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Nistha
Nistha
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Debit Balance
  2. Pooja_Parikh Aspiring Chartered Accountant
    This answer was edited.

    A Profit and Loss (P&L) statement is a financial statement that records a summary of all expenses and incomes of a business during a period of time. It helps in determining the financial performance of the business. After recording all transactions in an account, if the debit side is greater thaRead more

    A Profit and Loss (P&L) statement is a financial statement that records a summary of all expenses and incomes of a business during a period of time. It helps in determining the financial performance of the business.

    After recording all transactions in an account, if the debit side is greater than the credit side, then the account is said to have a debit balance. Similarly, if the credit side is greater than the debit side, then the account has a credit balance.

    In a P&L account, when the expenses (debit) are greater than the incomes (credit), the business is said to be in a net loss. This loss is what we call the debit balance of a Profit and Loss account. A P&L account with a debit balance can be subtracted from Capital or be shown on the asset side of the Balance Sheet.

    As you can see above, the net loss is shown on the right side of the P&L account. This represents the debit balance of P&L. Once it is transferred to the balance sheet, it is either subtracted from capital or shown on the asset side as shown in the second image. However, they cannot be shown on both sides of the balance sheet at the same time.

    However, if the credit side is greater, that is if income is greater than expenses, then the P&L account shows a credit balance which is also known as net profit. This profit is added with Capital to show the final balance in the Balance Sheet.

    Debit balance of Profit & Loss account is not preferable for a business. Hence they should put in efforts to either reduce costs or increase their income to gain profits.

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Bonnie
BonnieCurious
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    What is net credit sales? Net credit sales are those revenues by a business entity, less all sales returns and allowances. Immediate payment in cash is not included in net credit sales. Formula  The formula for net credit sales is as follows: Net credit sales  = Sales on credit - Sales returns - SalRead more

    What is net credit sales?

    Net credit sales are those revenues by a business entity, less all sales returns and allowances. Immediate payment in cash is not included in net credit sales.

    Formula

     The formula for net credit sales is as follows:

    Net credit sales  = Sales on credit – Sales returns – Sales allowances

    In the balance sheet, you can find credit sales in the “short-term assets “section. It can be calculated from account receivables, bills receivables, and debtors of the balance sheet.

    Credit sales = closing debtors + receipts – opening debtors

    Steps to calculate net credit sales

    • Calculate total sales for the period
    • Subtract the Sales Returns
    • Subtract the Sales Allowances
    • Subtract the Cash Sales ( if any )

     

    Terms relevant to understand before calculation

    Sales return:  A sales return is when a customer or client returns or sends a product back to the seller. And this can happen due to various reasons, including:

    • Excess quantity ordered
    • Not upto Customer expectations
    • Shipping delays ( product arrived late )
    • Accidentally ordered an item and there can be more such reasons.

    Sales allowance: A sales allowance is a discount that a seller offers a buyer as an alternative to the buyer for returning the product.

    Because of a problem or issue with the buyer’s order or we can say that he is not satisfied with the product.

    Cash sales: Cash sales are sales in which the payment is done at once or I can say that buyer has obligation to make payment to the seller.

    Cash sales are considered to include bills, checks, credit cards, and money orders as forms of payment.

    Example

    Now after understanding the terms used in the formula let me explain to you with an example which is as follows:-

      • First, we will calculate the Total Sales for the Period:- In the month of May, Flipkart company had cash sales of Rs 80,000. The total amount in Accounts Receivables is Rs 150,000, with Rs 30,000 as the carryover from April’s receivables.
      • Since you only want to know about credit sales in the current period (September), you subtract Rs 30,000 from the total. This means that for the month of September, Flipcart Company had sales totaling Rs 200,000 (80,000 + 120,000).

     

      • Second, we will subtract the Sales Returns:- During the month of September, Flipcart Company issued Rs 20,000 in refunds, because several items were damaged during shipment, so the customer could not use them.
      • This amount would reduce the total number of cash sales if the accounts receivable balance was from a credit customer. This reduces the total sales to Rs 180,000 (Rs 200,000 in total sales – Rs 20,000 in returns).

     

      • Thirdly we will subtract the Sales Allowances:- Sales allowances are discounts offered to customers for not asking for full refunds.
      • For example, an item that had been shipped to a customer was the wrong size, but the customer told that he will agree to keep the item if the price could be adjusted. Flipcart Company issued Rs 10,000 in allowances in May.
      • After this deduction, the total sales for May are Rs 170,000 (Rs 180,000 – Rs 10,000).

     

      • Then at last there are any cash sales then subtract:- After figuring out the total number of sales for September and then subtracting the sales returns and allowances, the cash sales are deducted since you are focusing on net credit sales for the period.
      • After deducting the Rs 60,000 in cash sales, Flipcart Company has Rs 110,000 as net credit sales.

     

    Why do we need net credit sales?

    • Net Credit sales help to calculate the accounts receivable turnover ratio.

     

    • Net credit sales also indicate the amount of credit you offer to your customer.

     

    •  Net credit sale is also used to calculate other financial analysis items like days sales outstanding.
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Karan
Karan
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  2. prashant06 B.com, CMA pursuing
    This answer was edited.

    As per the Income-tax act, solar panels are categorized under the heading renewal energy devices. The rate of depreciation for these devices is mentioned below. As per the act, the rate of depreciation for solar panels is given as 40% as per the WDV method. Generally, these devices are treated as inRead more

    As per the Income-tax act, solar panels are categorized under the heading renewal energy devices. The rate of depreciation for these devices is mentioned below.

    As per the act, the rate of depreciation for solar panels is given as 40% as per the WDV method. Generally, these devices are treated as investments in fixed assets. Therefore they are treated accordingly like other fixed assets and are depreciated periodically in an organized and regular time period. The useful life of such solar devices is taken to be 5 years.

    Giving you a small example of the depreciation on solar panels.

    Solar panels were purchased by Agro Farm ltd. for installing them to be used for electricity generation. These panels were bought for Rs 2,00,000. Therefore depreciation to be charged as per income tax act over its useful life of 5 years is as follows:

    Depreciation as per WDV = (Cost of an asset – salvage value)* rate of depreciation

    Depreciation for 1st year = (2,00,000 – 0)* 40% = Rs 80,000

    WDV at the end of 1st year = (2,00,000 – 80,000) = Rs 1,20,000

    Depreciation for 2nd year = (1,20,000 – 0)* 40% = Rs 48,000

    the same process will continue till the useful life of an asset.

    The depreciation amount will be written off from the book value as shown below:

    Useful life Value at the beginning of the year Depreciation amount Value at the end of the period
    1 2,00,000 80,000 1,20,000
    2 1,20,000 48,000 72,000
    3 72,000 28,800 43,200
    4 43,200 17,280 25,920
    5 25,920 10,368 15,552

     

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Astha
AsthaLeader
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The receipt of cash is recorded by debiting the cash account to the account from which the cash is received. This source account may be the sales account, account receivable account or any other account from which cash is received. The journal entry is: An entity may receive cash in the following evRead more

    The receipt of cash is recorded by debiting the cash account to the account from which the cash is received. This source account may be the sales account, account receivable account or any other account from which cash is received.

    The journal entry is:

    An entity may receive cash in the following events:

    • Sales of goods or provision of services
    • Payment from account receivables
    • Sale of assets.
    • Withdrawal of cash from the bank
    • Introduction of additional capital in the business
    • Subscription or donation received in case of non-profit oriented concerns.
    • Other income in cash

    This list is not exhaustive. There may be many such events. However, the cash account will be always debited.

    Rules of accounting applicable on the cash account

    As per the golden rules of accounting, the cash account is a real account as represents an asset. For real accounts, the rule, “Debit the receiver and credit the giver” applies.

    Hence, when cash is received, cash is debited and the source (giver) is credited.

    As per modern rules of accounting, the cash account is an asset account. Assets accounts are debited when increased and credited when decreased.

    Hence, at receipt of cash, cash is debited as cash is increased.

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Jayesh Gupta
Jayesh GuptaCurious
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  2. Spriha Sparsh
    This answer was edited.

    Liabilities are obligations which a business owes to external or internal parties.As per the accounting equation liabilities are equal to the difference between assets and capital. Total Outside Liabilities  in relation to the Borrower can be all secured and unsecured loans, including current liabilRead more

    Liabilities are obligations which a business owes to external or internal parties.As per the accounting equation liabilities are equal to the difference between assets and capital.

    Total Outside Liabilities  in relation to the Borrower can be all secured and unsecured loans, including current liabilities of the Borrower.

    External Liability or outside liability is an obligation which a business has to pay back to external parties i.e. lenders, vendors, government, etc. Payable to Sundry creditors for the supply of any goods for the business or payable to any contractors for receiving any services or payable to the Govt. or other departments for any statutory payments like taxes or other levies. All these liabilities are known as an external liability to the business and are shown on the liability side of the Balance sheet after charging into the profit & loss account of that period.

    Where, Internal Liability – All obligations which a business has to pay back to internal parties such as promoters, employees, etc. are termed as internal liabilities. Example – Capital, Salaries, Accumulated profits, etc.

    Example – Borrowings, Creditors, Taxes, etc.

    Where, 1) Person A takes a loan from person B (person not associated with the company), person B is an external liability to person A.
    2) Person A has a tax liability of Rs.1000, here the government is an external liability to whom A has to pay the liability amount.

    3) Person A got goods on credit from person C for 60 days, C is an external liability to A, which A has to pay within the time period.

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A_Team
A_Team
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  2. Vijay Curious M.Com

    Cash Book is called a journalized ledger because it is considered to be both a journal as well as a ledger. As you know Cash Book is a subsidiary book. But like a journal, the transactions in the Cash Book are recorded in it for the first time from the source documents/vouchers. Hence it is considerRead more

    Cash Book is called a journalized ledger because it is considered to be both a journal as well as a ledger.

    As you know Cash Book is a subsidiary book. But like a journal, the transactions in the Cash Book are recorded in it for the first time from the source documents/vouchers. Hence it is considered to be a journal for all cash transactions.

    Cash Book can also be viewed as a Cash A/c because all transactions involving cash are recorded in it. It provides a summary of cash transactions. Hence it is considered to be a ledger account for cash transactions.

    Since Cash Book is both a journal and ledger, you can very well call it a ‘journalized ledger’.

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Aadil
AadilCurious
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  2. Rahul_Jose Aspiring CA currently doing Bcom

    When a firm grants an extra amount of reward to its employees based on their performance, it is termed a bonus. An accrued bonus is contingent on performance. Bonus accruals are recorded in the books so that inaccuracies can be avoided in the financial statements. Such bonuses may be given as a singRead more

    When a firm grants an extra amount of reward to its employees based on their performance, it is termed a bonus. An accrued bonus is contingent on performance. Bonus accruals are recorded in the books so that inaccuracies can be avoided in the financial statements.

    Such bonuses may be given as a single flare amount or as a percentage of their salaries. These bonuses can be given quarterly or annually or in any manner in which the firm decides.

    If the bonus is accrued to its employees at 5% of their salary of Rs 30,000, then the accrual bonus can be shown in the journal as follows:

    The bonus expense account is debited because according to the modern rule of accounting “Increase in expense is debited”. Accrued bonus liability is credited because according to the rule of accounting, “Increase in liability is credited”.

    When it is time to pay such bonus amounts to its employees, then they can be journalised as:

    In this case, the accrued bonus liability is eliminated and hence debited because according to the rule of accounting, “ Decrease in liability is debited” whereas cash account is credited since “the decrease in the asset is credited.”:

    Failing to accrue these bonuses will lead to an overstatement of revenues in the financial statements and hence result in inaccurate data. If employees do not meet the required performance targets, then a bonus will not be given and hence the entries will be reversed.

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