensic accounting.Some of the advantages of accounting are as follows −Maintains business records.Decision making.Comparison of results.Valuation of business.Financial statements preparation.Taxation issues.Some of disadvantages are given below −Manipulation of accounts.Based on estimation.May be biased.Only financial nature is measurable.Change in price is not considered.Accounting equation ... Read More

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