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.