Expense Expenditure: Expense expenditures refer to the costs incurred by a company in its day-to-day operations. These expenses are deducted from revenue to calculate the net income. Here are some examples of expense expenditures: Salaries and wages: The payments made to employees for their servicesRead more
Expense Expenditure:
Expense expenditures refer to the costs incurred by a company in its day-to-day operations. These expenses are deducted from revenue to calculate the net income. Here are some examples of expense expenditures:
Salaries and wages: The payments made to employees for their services are considered expense expenditures. This includes salaries, wages, bonuses, and commissions.
Rent: The cost of leasing office space or other business premises is an expense expenditure. It includes monthly rent payments, property taxes, and insurance premiums associated with the rented space.
Utilities: Expenses related to utilities such as electricity, water, gas, and internet services are considered expense expenditures.
Office supplies: The cost of purchasing and replenishing office supplies like stationery, printer ink, pens, paper, and other consumables is categorized as an expense expenditure.
Advertising and marketing: Expenditures incurred to promote a company’s products or services, such as advertising campaigns, online marketing, social media promotions, and print media advertisements, are considered expense expenditures.
Revenue Expenditure:
Revenue expenditures are expenses incurred to acquire or improve assets that are expected to generate revenue over multiple accounting periods. Unlike expense expenditures, revenue expenditures are typically not capitalized. Here are some examples of revenue expenditures:
Repairs and maintenance: Costs incurred to repair and maintain existing assets, such as machinery, equipment, and vehicles, are considered revenue expenditures. Routine maintenance expenses, like oil changes, servicing, and small repairs, fall into this category.
Software and technology upgrades: Expenses incurred to upgrade or enhance software systems, computer hardware, or other technological infrastructure are considered revenue expenditures.
Training and development: Expenditures on employee training programs, workshops, seminars, and skill development courses that enhance the productivity and capabilities of the workforce are classified as revenue expenditures.
Advertising campaigns for new products: While advertising expenses are generally classified as expense expenditures, when they are specifically related to the launch or introduction of new products or services, they can be considered revenue expenditures.
Renovation and improvements: Costs incurred to renovate or improve existing assets, such as office spaces, stores, or warehouses, can be classified as revenue expenditures if they enhance the earning capacity or extend the useful life of the asset.
These examples highlight the distinction between expense and revenue expenditures based on their purpose and treatment in financial statements.
Definition Section 43 of the companies act 2013 prescribes that the share capital of a company broadly can be of two types or classes : Preference shares Equity shares Preference shares Preference shares are the shares that carry the following two preferential rights : Preferential rights to receivRead more
Definition
Section 43 of the companies act 2013 prescribes that the share capital of a company broadly can be of two types or classes :
Preference shares
Equity shares
Preference shares
Preference shares are the shares that carry the following two preferential rights :
Preferential rights to receive dividends, to be paid as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income tax before it is paid to equity shareholders, and
Return of capital on the winding up of the company before that of equity shares.
Classes of preference shares
Preference shares are broadly classified as follows :
With reference to the dividend
Participation in surplus profit
Convertibility
Redemption
With reference to the dividend
Cumulative preference shares are those preference shares that carry the right to receive arrears of dividends before the dividend is paid to the equity shareholders.
Non-cumulative preference shares are those that do not carry the right to receive arrears of dividends.
Participation in surplus profit
Participating preference shares of the company may provide that after the dividend has been paid to the equity shareholders, the holders of preference shares will also have a right to participate in the remaining profits.
Non-participating preference shares are those preference shares that do not carry the right to participate in the remaining profits after the equity shareholders have paid the dividend.
Convertibility
Convertible preference shares are those preference shares that carry the right to be converted into equity shares.
Non-convertible preference shares are those that do not carry the right to be converted into equity shares.
Redemption
Redeemable preference shares are those preference shares that are redeemed by the company at the time specified for the repayment or earlier.
Irredeemable preference shares are preference shares the amount of which can be returned by the company to the holders of such shares when the company is wound up.
Equity shares
Equity shares are those shares that are not preference shares.
Equity shares are the most commonly issued class of shares that carry the maximum ‘risk and reward ‘ of the business the risks of losing part or all the value of the shares if the business incurs losses.
The rewards are the payment of higher dividends and appreciation in the market value.
Definition Not-for-profit organizations are also known as non-profit organizations set up to further cultural, educational, religious, professional, or public service objectives. Its aim is not to earn profit Accounting done by non-profit organizations is fund based. Type of accounting Non-pRead more
Definition
Not-for-profit organizations are also known as non-profit organizations set up to further cultural, educational, religious, professional, or public service objectives. Its aim is not to earn profit
Accounting done by non-profit organizations is fund based.
Type of accounting
Non-profit organizations do Fund Based Accounting.
Donations received or funds set aside for specific purposes are credited to a separate fund account and are shown on the liabilities side of the balance sheet.
The income from or donations for these funds are credited to the respective fund account. On the other hand, expenses or payments out of these funds are debited.
Accounting when done on this basis is known as Fund Based Accounting.
Let me explain to you with an example :
The sports fund has a balance of Rs 100000 which is invested as a fixed deposit in a bank earning 8% interest. A further donation of Rs 10000 is received towards it. Expenses incurred towards prizes are Rs 7000; Rs 3000 towards trophies and Rs 4000 distribution of cash prizes. The accounts are shown as follows :
Categories of funds
In the case of non-profit organizations, funds may be classified under the following heads :
Unrestricted fund :
The unrestricted fund does not carry any restriction with respect to its use. In other words, management can use the amounts in the funds as it deems appropriate, but to carry out the purpose for which the organization exists.
This is known as the general fund or the capital fund to which the surplus for the year is added and in case of deficit, deducted.
Restricted fund :
A restricted fund is a fund, the use of which is restricted either by the management or by the donor for a specific purpose.
Examples of such funds are endowment funds, annuity funds, loan funds, prize funds, sports funds, etc.
Government grant: grant received from the government for a specific purpose is restricted to be used for the purpose it is granted. It is accounted for in the books following fund-based accounting.
For example, a grant received from the government for ‘the polio eradication program is credited to the polio eradication fund, and income earned relating to the fund is credited to the fund while expenses are debited.
Endowment fund: it’s a fund usually a non-profit organization, arising from a bequest or gift, the income of which is devoted to a specific purpose.
Annuity fund: an annuity fund is established when a non-profit organization receives assets from a donor with a condition to pay
Loan fund: loan fund is set up to grant loans for specific purposes say loans to pursue higher studies.
A fixed assets fund is a fund earmarked for investment in fixed assets or already invested in fixed assets.
Prize funds: it is a fund set up to use for distribution as prizes say for achievements or contributions to the welfare of society.
Definition A limited liability partnership (LLP)is a business vehicle like a partnership that features the partners ‘ liability is limited. Thus, it has elements of partnership and company. Another important feature of LLP is that each partner is not responsible or liable for another partner’s miscoRead more
Definition
A limited liability partnership (LLP)is a business vehicle like a partnership that features the partners ‘ liability is limited. Thus, it has elements of partnership and company.
Another important feature of LLP is that each partner is not responsible or liable for another partner’s misconduct or negligence.
LLP as constituted in INDIA:
The limited liability partnership act, 2008 came into effect on 31st march, 2009. LLP is different from a partnership as it operates like a partnership, but in an LLP each partner is protected from personal liability, except to the extent of his capital contribution in the LLP.
• LLP is subject to income tax like any other partnership firm.
• A partner is not liable for independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner‘s wrongful business decisions or misconduct.
• LLP is a body corporate and legal entity separate from its partners. It has perpetual succession like a limited liability company.
Indian partnership act 1932 is not applicable to LLPs and also the limit on the number of partners in an LLP is not applicable, unlike an ordinary partnership firm where the maximum number of partners cannot exceed the number specified under SEC 464 of Companies Act 2013, which at present is 50.
The LLP Act, 2008 specifies that a least one of the partners in the LLP is a citizen of India and an Indian national.
• The Registrar Of Companies ( ROC) is authorized to register and control LLPs.
Characteristics
• Separate legal entity :
Like a company, LLP also has a separate legal entity. Therefore partners and LLP are distinct from each other, like a company where the company has a legal entity separate from its shareholders.
• Minimum capital :
LLP is not required to maintain minimum capital. Thus partners in LLP decide how much capital will be contributed by each partner.
• The Minimum number of members :
An LLP can be established with at least two members who shall also be the designated partners and shall have Director Identification Number (DIN).
There is no limit on the maximum number of partners. Members other than designated partners are required to have DIN.
• Audit is not mandatory :
All companies, whether private or public, are required to get their accounts audited. However, an audit of LLP‘s books of accounts is not mandatory except :
• If the contribution of the LLP exceeds Rs 25 lakhs: or • If the annual turnover of the LLP exceeds Rs 40 lakhs.
Goodwill is a future expected profit arising due to past effort , it is an intangible asset , which is shown at asset side of balance sheet under the heading of fixed assets
Goodwill is a future expected profit arising due to past effort , it is an intangible asset , which is shown at asset side of balance sheet under the heading of fixed assets
Definition The trial balance is a list of all the closing balances of the general ledger at the end of the year. Or in other words, I can say that it is a statement showing debit and credit balances. A trial balance is prepared on a particular date and not in a specific period. Types of error in theRead more
Definition
The trial balance is a list of all the closing balances of the general ledger at the end of the year. Or in other words, I can say that it is a statement showing debit and credit balances.
A trial balance is prepared on a particular date and not in a specific period.
Types of error in the trial balance
Now let me explain to you that what are the errors of trail balance which are as follows :
• Error of principle
• Compensating error
• Transactions completely omitted
• Error of recording
• Error of posting
A trial balance is not conclusive proof of the accuracy of the books of accounts since certain types of errors remain even when it tallies. They are explained below :
Error of principle
This error arises due to the incorrect application of the principle of accounting is not disclosed by the trial balance.
Compensating error
It means the group of errors committed in such a way that one mistake is compensated by another and the trial balance still agrees.
Transaction completely omitted
When the transaction is entirely omitted from recording in the books of account cannot be detected.
Error of recording
When both aspects of recording a transaction twice in the books of account take place.
Error of posting
Posting the correct amount on the correct side but in the wrong account is not reflected in the trial balance.
Steps to locate errors
Differences in the trial balance, howsoever minor they may be, must be located and rectified. The following steps are useful in locating errors are :
• Two columns of the trial balance should be totaled again.
• The list of sundry debtors and creditors should be checked to find out whether all balances of debtors and creditors have been correctly written in the trial balance or not.
• It should be checked that the balances of every account including cash and bank balances ( from the cash book ) have been written in the correct column of the trial balance.
• If the errors remain undetected, try to locate the errors by trial and error techniques such as finding an account showing a balance difference from the trial balance.
• Ledger balances should be balanced again.
• Check the totals of subsidiary books.
• Check the posting of nominal accounts.
• And at last if not possible to locate the difference in the trial balance is temporarily transferred to a suspense account.
Importance
As the trial balance is prepared at the end of the year so it is important for the preparation of financial statements like balance sheets or profit and loss.
Purpose of trial balance
• To verify the arithmetical accuracy of the ledger accounts
This means trial balance indicates that equal debits and credits have been recorded in the ledger accounts.
It enables one to establish whether the posting and other accounting processes have been carried out without any arithmetical errors.
• To help in locating errors
There can be some errors if the trial balance is untallied therefore to get error-free financial statements trial balance is prepared.
• To facilitate the preparation of financial statements
A trial balance helps us to directly prepare the financial statements and then which gives us the right to not look or no need to refer to the ledger accounts.
Rules of trial balance
When we prepare a trial balance from the given list of ledger balances, the following rules to be kept in mind that are as follows :
• The balance of all
• Assets accounts
• Expenses accounts
• Losses
• Drawings
• Cash and bank balances
Are placed in the debit column of the trial balance.
• The balances of
• liabilities accounts
• income accounts
• profits
• capital
Are placed in the credit column of the trial balance.
Definition Debit balance may arise due to timing differences in which case income will be accrued at the year's end to offset the debit. The amount is shown in the record of a company s finances, by which its total debits are greater than its total credits. The account which has debit balances are aRead more
Definition
Debit balance may arise due to timing differences in which case income will be accrued at the year’s end to offset the debit.
The amount is shown in the record of a company s finances, by which its total debits are greater than its total credits.
The account which has debit balances are as follows:
• Assets accounts
Land, furniture, building machinery, etc
• Cash and bank balances
Balances of these accounts
In class 11th, we learned about all these accounts that have debit balances.
Where the total of the debit side is more than the credit side therefore the difference is the debit balance and is placed credit side as “ by balance c/d “
Here are some examples showing the debit balances of the accounts :
Accounting terms
Expense Expenditure: Expense expenditures refer to the costs incurred by a company in its day-to-day operations. These expenses are deducted from revenue to calculate the net income. Here are some examples of expense expenditures: Salaries and wages: The payments made to employees for their servicesRead more
Expense Expenditure:
Expense expenditures refer to the costs incurred by a company in its day-to-day operations. These expenses are deducted from revenue to calculate the net income. Here are some examples of expense expenditures:
Salaries and wages: The payments made to employees for their services are considered expense expenditures. This includes salaries, wages, bonuses, and commissions.
Rent: The cost of leasing office space or other business premises is an expense expenditure. It includes monthly rent payments, property taxes, and insurance premiums associated with the rented space.
Utilities: Expenses related to utilities such as electricity, water, gas, and internet services are considered expense expenditures.
Office supplies: The cost of purchasing and replenishing office supplies like stationery, printer ink, pens, paper, and other consumables is categorized as an expense expenditure.
Advertising and marketing: Expenditures incurred to promote a company’s products or services, such as advertising campaigns, online marketing, social media promotions, and print media advertisements, are considered expense expenditures.
Revenue Expenditure:
Revenue expenditures are expenses incurred to acquire or improve assets that are expected to generate revenue over multiple accounting periods. Unlike expense expenditures, revenue expenditures are typically not capitalized. Here are some examples of revenue expenditures:
Repairs and maintenance: Costs incurred to repair and maintain existing assets, such as machinery, equipment, and vehicles, are considered revenue expenditures. Routine maintenance expenses, like oil changes, servicing, and small repairs, fall into this category.
Software and technology upgrades: Expenses incurred to upgrade or enhance software systems, computer hardware, or other technological infrastructure are considered revenue expenditures.
Training and development: Expenditures on employee training programs, workshops, seminars, and skill development courses that enhance the productivity and capabilities of the workforce are classified as revenue expenditures.
Advertising campaigns for new products: While advertising expenses are generally classified as expense expenditures, when they are specifically related to the launch or introduction of new products or services, they can be considered revenue expenditures.
Renovation and improvements: Costs incurred to renovate or improve existing assets, such as office spaces, stores, or warehouses, can be classified as revenue expenditures if they enhance the earning capacity or extend the useful life of the asset.
These examples highlight the distinction between expense and revenue expenditures based on their purpose and treatment in financial statements.
See lessWhat are kind or classes of shares issued by companies in accounting ?
Definition Section 43 of the companies act 2013 prescribes that the share capital of a company broadly can be of two types or classes : Preference shares Equity shares Preference shares Preference shares are the shares that carry the following two preferential rights : Preferential rights to receivRead more
Definition
Section 43 of the companies act 2013 prescribes that the share capital of a company broadly can be of two types or classes :
Preference shares
Preference shares are the shares that carry the following two preferential rights :
Classes of preference shares
Preference shares are broadly classified as follows :
With reference to the dividend
Cumulative preference shares are those preference shares that carry the right to receive arrears of dividends before the dividend is paid to the equity shareholders.
Non-cumulative preference shares are those that do not carry the right to receive arrears of dividends.
Participation in surplus profit
Participating preference shares of the company may provide that after the dividend has been paid to the equity shareholders, the holders of preference shares will also have a right to participate in the remaining profits.
Non-participating preference shares are those preference shares that do not carry the right to participate in the remaining profits after the equity shareholders have paid the dividend.
Convertibility
Convertible preference shares are those preference shares that carry the right to be converted into equity shares.
Non-convertible preference shares are those that do not carry the right to be converted into equity shares.
Redemption
Redeemable preference shares are those preference shares that are redeemed by the company at the time specified for the repayment or earlier.
Irredeemable preference shares are preference shares the amount of which can be returned by the company to the holders of such shares when the company is wound up.
Equity shares
Equity shares are those shares that are not preference shares.
Equity shares are the most commonly issued class of shares that carry the maximum ‘risk and reward ‘ of the business the risks of losing part or all the value of the shares if the business incurs losses.
The rewards are the payment of higher dividends and appreciation in the market value.
See lessWhich type of accounting is done by NPOs ?
Definition Not-for-profit organizations are also known as non-profit organizations set up to further cultural, educational, religious, professional, or public service objectives. Its aim is not to earn profit Accounting done by non-profit organizations is fund based. Type of accounting Non-pRead more
Definition
Not-for-profit organizations are also known as non-profit organizations set up to further cultural, educational, religious, professional, or public service objectives. Its aim is not to earn profit
Accounting done by non-profit organizations is fund based.
Type of accounting
Non-profit organizations do Fund Based Accounting.
Donations received or funds set aside for specific purposes are credited to a separate fund account and are shown on the liabilities side of the balance sheet.
The income from or donations for these funds are credited to the respective fund account. On the other hand, expenses or payments out of these funds are debited.
Accounting when done on this basis is known as Fund Based Accounting.
Let me explain to you with an example :
The sports fund has a balance of Rs 100000 which is invested as a fixed deposit in a bank earning 8% interest. A further donation of Rs 10000 is received towards it. Expenses incurred towards prizes are Rs 7000; Rs 3000 towards trophies and Rs 4000 distribution of cash prizes. The accounts are shown as follows :
Categories of funds
In the case of non-profit organizations, funds may be classified under the following heads :
Unrestricted fund :
The unrestricted fund does not carry any restriction with respect to its use. In other words, management can use the amounts in the funds as it deems appropriate, but to carry out the purpose for which the organization exists.
This is known as the general fund or the capital fund to which the surplus for the year is added and in case of deficit, deducted.
Restricted fund :
A restricted fund is a fund, the use of which is restricted either by the management or by the donor for a specific purpose.
Examples of such funds are endowment funds, annuity funds, loan funds, prize funds, sports funds, etc.
- Prize funds: it is a fund set up to use for distribution as prizes say for achievements or contributions to the welfare of society.
See lessWhat do you mean by LLP ?
Definition A limited liability partnership (LLP)is a business vehicle like a partnership that features the partners ‘ liability is limited. Thus, it has elements of partnership and company. Another important feature of LLP is that each partner is not responsible or liable for another partner’s miscoRead more
Definition
A limited liability partnership (LLP)is a business vehicle like a partnership that features the partners ‘ liability is limited. Thus, it has elements of partnership and company.
Another important feature of LLP is that each partner is not responsible or liable for another partner’s misconduct or negligence.
LLP as constituted in INDIA:
The limited liability partnership act, 2008 came into effect on 31st march, 2009. LLP is different from a partnership as it operates like a partnership, but in an LLP each partner is protected from personal liability, except to the extent of his capital contribution in the LLP.
• LLP is subject to income tax like any other partnership firm.
• A partner is not liable for independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner‘s wrongful business decisions or misconduct.
• LLP is a body corporate and legal entity separate from its partners. It has perpetual succession like a limited liability company.
Indian partnership act 1932 is not applicable to LLPs and also the limit on the number of partners in an LLP is not applicable, unlike an ordinary partnership firm where the maximum number of partners cannot exceed the number specified under SEC 464 of Companies Act 2013, which at present is 50.
The LLP Act, 2008 specifies that a least one of the partners in the LLP is a citizen of India and an Indian national.
• The Registrar Of Companies ( ROC) is authorized to register and control LLPs.
Characteristics
• Separate legal entity :
Like a company, LLP also has a separate legal entity. Therefore partners and LLP are distinct from each other, like a company where the company has a legal entity separate from its shareholders.
• Minimum capital :
LLP is not required to maintain minimum capital. Thus partners in LLP decide how much capital will be contributed by each partner.
• The Minimum number of members :
An LLP can be established with at least two members who shall also be the designated partners and shall have Director Identification Number (DIN).
There is no limit on the maximum number of partners. Members other than designated partners are required to have DIN.
• Audit is not mandatory :
All companies, whether private or public, are required to get their accounts audited. However, an audit of LLP‘s books of accounts is not mandatory except :
• If the contribution of the LLP exceeds Rs 25 lakhs: or
• If the annual turnover of the LLP exceeds Rs 40 lakhs.
See lessWhat do you mean by goodwill ?
Goodwill is a future expected profit arising due to past effort , it is an intangible asset , which is shown at asset side of balance sheet under the heading of fixed assets
Goodwill is a future expected profit arising due to past effort , it is an intangible asset , which is shown at asset side of balance sheet under the heading of fixed assets
See lessHow to locate errors in trial balance?
Definition The trial balance is a list of all the closing balances of the general ledger at the end of the year. Or in other words, I can say that it is a statement showing debit and credit balances. A trial balance is prepared on a particular date and not in a specific period. Types of error in theRead more
Definition
The trial balance is a list of all the closing balances of the general ledger at the end of the year. Or in other words, I can say that it is a statement showing debit and credit balances.
A trial balance is prepared on a particular date and not in a specific period.
Types of error in the trial balance
Now let me explain to you that what are the errors of trail balance which are as follows :
• Error of principle
• Compensating error
• Transactions completely omitted
• Error of recording
• Error of posting
A trial balance is not conclusive proof of the accuracy of the books of accounts since certain types of errors remain even when it tallies. They are explained below :
Error of principle
This error arises due to the incorrect application of the principle of accounting is not disclosed by the trial balance.
Compensating error
It means the group of errors committed in such a way that one mistake is compensated by another and the trial balance still agrees.
Transaction completely omitted
When the transaction is entirely omitted from recording in the books of account cannot be detected.
Error of recording
When both aspects of recording a transaction twice in the books of account take place.
Error of posting
Posting the correct amount on the correct side but in the wrong account is not reflected in the trial balance.
Steps to locate errors
Differences in the trial balance, howsoever minor they may be, must be located and rectified. The following steps are useful in locating errors are :
• Two columns of the trial balance should be totaled again.
• The list of sundry debtors and creditors should be checked to find out whether all balances of debtors and creditors have been correctly written in the trial balance or not.
• It should be checked that the balances of every account including cash and bank balances ( from the cash book ) have been written in the correct column of the trial balance.
• If the errors remain undetected, try to locate the errors by trial and error techniques such as finding an account showing a balance difference from the trial balance.
• Ledger balances should be balanced again.
• Check the totals of subsidiary books.
• Check the posting of nominal accounts.
• And at last if not possible to locate the difference in the trial balance is temporarily transferred to a suspense account.
Importance
As the trial balance is prepared at the end of the year so it is important for the preparation of financial statements like balance sheets or profit and loss.
Purpose of trial balance
• To verify the arithmetical accuracy of the ledger accounts
This means trial balance indicates that equal debits and credits have been recorded in the ledger accounts.
It enables one to establish whether the posting and other accounting processes have been carried out without any arithmetical errors.
• To help in locating errors
There can be some errors if the trial balance is untallied therefore to get error-free financial statements trial balance is prepared.
• To facilitate the preparation of financial statements
A trial balance helps us to directly prepare the financial statements and then which gives us the right to not look or no need to refer to the ledger accounts.
Rules of trial balance
When we prepare a trial balance from the given list of ledger balances, the following rules to be kept in mind that are as follows :
• The balance of all
• Assets accounts
• Expenses accounts
• Losses
• Drawings
• Cash and bank balances
Are placed in the debit column of the trial balance.
• The balances of
• liabilities accounts
• income accounts
• profits
• capital
Are placed in the credit column of the trial balance.
See lessWhat is debit balance class 11?
Definition Debit balance may arise due to timing differences in which case income will be accrued at the year's end to offset the debit. The amount is shown in the record of a company s finances, by which its total debits are greater than its total credits. The account which has debit balances are aRead more
Definition
Debit balance may arise due to timing differences in which case income will be accrued at the year’s end to offset the debit.
The amount is shown in the record of a company s finances, by which its total debits are greater than its total credits.
The account which has debit balances are as follows:
• Assets accounts
Land, furniture, building machinery, etc
• Expenses accounts
Salary, rent, insurance, etc
• Losses
Bad debts, loss by fire, etc
• Drawings
Personal drawings of cash or assets
• Cash and bank balances
Balances of these accounts
In class 11th, we learned about all these accounts that have debit balances.
Where the total of the debit side is more than the credit side therefore the difference is the debit balance and is placed credit side as “ by balance c/d “
Here are some examples showing the debit balances of the accounts :
See less