Accounts & Finance Q&A - Chapter 1

Accounting Q & A - 14-10-2018

Accounting Q & A - 14-10-2018

• Gross Profit: Gross profit is the closing balance in the debit side of the trading account. Trading account consists of the factory expenses and inflow of cash. 
• Net Profit: Net profit is the closing balance at the debit side of the P and L account. It consists of office income and expenses. Net profit is the figure arrived at after deducting tax and depreciation. (Assets - Liabilities = Net Profit)
• Break Even Point (BEP): This is a result indicates where there is no profit or loss.
• Sensex: Sensex could be construed as sensitive index, sensex is the index of BSE, sensex consists of the 30 largest and most actively traded stocks, representative of various sectors, on the Bombay Stock Exchange. These companies account for around one-fifth of the market capitalization of the BSE. 
• Nifty: Nifty construed as National fifty, nifty is the index of NSE (National Stock Exchange). Nifty represents the top 50 stock of the NSE. 
• General Ledger: Ledgers are of two types one is general ledger and the other is personal ledger. General ledger consists of accounts relating to expenses, incomes, liabilities and assets. General ledger is the base for preparation of trail balance.
• Deffered Tax: Deffered tax is either tax asset or tax liability. It is temporary difference between book (accounting) value of assets and liabilities, and their tax value.
• Penny stock: Penny stocks are stocks that traded at very low prices, but subject to extremely high risk.
• Fixed Cost: Fixed cost is that where the fixed cost will not change even though the production is more or less, it is fixed for a specific period of time.
• Operating Cost: The day-to-day expenses incurred in running a business, such as sales and administration, as opposed to production also called operating expenses.
• How to Create Profit & Loss A/c: Profit & loss A/c contains indirect incomes and expenses.  brought down Gross Profit on debit side. All Indirect incomes write on credit side and all indirect expenses are write on debit side. Finally they showed balance. If the balance on debit side it is a Net profit and credit side it is a Net loss. Theses balances taken into the Balance Sheet.
• Authorised Capital & Subscribed Capital: How much amount shown in articles of association is called authorized capital and how much issued from authorized capital in issued capital where how much subscribed from issued capital is called subscribed capital.
• Quick Asset: Quick Assets are ABSOLUTE LIQUID ASSETS which can be easily       converted into cash immediately. Cash/Bank & Short term inventories are the examples.
• Derivative: Derivative is a financial contract whose payoff structure is determined by the value of an Underlying asset. The underlying may be Stocks, Financial indices, forex, Commodities, Bonds, interest rates etc. Different variants of derivatives are Options, Forwards, futures, SWAPS.
• Bonus Shares: Bonus shares are the shares allotted to existing equity shareholders without any consideration being received from them, in cash or kind. They are issued to capitalize profits of the company. Bonus shares can be issued only if Articles of Association permit such an issue.
• Hire Purchase & Installment Purchase: While in Hire Purchase system, the title before you pay the last installment, remains with the Hirer (i.e. one who lives something on HPS). Installments paid are considered as payment towards the usage of the article hired, until the last installments. If you default in paying even the last installment, the hirer can take away the article, without having to repay any installment or part thereof to the hiree. Only after the payment of the last installment, the ownership (title) to goods pass on to the hiree. In case of Installment option, the title to goods is considered to have passed to the hiree on the payment of the first installment only. Every installment is considered to be the payment towards the value of the goods and not for the usage alone. In case of default seller can enforce the hiree to sell the product and make good the remaining installment. But the hirer cannot claim a good title to the goods.

Accounting Q & A - 12-10-2018

• Accounts Payable - Accounts payable is the outstanding liability that has to be paid to the outsiders. It’s a short term liability to be paid within a period of 1 yr(12 months). It will be grouped under Current Liability.

• Debentures & Share -  Shares  having voting rights, debenture does not have voting rights, shares holders are owners of the company, debenture holders are not owners of the company, shareholders are entitled to dividend, debenture holders are entitled to interest. Debenture is nothing but a acknowledgement of debt. Shares is  nothing but a ownership of a company.

• Golden rules of Accounting -   Nominal Account: Debit all expenses/losses, credit all incomes/ Gains.  Real Account: Debit what comes in, Credit what goes out. Personal Account: Debit the receiver, Credit the Giver. 

• Financial Accounting - Financial accounting is concerned with preparation of  financial statements for decision makers, such as stockholders, suppliers, banks, government agencies,   owners, and other stakeholders. Financial accounting is one branch of accounting and       historically has involved processes by which financial information about a business is recorded, classified, summarised, interpreted, and communicated; for public companies, this information is generally publicly- accessible. By contrast management accounting information is used within an organisation and is usually confidential and accessible only to a small group, mostly decision- makers. Tax Accounting is the accounting needed to comply with jurisdictional tax regulations. It is used for the external users such as the investors, shareholders etc., Financial accouts shows the profit and loss and balance sheet made during an accounting period, and also financial position of the business as on a particular date. 

• Cost Accounting - Cost accounting is the process of  tracking, recording and analyzing costs associated with the products or activities of an organization. Usually used in  manufacturing, service and companies where the focus is in costs. Costs are measured in units of nominal currency by convention. Cost accounting can be viewed as translating  the Supply Chain (the series of events in the production process that, in concert, result in a product) into financial values. It is used for the internal use for the estimation of the cost of a product or project. Cost is the amount of the expenditure. In cost accounting we can find cost of goods and services. cost accounting provides the management detailed information regarding cost of each product, services etc.,

•  Profit & Loss A/c - It is a statement which gives the net profit earned by a company, after considering all other incomes and expenses incurred over a period. This helps the company to monitor and control the costs incurred and improved its efficiency. And it is prepared by all trading and manufacturing companies where the main aim of the company is to earn profit.

• Variable costs - Costs which vary with the volume of production and directly proportional to the units of production. 

• Capital Reserve- Reserve created by the accumulated capital surplus( not the revenue surplus) of the firm e.g an upward revaluation of assets by a firm to reflect its assets at the current market values after appreciation. 

• Reserve Capital - Part of the authorized capital of a firm which has not yet called up and is available for drawing in case of need. 

•   Defects of Single Entry System - This system does not track the assets and liabilities         account such as inventory, account receivable and account payable. It facilitates the calculation of income but not the financial position. There is no direct linkage between the income and the balance sheet. Errors may go undetected and often are identified through bank reconciliation statement. 

•  Journal Ledger -  Day book is nothing but journal ledger. {i.e., every transaction will be entered in day book/journal ledger). 

• Fixed Asset - The asset which generate long term revenues more than one accounting period.    Fixed asset means Fixed Investment with Assets i.e. Plant & Machinery, Electrical Installation, Vehicles, Land & Building etc.

• Long Term & Short Term Debt - Long term debt is given for a long period of time generally      for more than 5 years whereas short term debt is concerned with the debt less than 5 years.

Accounting Q & A - 1

    

    Finance: It is the branch of economics that studies the management of money and other assets.  In simpler terms it can be defined as the commercial activity of providing funds and capital.

     It addresses questions like -- what funds are required by the organization. How they can be raised? How they have to be allocated etc., 

    Accounts: It is the occupation of maintaining and auditing records and preparing financial reports for a business. Accounts provide quantitative information about finances. It addresses issues like what amount of funds have been allocated to various activities, how the book-keeping is being done etc.,

      Both functions are distinct but complementary to each other. 

   Finance and accounts are highly specialized and distinct areas and hence most organizations have separate sections of finance and accounts. OR There is a very thin line between accounts & finance. Finance relates to procurement & effective utilization of funds whereas accounts relates to recording of the transaction & the preparation of the books.

     Expand GAAP?      Generally Accepted Accounting Principles.

    Stock Turnover Ratio? - This ratio establishes the relationship between the cost of goods sold during a given period and the average amount of inventory carried during that period. It indicates whether the stock has been efficiently used or not, the purpose is to check up whether only the required minimum has been locked up in stocks.

   What do you mean by Accounts Receivables? It is one of the series of accounting mainly deals with billing which owes money to the customer or the company, organization for goods and services that have been provided to the customer it is also treated as current assets for the company and recorded in the asset side of the B\S under the head of Current assets.

  While Scrutinizing the Trial Balance which error will catch you eye immediately... Expenses and asset will show in Debit balances and Liabilities and income will show in credit balances. In TB if it is shown vice versa then we can catch error easily or Difference between the total of debit amounts and credit amounts. First, we have to check total of the debit amount and credit amount. 

    What is the difference between Direct expenses and Indirect expenses? 

    Direct Expenses are levied during the production of Goods. Eg: Carriage Inwards, Power & Fuel, Wages, Oil, Etc., 

  Indirect Expenses are levied after production of goods. Eg: Depreciation, Salary, Interest on capital, etc.,

    What is meant by marginal cost? 

In Brief Marginal cost is the variable cost of the product which increase/decrease according to production but per unit remain the same.

 What are Treasury bills? 

      A Short-term debt obligation backed by the U.S. Government with a maturity of less than one year. Treasury bills are sold in the denomination of $1000 up to a maximum of $5 Million. 

     What is a Suspense Account? 

If the through checking of the subsidiary books, posting to ledger accounts and balancing of accounts have not helped to locate the errors and in the preparation of the final accounts cannot be delayed the difference in the trial balance may be transferred temporarily to a separate account called Suspense account or the difference in books of accounts.  

If the debit side of the transactions exceeds the credit side the difference is to be credited to suspense account on the other hand if the credit side exceeds the debit side it has to be debited to a suspense account. The Suspense account appears in Trail Balance & in the Balance sheet. 

    What is the operating profit? How is it different from Gross profit? 

         Sales - Cost of goods sold = Gross profit,

         Gross profit - Operating expenses = Operating profit

         Operating expenses such as (Salary, rent, depreciation).

     What is Capital Management? 

     Capital Management is a process of utilizing organizations Capital in a highly cost-effective manner for the business requirement of the Company. For Eg: In big organizations there is a TREASURY department and if they have really great exposure for handling the money then they can get returns out of the normal funds available with their bankers.

    What is meant by Salaries Outstanding Accounts? 

     Salaries Outstanding Account refers to salaries which are already due but not paid. 

     What is Dual Accounting?

    Dual Accounting is a double-entry system, wherein both the debit and credit aspect of a transaction is recorded. Each transaction has equivalent debit and credit ledger accounts in the    account books.