Similarly, someone asked Are loose tools current assets
Similarly, someone asked Are loose tools current assets
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Yes, I agree with your statement that accounting information should be comparable. Comparability is one of the qualitative characteristics of accounting information. It means that users should be able to compare a company's financial statements across time and across other companies. Comparability oRead more
Yes, I agree with your statement that accounting information should be comparable.
Comparability is one of the qualitative characteristics of accounting information. It means that users should be able to compare a company’s financial statements across time and across other companies.
Comparability of financial statements is crucial due to the following reasons:
1. Intra-Firm Comparison:
Comparison of financial statements of two or more periods of the same firm is known as an intra-firm comparison.
Comparability of accounting information enables the users to analyze the financial statements of a business over a period of time. It helps them to monitor whether the firm’s financial performance has improved over time.
The intra-firm analysis is also known as Time Series Analysis or Trend Analysis.
To understand intra-firm analysis, I have provided an extract of the balance sheet of ABC Ltd. for two accounting periods.
2. Inter-Firm Comparison:
Comparison of financial statements of two or more firms is known as an inter-firm comparison.
Inter-firm comparison helps in analyzing the financial performance of two or more competing firms in an industry. It enables the firm to know its position in the market in comparison to its competitors.
Inter-firm comparison is also known as Cross-sectional Analysis.
I’ve provided the balance sheets of Co. A and Co.B to make an inter-firm comparison.
Here is a piece of bonus information for you,
Sector Analysis – it refers to the assessment of economical and financial conditions of a given sector of a company/industry/economy. It involves the analysis of the size, demographic, pricing, competitive, and other economic dimensions of a sector of the company/industry/economy.
One more important thing to note here is that comparability can only be achieved when the firms are consistent in the accounting principles and standards they adopt. The accounting policies and standards must be consistent across different periods of the same firm and across different firms in an industry.
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Sales Return is shown on the debit side of the Trial Balance. Sales Return is also called Return Inward. Sales Return refers to those goods which are returned by the customer to the seller of the goods. The goods can be returned due to various reasons. For example, due to defects, quality differenceRead more
Sales Return is shown on the debit side of the Trial Balance.
Sales Return is also called Return Inward.
Sales Return refers to those goods which are returned by the customer to the seller of the goods. The goods can be returned due to various reasons. For example, due to defects, quality differences, damaged products, and so on.
In a business, sales is a form of income as it generates revenue. So, when the customer sends back those goods sold earlier, it reduces the income generated from sales and hence goes on the debit side of the trial balance as per the modern rule of accounting Debit the increases and Credit the decreases.
For Example, Mr. Sam sold goods to Mr. John for Rs 500. Mr. John found the goods damaged and returned those goods to Mr. Sam.
So, here Sam is the seller and John is the customer.
The journal entry for sales return in the books of Mr. Sam will be
Particulars Amt Amt Sales Return A/c 500 To Mr John 500 Treatment in Trial Balance
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Personal Accounts: The accounts of persons, firms, companies, etc. are personal accounts. There is a further classification to personal accounts- Accounts of Natural Persons: The transactions relating to individual human beings fall under this category. For Example, accounts of Joseph, Richard, MorrRead more
Personal Accounts: The accounts of persons, firms, companies, etc. are personal accounts. There is a further classification to personal accounts-
- Accounts of Natural Persons: The transactions relating to individual human beings fall under this category. For Example, accounts of Joseph, Richard, Morris, etc.
- Accounts of Artificial Persons: The transactions relating to firms, organizations, companies, institutions, associations, etc. fall under this category. For Example, Oil India Ltd, Symbiosis college, Assam Tea company, etc.
- Representative Personal Accounts: The transactions relating to certain person or a group of persons, although the name of the concerned person or persons are not mentioned in the account head, such types of accounts come under this head. Such type of accounts generally include outstanding accounts or prepaid accounts. For Example, accounts like wages outstanding, outstanding salary, commission received in advance, salary prepaid, etc.
Note: When any Prefix or Suffix is used before/ after any nominal account head, such account is classified as Representative personal account under traditional approach.
For Example, Salary A/c is a nominal account whereas salary outstanding A/c is a personal account as the word outstanding is being used as a prefix to Salary A/c.
The Accounting rule for Personal Account is –
Debit the Receiver of the benefit.
Credit the Giver of the benefit.
Real Account: The transactions relating to tangible things i.e. the things that can be seen, touched and physically exchanged and the intangible things that cannot be seen, touched but the presence can be felt comes under this category. For Example, tangible things like Cash, goods, building, machinery, etc. and intangible things like goodwill, patent, trademarks, etc.
The Accounting rule for Real Account is –
Debit what comes in.
Credit what goes out.
Nominal Accounts: The transactions relating to losses, expenses, incomes and gains comes under this category. For Example, Rent paid, wages paid, commission received, interest paid/ received, etc.
The Accounting rule for Nominal Account is –
Debit Expenses and Losses.
Credit Gains and Incomes.
Some Common Examples under the three heads are
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Under GST, Input Tax Credit (ITC) refers to the tax already paid by a person on input, which is available as a deduction from tax payable on output. This means that if you have paid tax on some purchases, then at the time of paying tax on the sale of goods, you can reduce it by the amount you alreadRead more
Under GST, Input Tax Credit (ITC) refers to the tax already paid by a person on input, which is available as a deduction from tax payable on output. This means that if you have paid tax on some purchases, then at the time of paying tax on the sale of goods, you can reduce it by the amount you already paid on purchase and pay only the balance amount.
EXAMPLE
Suppose Ashok purchased goods worth Rs 100 while paying tax at 10%, that is Rs 10. He now sold the goods for Rs 200, with a tax payable of Rs 20. Now, Ashok can avail input tax credit of Rs 10 that he already paid for the purchase and hence the net tax payable is Rs 10 (20-10).
METHOD OF UTILISATION OF ITC
The central government collects CGST, SGST, UTGST or IGST based on whether the transactions are done intrastate or interstate.
The amount of input tax credit on IGST is first used for paying IGST and then utilised for the payment of CGST and SGST or UTGST. Similarly, the amount of ITC relating to CGST is first utilised for payment of CGST and then for the payment of IGST. It is not used for the payment of SGST or UTGST. Meanwhile, the amount of ITC relating to SGST is utilised for payment of SGST or UTGST and then for the payment of IGST. Such amounts are not used for payment of CGST.
We can see how Input Tax Credit is used from the below example and table:
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To determine if a person is a resident in India as per the Income Tax Act 1961, he has to fulfil any of the 2 following conditions; Condition A Stay in India for 182 days or more in the previous year, or Stay in India for 60 days or more in the previous year and another 365 days or more in the 4 yeaRead more
To determine if a person is a resident in India as per the Income Tax Act 1961, he has to fulfil any of the 2 following conditions;
Condition A
- Stay in India for 182 days or more in the previous year, or
- Stay in India for 60 days or more in the previous year and another 365 days or more in the 4 years immediately preceding the previous year.
The second condition above is not applicable if he is an Indian citizen leaving India for the purpose of employment, or he is a member of the crew of an Indian ship, or he is only coming to India on a visit.
If he fails to fulfil either of the two conditions, then he is termed as a non-resident.
In India, a resident person can be classified into two:
- Resident and ordinarily resident
- Resident but not ordinarily resident
Condition B
A resident is a resident and ordinarily resident if (B):
- He has been a resident in India for at least 2 out of the previous 10 years immediately preceding the relevant previous year, and
- He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year.
If a person satisfies any one condition of (A) but does not follow all conditions of (B), then he is termed as a resident but not ordinarily resident.
EXAMPLE
If Nithin is living in India for 190 days in the previous year and was a resident for the previous two years only staying for 400 days in the previous 7 years, then he fulfils condition (A) but not both conditions of (B) and hence he is a resident but not ordinarily resident.
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Everyone must have heard about the term “cooking the books”. This term is generally associated with Creative accounting. In simple words, Creative accounting is a method of accounting in which the management tries to show a better picture of the business than the reality. Let us now understand thisRead more
Everyone must have heard about the term “cooking the books”. This term is generally associated with Creative accounting. In simple words, Creative accounting is a method of accounting in which the management tries to show a better picture of the business than the reality. Let us now understand this concept in detail.
What is Creative accounting?
Creative accounting is a method of accounting in which the management manipulates the books of accounts by finding loopholes to showcase a better image of the business.
It is a practice of using accounting loopholes to make a company’s financial position look better than it really is. It is not exactly illegal but it is more of a gray area.
For example, a business may delay reporting expenses to increase the profits to present a better short-term position.
The goal of creative accounting is to impress the shareholders, investors, get loans or boost stock prices.
However, this can also be very risky and have serious consequences. It can reduce the trust of the investors and customers. In some cases, like Enron and WorldCom the world has seen how creative accounting lead to legal consequences.
Common Techniques of Creative Accounting
Some of the common techniques used by the business to manipulate the financial position are as follows:
Ethical implications of Creative Accounting
There are several ethical implications with respect to creative accounting. Some of these are discussed below:
Conclusion
The key takeaways from the above discussion are as follows:
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