capital and Revenue profit
Capital Proft:
capital profit is a profit which is earned on the sale of a fixed asset or profit earned on raising capital for a company (by issuing shares at premium).This is not a regular profit of the business and is not earned in the ordinary trade of the buniness .For example if a machinary having book valu of Rs 50,000is sold for 60,000 the profit of the 10,000 will be a capital Profit . In the same way, A joint stock company issues shares of 2,00,000 at a premium of Rs .10.000 to raise capital .such premium of Rs 10.000 Will be a capital Profit.
REVENUE PROFIT:
this is a profit which is earned during the ordinary course of the business E.G profit on sale of goods rent received interest received etc.
CAPITAL AND REVENUE LOSSES
CAPITAL LOSS:
This is a loss suffered by a business on the sale of a fixed asset or it is incurred on raising capital of joint stock company.This is not a recurring loss and is not made in the ordinary course of the business.Forexample A machinary having book value of Rs 50.000 is sold for 45,000 the loss for Rs 5000 is a capital loss in the same way a company issued shares of Rs 1,00,000 At 10% discount the loss of the 10.000 is a capital loss.Capital loss is shown in the balance sheet on the asset side as a fictious asset which is gradually written off out of the profits every year.
REVENUE LOSS:
this is made in the ordinary course or day to day operation of a business such as loss on sale of goods etc.Revenue loss appears in the profit and loss account or income statement in the year in which it occurs.
CAPITAL AND REVENUE PAYMENTS
it may be noted that there is a difference between an expenditure and payment.Expenditure is the full amount spent by a business whether paid or yet to be paid while payment means the amount actully paid.For example A machinary is purchased for Rs 50.000 from saleem & co Rs 30.000 but the payment is Rs 30.000 Only.
CAPITAL PAYMENTS :
This is an amount which is actually paid on account of a capital expenditure.
REVENUE PAYMENTS:
This is an amount which is actully paid on account of some revenue expenditure .for example we purchase goods of Rs 30,000 this is a revenue expenditure of Rs 30,000 .we paid cash to the supplier only Rs 20,000 This is a revenue payment.if the whole amount is paid amount is paid in cash , then both the revenue expenditure as well as revenue payment will be Rs 30.000.
Thursday, August 7, 2008
Wednesday, August 6, 2008
The Basic Information About Accounting Rules Details of Final Accounts Elements of Accounting
OPENING STOCK ALL THESE NOTES ARE RELATED TO DEBITD SIDE
it is unsold of the last year’s purchase. it is available from stock A/c in the ledger and has debit balance in the Trial Balance. It indicates the value Of good lying unsold at the end f last year. Now it will become A part of the current Year’s Purchases. Last Year’s closing stock is current Year’s opening stock Again. Current Year, s Closing stock will be next year, s opening stock .In the case of a newly set up business There cannot however, be any opening stock.
Purchases:
it is the value of all goods purchased in the current accounting year and it is available from purchases A/c in the Ledger .Purchases Return Are deducted From purchases and Net Purchases are shown on the debit side of the Trading account.
Carriage inward:
it means the expenses incurred on bringing purchased goods from the place where they have been purchased, To the shop or go down of the business :It should be Remembered That expenses for sending sold goods to customer ,s shop or house are not recorded in this account. They are debited To carriage outwards A/c an indirect expense which is transferred to profit and loss A/c .carriage inward is transferred to the debit side of the Trading A/c sometime in examination ,Only the word carriage is mentioned .In the That case it should be regarded carriage inward and debited to the Trading A/c.
Wages :
This refers to the Remuneration Paid To the workers For the Loading And unloading of purchased goods or it is the remuneration Paid to the workers who are directly engaged in productive activities .Any how This is an expense which is directly related with salable goods an is always debited the the trading account.
INSURANCE IN TRANSIT:
while bringing goods from outside, they may be destroyed or stolen in transit .south loss may be insured against. The amount of premium paid to the insurance company is debit to the insurance in Transit a/c and is transferred to the debit side of the trading a/c being an expense connected with the purchased of goods.
In this connection , it should be noted that premium paid for insurance of building ,plant machinery furniture stock etc..Against loss by fire or accident is debited To profit and Loss account being and indirect expense.
CUSTOMS DUTY:
The duty imposed by government on import &export of gods is known as customs duty. customs duty is of two types-import duty &export duty .duty paid on goods imported from Abroad is known as import duty and is debited to the Trading A/c but Duty paid on goods exported expense connected with sales, is debited to profit and loss account so import duty on goods purchased from abroad is a direct expense and export duty on goods sold is indirect expense.
CLEARING CHARGES :
in case of imports from abroad goods are cleared from ports. For this port authorities charges something which is called clearing charges. This is a direct expense and is debited To Trading Account.
FREIGHT INWARDS:
charges paid on bringing purchased goods from abroad through steamer, rail or air are known as freight inward. being an expense connected with purchased of goods it is debited to the Trading Account
EXCISE DUTY ON GOODS MANAFACTURED:
duty imposed by the movement on goods manufactured or produced within the country, is called excise duty. This being an expense connected with salable goods or production , is debited to the manufacturing account or trading account as the case maybe.
ROYALTY:
in a word, royalty means rent. A manufacturer has to pay such rent. when he acquires the right to produce an article. For example , amount payable to the owner of patent for the use of patent right ,amount payable to the author of a book an acquiring the right to publish this book tec. it should be noted here that royalty may be based on either production of goods or sale of goods. when the royalty is paid on production.
DOCK CHARGES:
these are the dues imposed on ships and their cargoes when they are unloaded on the port. This is a direct expense and debited to the TRADING ACCOUNT.
COAL ,COKE FUEL ,GAS OIL ,MOTIVE POWER ETC..
these items of expenditure being connected with production of goods (as required to run the plant a machinery) should be debited to the manufacturing Account or the Trading a/c as the case maybe.
OCTORI DUTY:
This is a duty which is imposed by the municipal corporation of the municipal committee when goods purchased enters its territory .so when the goods are purchased from another city, this duty has to be paid. it is an expense connected with purchase of good and is debited to the Trading A/c..
CONSUMEABLE STORES:
These are the expenses incurred to keep the machine in right condition and include engine oil, soft soap cotton waste oil grease and waste consumed in factory .The amount of such stores consumed during he year will be debited to the trading a/c.
MANUFACTURING EXPENSES:
all expenses incurred in manufacturing or producing the goods in a factory insurance, Factory rent , depreciation on factory building ,lighting are direct expense and ar debited to manufacturing ac or Trading a/c as the case maybe.
Now ALL NOTES OF ACCOUNTING WILL BE TREATED AS CREDIT SIDE BALANCE
SALES:
it is the value of all the goods sold during the current accounting year and it is available from the sale a/c in the Ledger .It is a Major source of revenue in a business which deals in goods .Sales return are deducted from sales and the net sales are shown on the credit side of the Trading A/c
STOCK CLOSSING:
it indicates the value of goods lying unsold at the end of the current accounting year. At the End of the year a list of unsold goods is prepared showing the quantity and value of each item. The Total Of the list represents the value of closing stock. The list should be prepared with utmost care and attention .ALTHOUGH closing stock in an asset, yet it is shown on the credit of the trading account.
it is unsold of the last year’s purchase. it is available from stock A/c in the ledger and has debit balance in the Trial Balance. It indicates the value Of good lying unsold at the end f last year. Now it will become A part of the current Year’s Purchases. Last Year’s closing stock is current Year’s opening stock Again. Current Year, s Closing stock will be next year, s opening stock .In the case of a newly set up business There cannot however, be any opening stock.
Purchases:
it is the value of all goods purchased in the current accounting year and it is available from purchases A/c in the Ledger .Purchases Return Are deducted From purchases and Net Purchases are shown on the debit side of the Trading account.
Carriage inward:
it means the expenses incurred on bringing purchased goods from the place where they have been purchased, To the shop or go down of the business :It should be Remembered That expenses for sending sold goods to customer ,s shop or house are not recorded in this account. They are debited To carriage outwards A/c an indirect expense which is transferred to profit and loss A/c .carriage inward is transferred to the debit side of the Trading A/c sometime in examination ,Only the word carriage is mentioned .In the That case it should be regarded carriage inward and debited to the Trading A/c.
Wages :
This refers to the Remuneration Paid To the workers For the Loading And unloading of purchased goods or it is the remuneration Paid to the workers who are directly engaged in productive activities .Any how This is an expense which is directly related with salable goods an is always debited the the trading account.
INSURANCE IN TRANSIT:
while bringing goods from outside, they may be destroyed or stolen in transit .south loss may be insured against. The amount of premium paid to the insurance company is debit to the insurance in Transit a/c and is transferred to the debit side of the trading a/c being an expense connected with the purchased of goods.
In this connection , it should be noted that premium paid for insurance of building ,plant machinery furniture stock etc..Against loss by fire or accident is debited To profit and Loss account being and indirect expense.
CUSTOMS DUTY:
The duty imposed by government on import &export of gods is known as customs duty. customs duty is of two types-import duty &export duty .duty paid on goods imported from Abroad is known as import duty and is debited to the Trading A/c but Duty paid on goods exported expense connected with sales, is debited to profit and loss account so import duty on goods purchased from abroad is a direct expense and export duty on goods sold is indirect expense.
CLEARING CHARGES :
in case of imports from abroad goods are cleared from ports. For this port authorities charges something which is called clearing charges. This is a direct expense and is debited To Trading Account.
FREIGHT INWARDS:
charges paid on bringing purchased goods from abroad through steamer, rail or air are known as freight inward. being an expense connected with purchased of goods it is debited to the Trading Account
EXCISE DUTY ON GOODS MANAFACTURED:
duty imposed by the movement on goods manufactured or produced within the country, is called excise duty. This being an expense connected with salable goods or production , is debited to the manufacturing account or trading account as the case maybe.
ROYALTY:
in a word, royalty means rent. A manufacturer has to pay such rent. when he acquires the right to produce an article. For example , amount payable to the owner of patent for the use of patent right ,amount payable to the author of a book an acquiring the right to publish this book tec. it should be noted here that royalty may be based on either production of goods or sale of goods. when the royalty is paid on production.
DOCK CHARGES:
these are the dues imposed on ships and their cargoes when they are unloaded on the port. This is a direct expense and debited to the TRADING ACCOUNT.
COAL ,COKE FUEL ,GAS OIL ,MOTIVE POWER ETC..
these items of expenditure being connected with production of goods (as required to run the plant a machinery) should be debited to the manufacturing Account or the Trading a/c as the case maybe.
OCTORI DUTY:
This is a duty which is imposed by the municipal corporation of the municipal committee when goods purchased enters its territory .so when the goods are purchased from another city, this duty has to be paid. it is an expense connected with purchase of good and is debited to the Trading A/c..
CONSUMEABLE STORES:
These are the expenses incurred to keep the machine in right condition and include engine oil, soft soap cotton waste oil grease and waste consumed in factory .The amount of such stores consumed during he year will be debited to the trading a/c.
MANUFACTURING EXPENSES:
all expenses incurred in manufacturing or producing the goods in a factory insurance, Factory rent , depreciation on factory building ,lighting are direct expense and ar debited to manufacturing ac or Trading a/c as the case maybe.
Now ALL NOTES OF ACCOUNTING WILL BE TREATED AS CREDIT SIDE BALANCE
SALES:
it is the value of all the goods sold during the current accounting year and it is available from the sale a/c in the Ledger .It is a Major source of revenue in a business which deals in goods .Sales return are deducted from sales and the net sales are shown on the credit side of the Trading A/c
STOCK CLOSSING:
it indicates the value of goods lying unsold at the end of the current accounting year. At the End of the year a list of unsold goods is prepared showing the quantity and value of each item. The Total Of the list represents the value of closing stock. The list should be prepared with utmost care and attention .ALTHOUGH closing stock in an asset, yet it is shown on the credit of the trading account.
Types of Accounts Accounts Names Details in Accounting
Types of Accounts
furniture Account drawings account capital account cash account sales account person account x &co account bank account purchase a/c electric fitting account air-condition account service ind account bank a/c printing charges account stationary account carriage account wages account rent account salaries account debtors account creditors account
building account machinery account bills receivable accounts bill payable accounts debtors accounts creditors accounts cash account Discount account commission account Repairs accounts insurance account
furniture Account drawings account capital account cash account sales account person account x &co account bank account purchase a/c electric fitting account air-condition account service ind account bank a/c printing charges account stationary account carriage account wages account rent account salaries account debtors account creditors account
building account machinery account bills receivable accounts bill payable accounts debtors accounts creditors accounts cash account Discount account commission account Repairs accounts insurance account
Bank Reconciliation Statement BRS
WHAT is Meant By Reconciliation?
if there is a dispute between two friends, ir they fail to agree about some matte, the disagreement may Temporarily end the friendship between them .when They became friends again we say they have reconciled With one another. Reconciliation is therefore , resuming of friendly relations as a result of reasonable explanation between them.
if there is any discrepancy between the balance of cash book and that if pass book ,the depositor prepares a statement to explain the causes of discrepancies and to reconcile the two balances. This statement of explanation is called "Bank Reconciliation Statement"
The idea of the bank reconciliation statement is to discover the various things the bank has done in the pass book which cashier was not aware of, put right anything that is wrong and draw up a logical explanation of remaining differences which are not wrong but are they delayed from being right by the time Lag.
if there is a dispute between two friends, ir they fail to agree about some matte, the disagreement may Temporarily end the friendship between them .when They became friends again we say they have reconciled With one another. Reconciliation is therefore , resuming of friendly relations as a result of reasonable explanation between them.
if there is any discrepancy between the balance of cash book and that if pass book ,the depositor prepares a statement to explain the causes of discrepancies and to reconcile the two balances. This statement of explanation is called "Bank Reconciliation Statement"
The idea of the bank reconciliation statement is to discover the various things the bank has done in the pass book which cashier was not aware of, put right anything that is wrong and draw up a logical explanation of remaining differences which are not wrong but are they delayed from being right by the time Lag.
NORMAL BALANCE IN ACCOUNTING Debit Credit
The normal balance of various accounts are illustrated Below.
Accounts pf assets normally have = Debit Balance
Accounts of Expenses normally Have = Debit Balance
Accounts of Revenue Normally Have =Credit Balance
Accounts of LiaBilities Normally have =Credit Balance
Accounts of owner (Capital)normally =Credit Balance
Accounts pf assets normally have = Debit Balance
Accounts of Expenses normally Have = Debit Balance
Accounts of Revenue Normally Have =Credit Balance
Accounts of LiaBilities Normally have =Credit Balance
Accounts of owner (Capital)normally =Credit Balance
Accounting Questions Answers About Ledger Balance Bank cheque crossed cheque endoresment
what is ledger?
The book in which all the transactions of a business concern are finally recorded in the concerned accounts in a summarized and classified form is called ledger.
Why is the ledger called ""king of all books""?
The ledger is called the king of all books of accounts becuse all the entries from the books of original entry must be posted to the various accounts in the ledger.
explain the term balance.?
The balance is an accounting term which means the difference between the two side of an account.
Explain the term blance.?
The process of equalizing the two sides of an acoount is known as balancing.
what are kind of ledger?
generally the following three kinds of ledger are maintained by organizations
Debtor ledger
creditors ledger
Define the term Bank?
A bank may be defined as an insitution which purchases and sells money,and transacts others financial business of like nature.
What are the Primary functions of a bank?
The primary functions of a bank are yo borrow money and to lend it bank borrow money in the shape of desposits and lend it in various ways.
define cheque?
A cheque is an unconditional order in writing ,drawn by a customer on his bank ,requesting to pay on demand a certain sum of money,to a person named in the cheque .
what is crossed cheque?
When two parallel lines are drawn across the face of a cheque it is to be a crossed cheque.
When a cheque will be dishonoured?
when rhe cheque is not paid by the drawee bank,it is said to be dishnoured.
Define the term endorsement?
it is a act of signing on the back of the cheque in order to tranfer it to someone else who is called endorsee.
What is a bank -draft?
bank draft is one of the means of transferring money from one place to another.
what is a hundis?
A hundi is exactly like a bank draft.it is drawn by one trading firm upon its branches.
Explain the postal order?
postal order like cheque are also written orders made by one post office on another .whenever the amount of money to be sent by one person to another is small postal orders serve the same purpose as bank draft.
define the bill of exchane ?
Bill of exchange:
A bill of exchange is an instrument in writting containing an unconditional order signed by maker of a certain person or to athe bearer of the instrument.
What are the main features of a bill of exchange?
1 it must be in writtting
2 it must be sign by the maker
3 it must be unconditional order to pay.
4 The maker must direct a certain person to pay a certain sum of money.
Define drawer?
The creditors who writes out the bill of exchange, is called the drawer.
Define drawee :
the debtors the persons a whom the bill is drawn who accepts the bill of exchange , is called the drawee.
payee:
The payee the person to whom the money is payable when bill of exchange is used as mean of settlement of two parties.
define promissory note?
an instrument in writting containing unconditional undertaking sign by the maker to pay a certain sum of money only to the order of a certain person or to the bearer of the instrument.
Parties involve in promissory note?
The maker?
who signs the note and agrees to pay the amount on due date
The payee to whom the amount is payable.\
Define the Subsidiary books?
The journal is sub-divided into different journals known as the subsidiary books ,which are recorded the details of transactions as they take place from day to day , in a classified manner?
What is cash book?
The cash book is a sub-division of the book of original entry recording transactions involving receipts or payment of cash.
define voucher:
voucher are documents containing evidences of payment and receipts.
Single column cash book.
The single column cash book makes a record of only cash transactions and it is just like ant other cash account. in the cash book , all cash receipt recorded on the left hand side and all cash payments on the right hand side.
double column cash book:
The cash book which cash and bank transactions involving receipt and payments cheques
Define the contra entry:
A transactions in which cash a/c and bank a/c are involved is recorded on both the sides of double column cash book it is called contra entry.
What is a bank reconciliation statement?
Bank reconciliation statement is a statement balances as per the cash book and bank statement.
The book in which all the transactions of a business concern are finally recorded in the concerned accounts in a summarized and classified form is called ledger.
Why is the ledger called ""king of all books""?
The ledger is called the king of all books of accounts becuse all the entries from the books of original entry must be posted to the various accounts in the ledger.
explain the term balance.?
The balance is an accounting term which means the difference between the two side of an account.
Explain the term blance.?
The process of equalizing the two sides of an acoount is known as balancing.
what are kind of ledger?
generally the following three kinds of ledger are maintained by organizations
Debtor ledger
creditors ledger
Define the term Bank?
A bank may be defined as an insitution which purchases and sells money,and transacts others financial business of like nature.
What are the Primary functions of a bank?
The primary functions of a bank are yo borrow money and to lend it bank borrow money in the shape of desposits and lend it in various ways.
define cheque?
A cheque is an unconditional order in writing ,drawn by a customer on his bank ,requesting to pay on demand a certain sum of money,to a person named in the cheque .
what is crossed cheque?
When two parallel lines are drawn across the face of a cheque it is to be a crossed cheque.
When a cheque will be dishonoured?
when rhe cheque is not paid by the drawee bank,it is said to be dishnoured.
Define the term endorsement?
it is a act of signing on the back of the cheque in order to tranfer it to someone else who is called endorsee.
What is a bank -draft?
bank draft is one of the means of transferring money from one place to another.
what is a hundis?
A hundi is exactly like a bank draft.it is drawn by one trading firm upon its branches.
Explain the postal order?
postal order like cheque are also written orders made by one post office on another .whenever the amount of money to be sent by one person to another is small postal orders serve the same purpose as bank draft.
define the bill of exchane ?
Bill of exchange:
A bill of exchange is an instrument in writting containing an unconditional order signed by maker of a certain person or to athe bearer of the instrument.
What are the main features of a bill of exchange?
1 it must be in writtting
2 it must be sign by the maker
3 it must be unconditional order to pay.
4 The maker must direct a certain person to pay a certain sum of money.
Define drawer?
The creditors who writes out the bill of exchange, is called the drawer.
Define drawee :
the debtors the persons a whom the bill is drawn who accepts the bill of exchange , is called the drawee.
payee:
The payee the person to whom the money is payable when bill of exchange is used as mean of settlement of two parties.
define promissory note?
an instrument in writting containing unconditional undertaking sign by the maker to pay a certain sum of money only to the order of a certain person or to the bearer of the instrument.
Parties involve in promissory note?
The maker?
who signs the note and agrees to pay the amount on due date
The payee to whom the amount is payable.\
Define the Subsidiary books?
The journal is sub-divided into different journals known as the subsidiary books ,which are recorded the details of transactions as they take place from day to day , in a classified manner?
What is cash book?
The cash book is a sub-division of the book of original entry recording transactions involving receipts or payment of cash.
define voucher:
voucher are documents containing evidences of payment and receipts.
Single column cash book.
The single column cash book makes a record of only cash transactions and it is just like ant other cash account. in the cash book , all cash receipt recorded on the left hand side and all cash payments on the right hand side.
double column cash book:
The cash book which cash and bank transactions involving receipt and payments cheques
Define the contra entry:
A transactions in which cash a/c and bank a/c are involved is recorded on both the sides of double column cash book it is called contra entry.
What is a bank reconciliation statement?
Bank reconciliation statement is a statement balances as per the cash book and bank statement.
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