Balance Sheet and Profit and Loss AccountIn this webs primer we will also
discuss:
While introducing the subject of
accounting to the readers (In Chapter I) it was stated that one of the main
objectives of financial accounting is to provide information about the profits
earned or loss suffered by the business during a particular period.
Previously while discussing the basic
accounting equation it was noted that A - L = P, where A represents assets
(property and possession) owned by the business; L represents liabilities
(claims against the business of the creditors) and P represents the proprietor's
funds (equity) in the business.,
Accounting Concept of IncomeThe concept of 'income' is different to
the economists and accountants. Economists concept of income is that of 'real
income' meaning thereby the increase-in real terms of the ownership funds
between two points of time.
In accounting the term income is known as
'net profit'. It was stated earlier :
Sales - Merchandising cost = Gross profit
and Gross profit - Expenses of doing business = Net profit
In other words, Revenue - Expenses = Net
profit.
These terms are explained below:
RevenueIt is the monetary value of the products
sold or services rendered to the customers during the period. It results from
sales services and source like interest, dividend and commission etc. For
example, sales affected by the business and charge made for services rendered by
the business constitutes revenue. However, all cash receipt may nott be
revenue.
Thus, money borrowed leads to cash receipt
but it does not constitute revenue. Similarly additional capital brought in
increases proprietor's funds but it is not revenue.
Expenses/Cost of (doing business)Expenditure incurred by the business to
earn revenue is termed as expense or cost of doing business. Examples of
expenses are raw materials consumed, salaries, rent, depreciation, advertisement
etc.
Cash v/s Accrual Basis of AccountingSmall business, individual professionals
and non-trading concerns usually adopt cash basis of accounting. Under this
system, incomes are considered to have been earned only when received ill cash
and expenses are considered to have been incurred only actually paid. Hence,
under this system the profit or loss of an accounting period is the difference
between incomes received and the expenses paid. Though the cash basis of
accounting is simple (no adjustment is required) but il loses its comparability.
Under accrual basis all incomes are
credited to the period in which earned irrespective of the fact whether received
or not. Similarly, all expenses are debited to the period in which incurred
irrespective of the fact whether paid or not. It is a scientific basis of
accounting, though a bit difficult.
Matching Concept. Requires that expenses
should be matched to the revenues of the appropriate accounting period. So we
must determine what are the revenues earned during a particular accounting
period and the expenses incurred to earn these revenues.
It is the matching concept which justifies
accrual basis of accounting.
Accruals and DeferralsAccounting is expected to measure or
ascertain the net income of the business during the accounting period. Normally,
it is the calendar year (1st January to 31st December) but in other cases it may
be Financial year (Ist April to 31st March) or any other period according to the
convention of the business community of the area.
The combined impact of matching concept
and the accounting period concept on accounting has resulted in accruals and
deferrals.
Accrued or Outstanding expensesIt is the term which denotes that
expenditure has been incurred during the accounting period but the same has not
been paid in cash e.g. Salary, Rent, Wage etc. becoming due but not paid.
Deferred or pre-paid expensesIt is the term which denotes that payment
in cash has been made "in advance but the full benefit of this payment has not
been reaped by the current accounting period, e.g., Insurance paid in advance.
Accrued or outstanding IncomeIt is the term which denotes that the
income has been earned but the cash has not been received against the same.
Income has accrued due but not received e.g. Interest on investments etc.
Differed or Received in-advance IncomeIt is the term which denotes income which
has been received (in cash) in advance but it has not been earned so far e.g.
rent received in advance. All the accruals and deferrals arc not be adjusted at
the end of the accounting period (end-period adjustments) in order to find out
the income of the business during the period under review. The procedure of
ascertaining (i) business income and (ii) financial position is being described,
in detail below:
In fact, these arc two most important of
many objectives of book-keeping. In order to know the profits earned by him he
prepares a trading and loss account and in order to know the financial position
of his business on the last day of the financial period he prepares a balance
sheet.
Such accounts are called 'Final Accounts'.
Preparation of final accounts is the concluding step of accounting cycle. In
fact, final accounts include a number of accounts (i) Manufacturing/ Production
account, (ii) Trading account, (iii) Profit and loss account and (iv) Balance
sheet.
Practically balance sheet is a statement
but for accounting purposes here it is treated as a part vital accounts.
The preparation of above all or any of the
above accounts depends upon the nature of the business being carried on by the
business concerned. In case of a manufacturing business manufacturing account,
trading account, profit and loss account and balance sheet form the parts of
final accounts whereas in case of trading business all other accounts are
prepared with the exception of manufacturing account. Each of these accounts
provide a specific vital information to businessman to help to control and
organize the business activities in a batter way.
|
VAT Ready
GST Ready
Download
More Details
Buy Now
Note for International VAT USers and GST Users in India
Many business use services of Tax Consultants and Chartered Accountants for filing the Tax Return and the tax return of the software is not used. To assist such activity you can export all reports from the software to MS Excel or MS Word and submit it to your tax adviser for financial figures for the business . The software will perform all Inventory Control, Vouchers, Nominal Ledger Accounts along with Working/Trading and Profit & Loss account that will give you all figures ready for export for filing Tax Return. As soon as you are sure about the changes you want in the visual interface and printing regarding your GST requirements we will modify the software software as per your GST requirements. To get any of the off-the-shelf software modified for visual interface and printing please Contact Us Now. We will carry out all required customization for GST as per your requirements in the existing software in professional and timely manner . For any required customization as per GST in any of the off-the-shelf software, please contact us now. We will carry out required customization for GST as per your requirements in the existing software at nominal additional charges. Give us details of required customization for a man-hour or work estimate. For official reference to GST refer to following links:GST (Goods and Service Tax) Circular by Central Board of Excise and Customs (CBEC), Department of Revenue, Ministry of Finance, Government of India. Finance Act 2016 of Government of India HSN codes for Goods and Service Tax (GST) in India Central Board of Excise and Customs - HSN Codes Circular by CBEC, Government of India - About HSN Codes.
Central Goods and Services Tax (CGST) Rules, 2017 Draft government Approved Format Under Goods and Services Tax - Invoice Rules What is GST Compliant Business? What are the specific mandatory fields in an GST compliant invoice? Why the invoice an important financial instrument? What are Registered and Un-Registered Dealers? There is a lot for your business to catch up on those links along with online tax filing and registration for trading. Give us the details of required work you want in the off-the-shelf VAT accounting system and we shall make it GST compliant invoicing and accounting for your business at nominal additional charges. Cheers. Happy Accounting. If you want to know the details of for making VAT/CST system compliant to GST system: Standard rate of $15 per man hour shall be applicable for making any of off-the-shelf VAT based accounting software systems into CGST/SGST Compliant Accounting. Give the details of customization required in any of our off-the-shelf VAT accounting systems made for various business to get a quote of additional charges. See demo of software on website. See official Indian Government CGST/SGST Specification on the panel above here. Click for more information on Value Added Tax (VAT). Free Download of Full Featured Software - Try Full Featured Software Before Order - Time Limited 30 days Full Featured Version of these software are available for download from our website www.freeaccounting.in. HiTech Billing, Accounting Software Off-the-Shelf versions are available for Business, Traders, Industry, Hospital, Hotel, Petrol Pump, Medical Store & Distributor, Automobile or Motorcycle Dealers, Newspaper or Magazine Publishers, VAT Accounting & Billing and Commodity Brokers. | ||||||
Send Email Now
