A bills receivable book is a subsidiary book that shows the details of various bills receivables drawn on customers. It shows the amount, due date, date when the bill was drawn, name of the acceptor, and various other details pertaining to each bill. A bills payable book is a subsidiary book that shRead more
A bills receivable book is a subsidiary book that shows the details of various bills receivables drawn on customers. It shows the amount, due date, date when the bill was drawn, name of the acceptor, and various other details pertaining to each bill.
A bills payable book is a subsidiary book that shows the details of various bills that suppliers have drawn on the business. It shows the amount, due date, date when the bill was drawn, name of the drawer and various other details pertaining to each bill.
The total of both these books is ultimately transferred to the general ledger. From there, it is used in drafting the balance sheet.
Importance of bills receivable and bills payable books
Bills receivable books help us know the amount that each customer is liable to pay us on specific dates while bills payable books help us know the amounts that we have to pay our various suppliers on certain dates.
Together these books help us handle our cash flows in an efficient manner.
We can evaluate our credit cycle. Bills receivable books help us avoid bad debts while bills payable books help us to avoid defaults.
Difference between bills receivable and bills payable
These are the primary differences between bills payable and bills receivable:
- Bills receivable represent the amounts that the business is to receive from customers while bills payable represent the amounts that the business has to pay to suppliers.
- Bills receivable are recorded as an asset in the balance sheet while bills payable are recorded as a liability.
- Bills receivable are drawn by the business on the customers while the bills payable are drawn by the suppliers on the business.
- Bills receivable are the outcome of credit sales while bills payable are the outcome of credit purchases.
- Bills receivable result in an inflow of cash while bills payable result in an outflow of cash.
- The dishonor of a bill receivable is recorded as an increase in the debtors of the business. Default on payment of bills payable may occur either because the business has become bankrupt or the business may record an increase in creditors.
We can conclude that both bills receivable and bills payable books are subsidiary books. Bills receivable shows the details of every bill that the business has drawn on each credit customer. Bills payable show the details of every bill that each credit supplier has drawn on the business.
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Definition Gross profit is the excess of the proceeds of goods and services rendered during a period over their cost, before taking into account administration, selling, distribution, and financial expenses. When the result of this computation is negative it is referred to as gross loss Formula : ToRead more
Definition
Gross profit is the excess of the proceeds of goods and services rendered during a period over their cost, before taking into account administration, selling, distribution, and financial expenses.
When the result of this computation is negative it is referred to as gross loss
Formula :
Total Revenues – Cost Of Goods Sold
Net profit is defined as the excess of revenues over expenses during a particular period.
When the result of this computation is negative it is called a net loss.
Net profit may be shown before or after tax.
Formula :
Total Revenues – Expenses
Or
Total Revenues – Total Cost ( Implicit And Explicit Cost )
The basic difference between gross profit and net profit is that gross profit estimates the profitability of a company whereas net profit is to show the performance of the company.
Key points of Gross Profit
Some of the key points of as for gross profits follows :
• Stage of calculation: Gross Profit is calculated in the first stage of the Final Account.
• Purpose of calculation: It is calculated to know the total profit earned during the particular accounting
• Type of balance: Gross Profit shows the credit balance of the Trading Account.
• Dimension: It is a narrow concept as it is a part of Net Profit.
• Treatment: It is not treated directly in the balance sheet. It is transferred to the Profit And Loss Account.
Key points of Net Profit
Some of the key points of as for gross profits follows :
• Stage of calculation: Net Profit is calculated in the second stage of the Final Account.
• Purpose of calculation: It is calculated to know the net profit earned during the particular accounting
• Type of balance: Net Profit shows the credit balance of the Profit And Loss Account.
• Dimension: It is a wider concept as it includes Gross Profit.
• Treatment: It is treated directly in the balance sheet by adding or subtracting from the capital.
Examples
Now let me explain to you by taking an example which is as follows :
In a business organization there were the following data given as purchases made Rs 73000, inventory, in the beginning, was Rs 10000, direct expenses made were Rs 7000, closing inventory which was Rs 5000, revenue from operation during the period was Rs 100000.
Then,
COST OF GOODS SOLD = Purchases + Opening Inventory + Direct Expenses – Closing Inventory.
= Rs ( 73000 + 10000+ 7000- 5000)
= Rs 85000
GROSS PROFIT = REVENUE – COST OF GOODS SOLD
= Rs ( 100000 – 85000 )
= Rs 15000
Now from the above question keeping the gross profit same if the indirect expenses of the organization are Rs 2000 and the other income is Rs 1000.
Then,
NET PROFIT = GROSS PROFIT – INDIRECT EXPENSES + OTHER INCOMES
= Rs ( 15000 – 2000 + 1000)
= Rs 14000
Conclusion
So here I conclude that gross profit is the difference between revenues from sales and/or services rendered and its direct cost.
Whereas net profit is after the deduction of total expenses from the total revenues of the enterprise.
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