Net credit sales can be defined as the total sales made by a business on credit over a given period of time less the sales returns and allowances and discounts such as trade discounts. Net Credit Sales = Gross Credit Sales – Returns – Discounts – Allowances. Credit sales can be calculated from the ARead more
Net credit sales can be defined as the total sales made by a business on credit over a given period of time less the sales returns and allowances and discounts such as trade discounts.
Credit sales can be calculated from the Accounts receivable/ Bills Receivable/ Debtors figure in the Balance Sheet. It will be normally shown under the Current Assets head in the Balance Sheet.
Alternatively, you may observe the bills receivable ledger account to locate the figure of credit sales.
Net Credit Sales and related terms
Before we try to understand the concept of net credit sales with an example, let us discuss the term sales return. Sales return means the goods returned by the customer to the seller. It may be due to defects or any other reasons.
Now let us take an example. John is a retail businessman. He sells smartphones. He buys 100 smartphones from Vivo on credit. The smartphones are worth ₹1.5 lahks. He then returns smartphones worth 20,000 rupees to Vivo. He also gets an allowance of rupees 5,000 from Vivo.
In the above example, the credit sales of Vivo are of rupees 1.5 lakh. The net credit sales is of
1.5 lakh – 20,000 – 5, 000 = 1.25 lakh rupees.
Importance of Net Credit Sales
Net Credit Sales figure together with the accounts receivable figure acts as an indicator of the credit policy of the company.
It offers insights into the ability of the company to meet short-term cash obligations.
The credit policy also affects the total current assets that the company has in the manifestation of Accounts Receivable
Advantages and Disadvantages of Credit Sales.
Advantages
Increased Sales – The credit Policy facilitates increased sales for the company. The company can attract more customers with a liberal credit policy. For example, Apple got more customers when it started to sell its products on an EMI basis.
Customer Loyalty / Retention- Regular customers can be retained and made to feel honored by offering them more liberal credit terms.
Disadvantages
Delay in Cash Collection – Credit Sales imply that the company would get cash on a delayed basis. This money could have otherwise been put to use for some other profitable venture or could have borne interest for the company
Collection Expenses– The company had to incur additional expenditures for collecting money from debtors.
Risk of Bad Debts – With credit sales, there is always the risk that the buyer may become bankrupt and may not be able to pay the money due to the seller.
Overview And Definition Shareholder's equity represents the net value of a company. As an accounting measure, shareholders’ equity (also referred to as stockholders’ equity) is the difference between a company’s assets and liabilities. It is also called the book value of equity. For example – retainRead more
Overview And Definition
Shareholder’s equity represents the net value of a company. As an accounting measure, shareholders’ equity (also referred to as stockholders’ equity) is the difference between a company’s assets and liabilities. It is also called the book value of equity.
For example – retained earnings, common stock, etc.
Liabilities
Liabilities are the obligation or something a company or a person owes to another party. normally it is in cash form but it can be in other forms also.
And these liabilities need to be settled as per the terms agreed upon by the party.
For example – taxes owned, trade payables, etc.
Assets
Assets are those which has ownership of a company and controlling power with the company. In other words, Or something which will generate profits today and in the future.
For example – cash, building, etc.
Conclusion
Therefore I can conclude that stockholders’ equity refers to the assets remaining in a business once all liabilities have been settled, or I can say as it is not the same thing as the company’s assets. Assets are what the business owns.
How to Calculate Shareholders’ Equity
Shareholders’ equity is the owner’s claim when assets are liquidated, and debts are paid up. It can be calculated using the following two formulas:
Formula 1:
Shareholders’ Equity = Total Assets – Total Liabilities
Let me now take the example of a small business owner who is into the business of chairs in India.
As per the balance sheet of the proprietorship firm for the financial year ending on March 31, YYYY, the following information is available. Determine the shareholders’ equity of the firm.
As per the Golden Rules As per the golden rules of accounting, a trading account is a nominal account. To ensure that financial statements accurately reflect a business's financial position and performance, the golden rules of accounting guide the preparation of financial statements. The point to noRead more
As per the Golden Rules
As per the golden rules of accounting, a trading account is a nominal account. To ensure that financial statements accurately reflect a business’s financial position and performance, the golden rules of accounting guide the preparation of financial statements.
The point to note is that it is almost impossible to apply the rules of debit and credit with certain accounts such as Trading A/c, Profit & Loss A/c, etc.
As per the Modern Rules
The purpose of a trading account is to record transactions related to the purchase and sale of goods for a business. In other words, it serves as a recording and reporting mechanism for business income and expenses.
An accounting period, like a month, quarter, or year, is the time when a trading account is prepared. It is used to calculate the business’s net profit or loss. Other financial statements, such as the balance sheet, are prepared using the information in a trading account.
In summary, a trading account is a type of income statement account that is used to track and report on the income and expenses from a business’s buying and selling activities
Rules of Debit and Credit
There are three main types of accounts according to the legacy rules of debit and credit: personal accounts, real accounts, and nominal accounts. A personal account is one that is related to an individual or entity owing the business money (e.g. a customer), or owing the business money (e.g. a supplier).
A real account is one that relates to assets such as cash, inventory, and property.
Nominal accounts are accounts that relate to income and expenses, such as a “trading account”.
To summarize, a trading account is a nominal account used to record and report the business’s income and expenses resulting from its buying and selling activities.
Profitability ratios measure how profitable a company is and are used to assess its performance and efficiency. Based on the income statement and balance sheet of a company, these ratios are calculated. In terms of profitability ratios, there are several types, each providing a different viewpoint.Read more
Profitability ratios measure how profitable a company is and are used to assess its performance and efficiency. Based on the income statement and balance sheet of a company, these ratios are calculated.
In terms of profitability ratios, there are several types, each providing a different viewpoint.
The following are some common profitability ratios:
Gross profit margin: This ratio measures the percentage of revenue that remains after the cost of goods sold has been deducted. Producing and selling efficiently is indicated by this metric.
Net profit margin: An organization’s net profit margin is the portion of revenue left after all expenses have been deducted. A company’s profitability is measured by this indicator.
Return on assets (ROA): This ratio measures how profitable a company’s assets are. In other words, it indicates how effectively a company generates profits from its assets.
Return on equity (ROE): This ratio measures the profitability of a company’s equity. It shows how effectively a company generates profits from its shareholders’ investments.
Analysts and investors use profitability ratios to evaluate a company’s performance and profitability ability.
An investor or analyst can evaluate a company’s relative strength and identify potential opportunities or risks by comparing its profitability ratios with its peers or its industry averages.
Here are 10 examples of accounting entries: A company purchases $500 worth of office supplies on credit from a supplier. Office supplies expense account would be debited Accounts payable would be credited A firm receives $1,000 in cash from a customer for services rendered. In this case, CashRead more
Here are 10 examples of accounting entries:
A company purchases $500 worth of office supplies on credit from a supplier.
Office supplies expense account would be debited
Accounts payable would be credited
A firm receives $1,000 in cash from a customer for services rendered. In this case,
Cash account would be debited
Service revenue account would be credited
A business pays $250 in salaries to its employees.
A debit would be made to the salaries expense account
A credit would be made to the cash account
A business borrows $5,000 from a bank and receives the funds as a loan. The entry would be,
A debit to the bank account
A credit to the loan payable account
A company sells $800 worth of inventory to a customer for cash.
The entry would be a debit to the cash account
A credit to the sales revenue account
A firm purchases $3,000 worth of equipment on credit from a supplier.
The entry would be a debit to the equipment account
A credit to the supplier’s account
A company incurs $500 in advertising expenses for a new marketing campaign (cash).
The entry would be a debit to the advertising expense account
A credit to the cash account
A firm collects $1,200 from a customer. The entry would be,
A debit to the cash account
A credit to the customer’s account
A business pays $700 in rent for its office space. The entry would be,
A debit to the rent expense account
A credit to the cash account
An organization pays off a $2,000 loan to the bank. The entry would be,
Yes, non-current assets are also known as fixed assets. These are long-term assets that are not intended for sale but are used by a company in its business operations. Examples of non-current assets include property, plant, and equipment, as well as intangible assets like patents and trademarks. TheRead more
Yes, non-current assets are also known as fixed assets. These are long-term assets that are not intended for sale but are used by a company in its business operations.
Examples of non-current assets include property, plant, and equipment, as well as intangible assets like patents and trademarks. These assets are recorded on a company’s balance sheet and are reported at their historical cost or at their fair market value, depending on the type of asset.
Generally, Assets are classified into two types. Non-Current Assets Current Assets Non-Current Asset Noncurrent assets are also known as Fixed assets. These assets are an organization's long-term investments that are not easily converted to cash or are not expected to become cash within an acRead more
Generally, Assets are classified into two types.
Non-Current Assets
Current Assets
Non-Current Asset
Noncurrent assets are also known as Fixed assets. These assets are an organization’s long-term investments that are not easily converted to cash or are not expected to become cash within an accounting year.
In general terms, In accounting, fixed assets are assets that cannot be converted into cash immediately. They are primarily tangible assets used in production having a useful life of more than one accounting period. Unlike current assets or liquid assets, fixed assets are for the purpose of deriving long-term benefits.
Unlike other assets, fixed assets are written off differently as they provide long-term income. They are also called “long-lived assets” or “Property Plant & Equipment”.
Examples of Fixed Assets
Land
Land improvement (e.g. irrigation)
Building
Building (work in progress)
Machinery
Vehicles
Furniture
Computer hardware
Computer software
Office equipment
Leasehold improvements (e.g. air conditioning)
Intangible assets like trademarks, patents, goodwill, etc. (non-current assets)
Valuation of Fixed asset
fixed assets are recorded at their net book value, which is the difference between the “historical cost of the asset” and “accumulated depreciation”.
“Net book value = Historical cost of the asset – Accumulated depreciation”
Example:
Hasley Co. purchases Furniture for their company at a price of 1,00,000. The Furniture has a constant depreciation of 10,000 per year. So, after 5 years, the net book value of the computer will be recorded as
1,00,000 – (5 x 10,000) = 50,000.
Therefore, the furniture value should be shown as 50,000 on the balance sheet.
Presentation in the Balance Sheet
Both current assets and non-current assets are shown on the asset side(Right side) of the balance sheet.
Difference between Current Asset and Non-Current Asset
Current assets are the resources held for a short period of time and are mainly used for trading purposes whereas Fixed assets are assets that last for a long time and are acquired for continuous use by an entity.
The purpose to spend on fixed assets is to generate income over the long term and the purpose of the current assets is to spend on fixed assets to generate income over the long term.
At the time of the sale of fixed assets, there is a capital gain or capital loss but at the time of the sale of current assets, there is an operating gain or operating loss.
The main difference between the fixed asset and current asset is, although both are shown in the balance sheet fixed assets are depreciated every year and it is valued by (the cost of the asset – depreciation) and current asset is valued as per their current market value or cost value, whichever is lower.
How to find net credit sales in the annual report?
Net credit sales can be defined as the total sales made by a business on credit over a given period of time less the sales returns and allowances and discounts such as trade discounts. Net Credit Sales = Gross Credit Sales – Returns – Discounts – Allowances. Credit sales can be calculated from the ARead more
Net credit sales can be defined as the total sales made by a business on credit over a given period of time less the sales returns and allowances and discounts such as trade discounts.
Net Credit Sales = Gross Credit Sales – Returns – Discounts – Allowances.
Credit sales can be calculated from the Accounts receivable/ Bills Receivable/ Debtors figure in the Balance Sheet. It will be normally shown under the Current Assets head in the Balance Sheet.
Credit sales = Closing debtors + Receipts – Opening debtors.
Alternatively, you may observe the bills receivable ledger account to locate the figure of credit sales.
Net Credit Sales and related terms
Before we try to understand the concept of net credit sales with an example, let us discuss the term sales return. Sales return means the goods returned by the customer to the seller. It may be due to defects or any other reasons.
Now let us take an example. John is a retail businessman. He sells smartphones. He buys 100 smartphones from Vivo on credit. The smartphones are worth ₹1.5 lahks. He then returns smartphones worth 20,000 rupees to Vivo. He also gets an allowance of rupees 5,000 from Vivo.
In the above example, the credit sales of Vivo are of rupees 1.5 lakh. The net credit sales is of
1.5 lakh – 20,000 – 5, 000 = 1.25 lakh rupees.
Importance of Net Credit Sales
Advantages and Disadvantages of Credit Sales.
Advantages
Disadvantages
- Delay in Cash Collection – Credit Sales imply that the company would get cash on a delayed basis. This money could have otherwise been put to use for some other profitable venture or could have borne interest for the company
- Collection Expenses– The company had to incur additional expenditures for collecting money from debtors.
- Risk of Bad Debts – With credit sales, there is always the risk that the buyer may become bankrupt and may not be able to pay the money due to the seller.
See lessIs shareholders equity a liability or asset?
Overview And Definition Shareholder's equity represents the net value of a company. As an accounting measure, shareholders’ equity (also referred to as stockholders’ equity) is the difference between a company’s assets and liabilities. It is also called the book value of equity. For example – retainRead more
Overview And Definition
Shareholder’s equity represents the net value of a company. As an accounting measure, shareholders’ equity (also referred to as stockholders’ equity) is the difference between a company’s assets and liabilities. It is also called the book value of equity.
For example – retained earnings, common stock, etc.
Liabilities
Liabilities are the obligation or something a company or a person owes to another party. normally it is in cash form but it can be in other forms also.
And these liabilities need to be settled as per the terms agreed upon by the party.
For example – taxes owned, trade payables, etc.
Assets
Assets are those which has ownership of a company and controlling power with the company. In other words, Or something which will generate profits today and in the future.
For example – cash, building, etc.
Conclusion
Therefore I can conclude that stockholders’ equity refers to the assets remaining in a business once all liabilities have been settled, or I can say as it is not the same thing as the company’s assets. Assets are what the business owns.
How to Calculate Shareholders’ Equity
Shareholders’ equity is the owner’s claim when assets are liquidated, and debts are paid up. It can be calculated using the following two formulas:
Formula 1:
Shareholders’ Equity = Total Assets – Total Liabilities
Formula 2:
Shareholders’ Equity = Share Capital + Retained Earnings – Treasury Stock
Let me now take the example of a small business owner who is into the business of chairs in India.
As per the balance sheet of the proprietorship firm for the financial year ending on March 31, YYYY, the following information is available. Determine the shareholders’ equity of the firm.
Given, Total Assets = Net property, plant & equipment + Warehouse premises + Accounts Receivable + Inventory
= Rs (1000,000 + 300,000 + 500,000 + 800,000)
Total Assets = Rs 2600,000
Again, Total liabilities = Net debt+ Accounts payable + Other current liabilities
= Rs (700,000 + 700,000 + 600,000)
Total Liabilities = Rs 2,000,000
Therefore, the shareholders’ equity of the firm as on March 31, YYYY, can be calculated as,
= Rs (2600,000 – 2,000,000)
Shareholders’ Equity = Rs 600,000
Therefore, the shareholders’ equity, as of March 31, YYYY, stood at Rs 600,000.
See lessWhich type of account is trading account?
As per the Golden Rules As per the golden rules of accounting, a trading account is a nominal account. To ensure that financial statements accurately reflect a business's financial position and performance, the golden rules of accounting guide the preparation of financial statements. The point to noRead more
As per the Golden Rules
As per the golden rules of accounting, a trading account is a nominal account. To ensure that financial statements accurately reflect a business’s financial position and performance, the golden rules of accounting guide the preparation of financial statements.
The point to note is that it is almost impossible to apply the rules of debit and credit with certain accounts such as Trading A/c, Profit & Loss A/c, etc.
As per the Modern Rules
The purpose of a trading account is to record transactions related to the purchase and sale of goods for a business. In other words, it serves as a recording and reporting mechanism for business income and expenses.
An accounting period, like a month, quarter, or year, is the time when a trading account is prepared. It is used to calculate the business’s net profit or loss. Other financial statements, such as the balance sheet, are prepared using the information in a trading account.
In summary, a trading account is a type of income statement account that is used to track and report on the income and expenses from a business’s buying and selling activities
Rules of Debit and Credit
There are three main types of accounts according to the legacy rules of debit and credit: personal accounts, real accounts, and nominal accounts. A personal account is one that is related to an individual or entity owing the business money (e.g. a customer), or owing the business money (e.g. a supplier).
A real account is one that relates to assets such as cash, inventory, and property.
Nominal accounts are accounts that relate to income and expenses, such as a “trading account”.
To summarize, a trading account is a nominal account used to record and report the business’s income and expenses resulting from its buying and selling activities.
See lessWhat are profitability ratios?
Profitability ratios measure how profitable a company is and are used to assess its performance and efficiency. Based on the income statement and balance sheet of a company, these ratios are calculated. In terms of profitability ratios, there are several types, each providing a different viewpoint.Read more
Profitability ratios measure how profitable a company is and are used to assess its performance and efficiency. Based on the income statement and balance sheet of a company, these ratios are calculated.
In terms of profitability ratios, there are several types, each providing a different viewpoint.
The following are some common profitability ratios:
Gross profit margin: This ratio measures the percentage of revenue that remains after the cost of goods sold has been deducted. Producing and selling efficiently is indicated by this metric.
Net profit margin: An organization’s net profit margin is the portion of revenue left after all expenses have been deducted. A company’s profitability is measured by this indicator.
Return on assets (ROA): This ratio measures how profitable a company’s assets are. In other words, it indicates how effectively a company generates profits from its assets.
Return on equity (ROE): This ratio measures the profitability of a company’s equity. It shows how effectively a company generates profits from its shareholders’ investments.
Analysts and investors use profitability ratios to evaluate a company’s performance and profitability ability.
An investor or analyst can evaluate a company’s relative strength and identify potential opportunities or risks by comparing its profitability ratios with its peers or its industry averages.
See lessWhat are 10 examples of journal entries?
Here are 10 examples of accounting entries: A company purchases $500 worth of office supplies on credit from a supplier. Office supplies expense account would be debited Accounts payable would be credited A firm receives $1,000 in cash from a customer for services rendered. In this case, CashRead more
Here are 10 examples of accounting entries:
I also found a long list of example journal entries and a free PDF to download here.
See lessAre non-current assets fixed assets?
Yes, non-current assets are also known as fixed assets. These are long-term assets that are not intended for sale but are used by a company in its business operations. Examples of non-current assets include property, plant, and equipment, as well as intangible assets like patents and trademarks. TheRead more
Yes, non-current assets are also known as fixed assets. These are long-term assets that are not intended for sale but are used by a company in its business operations.
Examples of non-current assets include property, plant, and equipment, as well as intangible assets like patents and trademarks. These assets are recorded on a company’s balance sheet and are reported at their historical cost or at their fair market value, depending on the type of asset.
See lessWhat is a non-current asset?
Generally, Assets are classified into two types. Non-Current Assets Current Assets Non-Current Asset Noncurrent assets are also known as Fixed assets. These assets are an organization's long-term investments that are not easily converted to cash or are not expected to become cash within an acRead more
Generally, Assets are classified into two types.
Non-Current Asset
Noncurrent assets are also known as Fixed assets. These assets are an organization’s long-term investments that are not easily converted to cash or are not expected to become cash within an accounting year.
In general terms, In accounting, fixed assets are assets that cannot be converted into cash immediately. They are primarily tangible assets used in production having a useful life of more than one accounting period. Unlike current assets or liquid assets, fixed assets are for the purpose of deriving long-term benefits.
Unlike other assets, fixed assets are written off differently as they provide long-term income. They are also called “long-lived assets” or “Property Plant & Equipment”.
Examples of Fixed Assets
Valuation of Fixed asset
fixed assets are recorded at their net book value, which is the difference between the “historical cost of the asset” and “accumulated depreciation”.
“Net book value = Historical cost of the asset – Accumulated depreciation”
Example:
Hasley Co. purchases Furniture for their company at a price of 1,00,000. The Furniture has a constant depreciation of 10,000 per year. So, after 5 years, the net book value of the computer will be recorded as
1,00,000 – (5 x 10,000) = 50,000.
Therefore, the furniture value should be shown as 50,000 on the balance sheet.
Presentation in the Balance Sheet
Both current assets and non-current assets are shown on the asset side(Right side) of the balance sheet.
Difference between Current Asset and Non-Current Asset
Current assets are the resources held for a short period of time and are mainly used for trading purposes whereas Fixed assets are assets that last for a long time and are acquired for continuous use by an entity.
The purpose to spend on fixed assets is to generate income over the long term and the purpose of the current assets is to spend on fixed assets to generate income over the long term.
At the time of the sale of fixed assets, there is a capital gain or capital loss but at the time of the sale of current assets, there is an operating gain or operating loss.
The main difference between the fixed asset and current asset is, although both are shown in the balance sheet fixed assets are depreciated every year and it is valued by (the cost of the asset – depreciation) and current asset is valued as per their current market value or cost value, whichever is lower.
See less