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Accounting Articles
Page 4 of 9
Explain about straight line depreciation in accounting.
Straight line depreciation is the simple way to calculate depreciation. In this, a fixed amount is deducted from each accounting year of a firm. In straight line depreciation, firm depreciates equal amount from principle amount of an asset annually over its useful life. That means, every accounting year there will be change in asset value in balance sheet.FormulaStraight line depreciation = (cost of the asset – salvage cost) * depreciation rateStraight line depreciation = (cost of the asset – salvage value)/useful life of an assetStraight line depreciation for partial years = D * (Number of months/12)Where D is depreciation amount ...
Read MoreExplain the concept of depreciation in accounting.
Depreciation means gradual decrease of value of a tangible asset over a period of time. All tangible assets tend to depreciate. Machinery, equipment, furniture etc. except land.Land tends to appreciate over the years than depreciate. The amount which is depreciated or carrying value of an asset is called salvage value.Criteria in depreciation is as follows −Cost of the asset.Residual/salvage value of the asset.Useful life of the asset.Appropriate method.The main purpose of depreciation is to measure income generated from assets, determine real value of assets, tax benefits and deductions, expenditure incurred in the production. Main causes for depreciation are wear and ...
Read MoreWhat are cash flow from Financial activities in accounting?
This part of statement focus on raise of capital and pay back to investors through capital markets. Financial activities include −Repayment of equity.Payment of dividends.Issuance and repayment of debt.Capital lease obligations.If the statement shows the positive, that means, there is an increase in its assets. If the statement shows negative, then the company of its long term debts or dividends.FormulaCash flow from financing activities = cash inflow from issuing debt/equity – (Cash paid as dividends + repurchase of debt and equity)Financial activitiesPositive cash flowNegative cash flowIssuing equity/stockStock repurchasesBorrowing debtDividendsIssuing debtsPaying down debt
Read MoreExplain about single step income statement in accounting with example.
Single step income statements represent company’s revenues, expenses and income in simple way. It is easy to calculate as not many steps are involved. Small companies, sole proprietorships uses this kind of statements often.FormulaNet income = revenues – expensesAdvantages are given below −Firm prepares sing step income statement to analyse departmental performance in a period.Easy to prepare.Easy to analyse.Use for internal purpose.Limitations are explained below −Chances of deviation of net income.Actual expenses are not known.Doesn’t calculate gross profit.ExampleThe example is given below −Income statement of XYZ company As on 31st March xxxxRevenue and gains (A)Rs.Sales revenue150000Interest revenue25000Gain on sales of ...
Read MoreExplain about income statement in accounting.
Income statement tells about firm’s revenues, expenses and profit/ loss in a period or an accounting year. In other words, it tells about firm’s probability in a particular period, it may be quarterly or annually. It is also called as profit and loss statement, revenue statement, statement of financial performance, earning statement, operating statement. The main purpose is to provide financial earnings of a firm for a specific period of time.Types of income statements −Single step income statement − Only one step is involved in this statement. That is, total revenue is subtracted from expenses.Multiple step − Several steps are ...
Read MorePrepare vertical balance sheet for the following trail balance.
Dr. ($)Cr. ($)Premises26000Furniture14000Vehicles7000Inventory3000Bank5300Capital45000Loan from bank8000Trade receivables1500Trades payables2800Net profit10000Drawings90006580065800SolutionThe solution is given below −We know the equation => Assets = capital + liabilitiesIn vertical style, it is re written as −Non-current assets + current assets = capital + non-current liabilities + current liabilities (Or)Non- current assets + current assets – current liabilities = capital + non- current liabilities$$Balance sheet As on 31st March 2015Non-current assetsPremises26000Furniture14000Vehicles700047000Current assetsInventory3000Trades receivables1500Bank53009800Current liabilitiesTrade payable(2800)7000Net current asset54000Non- current liabilitiesLoan from bank(8000)46000Capital45000Net profit10000Drawings(9000)46000
Read MorePrepare horizontal balance sheet for the following trial balance.
Dr. ($)Cr. ($)Premises26000Furniture14000Vehicles7000Inventory3000Bank5300Capital45000Loan from bank8000Trade receivables1500Trades payables2800Net profit10000Drawings90006580065800SolutionThe solution is given below −Balance sheet of a company As on 31st March XXXXNon-current assets$$Liabilities and capital$$Premises26000Capital45000Furniture14000Net profit10000Vehicles70005500047000Drawings(9000)46000Current assetsNon-current liabilitiesInventory3000Loan from bank8000Trade receivables1500Bank5300Current liabilities9800Trade payables28005680056800
Read MoreExplain about balance sheet in accounting.
Balance sheet is one of the important aspect in financial statements. Balance sheets tells about firm’s assets, liabilities and equity. By analysing balance sheet tracks firm’s performances, need of improvements, financial obligations etc. can be identified. We can also compare previous years’ balance sheet with present to know the firm’s improvements over the years.Balance sheet is divided into three parts. One each for assets, liability and equity. Left side of sheet consists of company assets and right side is divided into two parts, one for liabilities and other for owners’ equity. There will be a header and date at the ...
Read MoreExplain about sensitivity analysis in financial management.
In a business, decision making is very important aspect. Decision making can direct the business in a successful way or in an unsuccessful way. So, if a business wants to be successful, correct decisions should be taken in given circumstances.A lot of independent variables are involved in decision making mainly in financial aspects of the firm. So, there is a need of a tool or a technique to take appropriate decisions.Sensitivity analysis is a tool or a technique which tells about how independent variable impacts a dependent variable under current conditions. Investors use this tool to evaluate the result of ...
Read MoreExplain about various financial statements in financial management.
Financial statements are the reports prepared by a firm to represent their financial activities in an accounting year. These gives how the firm carries its activities, maintain its cash flows and how well the firm is doing in the market.Nature of financial statements includes −Recording facts.Accounting conversions.Assumptions.Personal judgements.Objectives of financial statements are as follows −To provide information about economic resources of a firm.To provide information about changes in economic resources of a firm.To provide information about net resources of a firm.To provide information about estimation of earning potential of a firm.Types of financial statements includes −Balance sheetAssetsLiabilitiesEquityIncome statementIncomeExpensesProfit or lossCash ...
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