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Management Articles
Page 49 of 52
Differentiate cash accounting and accrual accounting.
The major differences between cash accounting and accrual accounting are as follows −Cash accountingRevenue and expenses are recognized when it’s made through cash only.Simple and intuitive.Not recognized by GAAP.No holistic approach.Tax are not paid for money yet to receive.Mostly used by small business or sole proprietors.Focus on liquidity.Not more accurate.Helps to estimate how much cash is generated.Accrual accountingAll expenses and revenue are recognized.It is complex and difficult to understand.Recognised by GAAP and companies act.Holistic approach.Tax paid on paid for money yet to receive.Mostly used by business having high revenues.Focus on revenue/expenses/profit/loss.More accurate.Helps to estimate how much loss or profit occurred ...
Read MoreCompare depreciation and amortisation.
The major differences between depreciation and amortization are as follows −DepreciationIt determines asset useful life.Charged on tangible assets.Annual depreciation = (cost of tangible asset – salvage value)/useful life.Have salvage value.International accounting standard (IAS-16)/accounting standard (AS-6).Residual value is considered.Straight line method, reducing balance method, units of production method.AmortisationDetermined on the basis of its legal or economic life.Charged on intangible assets.Annual amortisation = (cost of intangible asset)/useful life.Don’t have salvage value.International accounting standards (IAS-38)/accounting standard (AS-26).Doesn’t considered residual value.Straight line method.
Read MoreDifferentiate between discounted Net present value and Internal rate of return.
The major differences between Net present value and internal rate of return are as follows −Net present valueInternal rate of returnExpressed in absolute terms.The surplus amount of project.Helps in decision making.No effect of Variation in cash outflow.If NPV is greater than 1 then the project is accepted.Helps to take constructive investment decisions.Consider market rate of interest.Expressed in percentage terms.Tell me about the breakeven point.Will not help in decision making.Variation in cash flow will have negative or multiple IRR.The concept of the sensitivity of cost of capital is used.Doesn’t consider market rate of interest.Cash inflows are reinvested at IRR (Assumption).It is ...
Read MoreWhat is difference between cash flow statement and fund flow statement?
The major differences between cash flow statement and fund flow statement are as follows −Cash flow statementInflows and outflows of cash and cash equivalents.Main purpose is to show the movement of cash.Cash basis of accounting.Short term analysis.Inflows and outflows of cash.Contains both opening and closing balances of cash and its equivalents.Part of financial statement.Calculates net cash position.Mandatory to report as per GAAP guidelines.External use.Cash flow from operating, financing and investing.Fund flow statementShows change in financial position of the entity.Main purpose is to show the reason in change in financial position between two accounting periods.Accrual basis of accounting.Long term analysis.Sources and ...
Read MoreWhat is difference between general journal and general ledger?
The major differences between general journal and general ledger are as follows −General journalAll financial transactions are recorded.Subsidiary book.The primary step to record before ledger.The process of recording transactions are called journalizing.Narration is compulsory.No need of balancing.It has simple format.Recorded as per transaction date.Debit and credit recorded in column-wise.Follow concept of duality.General ledgerAll financial transactions are recorded in the respective accounts.Principal book.Second step and created from general journal.Process of transferring the entries is called posting.Narration is not compulsory.Require balances.T- Format.Entries recorded account wise.Debit and credit are recorded at different sides.Follows concept of duality.
Read MoreWhat is difference between cash account and cash book?
The major differences between a cash account and cash book are as follows −Cash accountCash bookIt is an account in a ledger.Transactions are made from journals.Serves the purpose of a ledger.Dependent on journal daybook.One type of cash account.Represents only cash balances.Journal folio.Cash transactions are recorded in the journal and then posted in a cash account.Don’t have any narrations.It is a separate book.Transactions are recorded directly.Serves as both journal and ledger.Independent of other books.Three types of cash books.Cash balances, bank balances, discount allowed, discount received.Ledger folio.Transactions are recorded directly.It has narration.
Read MoreWhat is difference between profit and loss account and trading account?
The major differences between profit and loss account and trading are as follows −Profit and loss accountRepresents profit earned or loss sustained.It ascertains net profit for a period.The balance is transferred to the capital account.Operating and non-operating incomes and expenses.It is prepared after trading account.The second step in preparing final account.It is dependent on trading account.It is treated directly in the balance sheet.It discloses true and complete results of a business.Trading accountRepresent trading activities.Ascertain gross profit for a period.Balance is transferred to profit and loss account.Direct revenue and direct revenue.Prepared before the profit and loss account.Primary step in preparing final ...
Read MoreWhat is difference between profit and loss account and profit and loss appropriate account?
The major differences between profit and loss account and profit and loss appropriate account are as follows −Profit and loss accountIt is prepared by all types of businesses.It doesn’t have an opening or closing balance.It is prepared after trading account.The items debited are all expenses.Not based on the partnership agreement.The matching principle is not followed.To ascertain net profit/loss.Profit and loss appropriate accountIt is prepared mainly by partnership firms.May carry forward opening or closing balance from the previous accounting period.It is prepared after the profit and loss account.Item debited are appropriations of profit.Based on the partnership agreement.The matching principle is not ...
Read MoreWhat is difference between trail balance and adjusted trail balance?
The major differences between trail balance and adjusted trail balance are as follows −Trail balanceLedger account balance complied without any period-end adjustments.It is prepared first.It is account balances.To check the arithmetical accuracy of ledger.Checkbooks of accounts are balanced.It is less accurate.Only one version prepared.It is prepared in columnar format.Adjusted trail balanceIt is compiled after necessary adjustments are made at the close of the accounting period.It is prepared after the unadjusted trail balance is prepared.It includes necessary adjustments.To check the accounting accuracy of the books of accounts.Adjustments are made according to accounting standards and principles.It is more accurate.It can have multiple ...
Read MoreWhat is difference between consolidate balance sheet and balance sheet?
The major differences between consolidate balance sheet and balance sheet are as follows −Consolidate balance sheetIn case of subsidiaries companies, assets and liabilities are not mentioned separately.It is difficult to prepare.It reflects financial position of a firm and its subsidiary.Assets (parent + subsidiary) = liabilities (parent + subsidiary) + shareholders’ equity+ minority interest.It takes lot of time to prepare.It is prepared by only companies holding shares in another company.Balance sheetIn case of subsidiaries, assets and liabilities are mentioned separately.It is easy to prepare.It shows financial position of a firm to stakeholders.Assets = liabilities + shareholders’ equity.It takes less time to ...
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