The correct answer is the 1. Bank statement and bank column of the cash book, because it will help the business to verify whether amounts entered and entries recorded are correct or not. It will also help in verifying the balances of bank statements and cash books whether they tally or not. What isRead more
The correct answer is the 1. Bank statement and bank column of the cash book, because it will help the business to verify whether amounts entered and entries recorded are correct or not. It will also help in verifying the balances of bank statements and cash books whether they tally or not.
What is Reconciliation?
Reconciliation is an accounting procedure that compares two sets of records to check figures are correct and in agreement. Reconciliation can also be used for personal purposes.
What is a Bank Reconciliation Statement?
A statement showing causes of disagreement between the balance of bank statement and bank column of the cash book at the end of a specific period is called a Bank Reconciliation Statement.
Steps in preparation of Bank Reconciliation Statement
Step 1: Comparing items appearing on the debit and credit sides of the bank statement and bank column of the cash book.
Step 2: Make a list of missed entries.
Step 3: Analyse the causes of differences.
Step 4: Select the date for the preparation of the Bank Reconciliation Statement.
Step 5: Choose the starting point i.e balance as per cash book or balance as per bank statement.
Step 6: Adjust the starting point by adding or subtracting the missed entries.
Step 7: Bank Statement must match with the cash book.
To prepare a bank reconciliation statement a business will need a bank statement from its bank and cash book which it prepares to record entries.
Debtors and Creditors Points of Distinction Debtors Creditors Meaning A debtor is a person or entity that owes money to the other party (the other party is also known as the creditor). A creditor is a person or entity to whom money is owed or who lends money. Nature The debtors will have a debit balRead more
Debtors and Creditors
Points of Distinction
Debtors
Creditors
Meaning
A debtor is a person or entity that owes money to the other party (the other party is also known as the creditor).
A creditor is a person or entity to whom money is owed or who lends money.
Nature
The debtors will have a debit balance.
The creditors will have a credit balance.
Receipt of payment
The payment or amount owed is received from the debtor.
The payment of the amount owed is made to the creditors.
Nature of account
Debtors are account receivables.
Creditors are accounts payable.
Status
They are shown under assets in the balance sheet under the head current assets. They are shown as an asset because the amount is receivable from them.
They are shown under liabilities in the balance sheet under the head current liabilities. They are shown as a liability because the amount is payable to them.
Credit / Loan period
Debtors are the one who takes a loan or purchase goods on credit and has to pay the money in the agreed time period, with or without interest.
Creditors are the ones who provide loans or extend the duration of the credit period.
Discounts
They are the ones who receive discounts.
They can offer discounts to debtors.
Provision for doubtful debts
Provision for doubtful debts is created for debtors.
No such provision is created for creditors.
 Example:
Mr. A purchases raw materials from its supplier Mr. D on credit.
Here for Mr. D, Mr. A will be a debtor because the amount is receivable from him.
Similarly, for Mr. A, Mr. D will be his creditor because the amount is payable to him.
Profit and Gain
Points of Distinction
Profit
Gain
Meaning
The excess of revenue of a period over its expenses is termed as profit.
Profit = Total Income-Total Expenses
Gain means profit that arises from incidental events and transactions, such as capital gain.
Generation
It is generated within the operations of a business.
It is generated outside the business operation.
Nature of account
Profit calculated will appear in the Profit and Loss A/c.
The gain will appear in the income statement.
Types
Gross profit
Net profit
Operating profit
Capital gain
Long term capital gain
Short term capital gain
Example: A company’s sales for the period are $60,000 and expenses incurred are $40,000. Here the profit calculated will be $20,000 because revenue exceeds expenses.
Profit = Total Income-Total Expenses
= 60,000 – 40,000
= $20,000
Mr. X owned land worth $10,00,000 and after 10 years he sold it at a current market value of $14,00,000. So the gain he earned is $4,00,000. This gain of $4,00,000 will be termed as a capital gain since land is a capital asset.
External users are people outside the business or entity who use accounting information. They do not have a direct link with the organization but can influence or can be influenced by the organization's activities. For example - Tax Authorities, Banks, Customers, Trade Unions, Government, Investors,Read more
External users are people outside the business or entity who use accounting information. They do not have a direct link with the organization but can influence or can be influenced by the organization’s activities.
For example – Tax Authorities, Banks, Customers, Trade Unions, Government, Investors, or Creditors.
External Users:
Investors –Â Investors are interested in the past performance and future earnings of the business. They want to track the performance of their business whether it is giving them any benefit or not. A business’s past information helps investors in assessing their investments.
Creditors or Suppliers – Some suppliers provide goods and services on credit, and before providing any credit they check the company’s ability to pay. Creditors are interested in the company’s liquidity i.e to see if a company can fulfill short-term obligations.
Customers –Â Customers are more interested in a company’s financial statement as they rely on them for goods and services. They check the ability of the company whether it is providing them good quality goods and will continue to provide them in future.
Banks –Â Banks are most likely interested in the liquidity and profitability of the company. They keep track of whether the company can pay the debt when it is due along with interest.
Government –Â The company’s activities are central to the economy and must be met by them. The government controls a company’s actions if they break a law or damage the environment.
Environmental agencies – They keep an eye on organizations whether their activities are harming the environment or not.
Trade unions –Â They take an active part in the decision-making process. They want to see the financial statements of the company and want to decide the compensation of the employees they represent.
Tax authorities –Â They determine whether the business has declared the correct amount of tax in its tax returns. They conduct audits of the tax returns to verify them with the accounting records disclosed.
Current assets are all the assets of the company which are expected to be used, sold, or consumed within one year. Current assets are those assets that can be converted into cash easily. For example - Inventory, Accounts Receivable, Cash, and Cash Equivalents. Loose tools are parts of machinery or sRead more
Current assets are all the assets of the company which are expected to be used, sold, or consumed within one year. Current assets are those assets that can be converted into cash easily.
For example – Inventory, Accounts Receivable, Cash, and Cash Equivalents.
Loose tools are parts of machinery or spare parts of machinery. Loose can be classified on the nature of use whether it is a fixed asset or a current asset. If loose tools are used regularly or within one accounting year, it is classified as a current asset.
Loose tools are usually classified as a current asset, however, there is one exception i.e it is excluded from the current ratio.
They are excluded from the current ratio because the current ratio takes into account only current assets, and the nature of loose tools is either a fixed asset or a current asset and can’t be converted into cash easily.
The current ratio is calculated to check the liquidity of the company.
Loose tools appear in the Asset Side of the Balance Sheet under the head Current Asset, subhead Inventories.
The extract of the Balance Sheet is as follows:
When the balance sheet prepared under Schedule III loose tools is shown under notes to accounts under sub-head Inventories on the asset side.
When the balance sheet is in a T format loose appears as a current asset after recording fixed assets on the asset side.
A Bank Reconciliation Statement is prepared with the help of ?
The correct answer is the 1. Bank statement and bank column of the cash book, because it will help the business to verify whether amounts entered and entries recorded are correct or not. It will also help in verifying the balances of bank statements and cash books whether they tally or not. What isRead more
The correct answer is the 1. Bank statement and bank column of the cash book, because it will help the business to verify whether amounts entered and entries recorded are correct or not. It will also help in verifying the balances of bank statements and cash books whether they tally or not.
What is Reconciliation?
Reconciliation is an accounting procedure that compares two sets of records to check figures are correct and in agreement. Reconciliation can also be used for personal purposes.
What is a Bank Reconciliation Statement?
A statement showing causes of disagreement between the balance of bank statement and bank column of the cash book at the end of a specific period is called a Bank Reconciliation Statement.
Steps in preparation of Bank Reconciliation Statement
Step 1: Comparing items appearing on the debit and credit sides of the bank statement and bank column of the cash book.
Step 2: Make a list of missed entries.
Step 3: Analyse the causes of differences.
Step 4: Select the date for the preparation of the Bank Reconciliation Statement.
Step 5: Choose the starting point i.e balance as per cash book or balance as per bank statement.
Step 6: Adjust the starting point by adding or subtracting the missed entries.
Step 7: Bank Statement must match with the cash book.
To prepare a bank reconciliation statement a business will need a bank statement from its bank and cash book which it prepares to record entries.
See lessDistinguish between debtors and creditors profit and gain?
Debtors and Creditors Points of Distinction Debtors Creditors Meaning A debtor is a person or entity that owes money to the other party (the other party is also known as the creditor). A creditor is a person or entity to whom money is owed or who lends money. Nature The debtors will have a debit balRead more
Debtors and Creditors
 Example:
Mr. A purchases raw materials from its supplier Mr. D on credit.
Here for Mr. D, Mr. A will be a debtor because the amount is receivable from him.
Similarly, for Mr. A, Mr. D will be his creditor because the amount is payable to him.
Profit and Gain
Profit = Total Income-Total Expenses
Net profit
Operating profit
Capital gain
Long term capital gain
Short term capital gain
Example: A company’s sales for the period are $60,000 and expenses incurred are $40,000. Here the profit calculated will be $20,000 because revenue exceeds expenses.
Profit = Total Income-Total Expenses
= 60,000 – 40,000
= $20,000
Mr. X owned land worth $10,00,000 and after 10 years he sold it at a current market value of $14,00,000. So the gain he earned is $4,00,000. This gain of $4,00,000 will be termed as a capital gain since land is a capital asset.
See lessWho are external users of accounting information?
External users are people outside the business or entity who use accounting information. They do not have a direct link with the organization but can influence or can be influenced by the organization's activities. For example - Tax Authorities, Banks, Customers, Trade Unions, Government, Investors,Read more
External users are people outside the business or entity who use accounting information. They do not have a direct link with the organization but can influence or can be influenced by the organization’s activities.
For example – Tax Authorities, Banks, Customers, Trade Unions, Government, Investors, or Creditors.
External Users:
Here is a summary of external users
See lessAre loose tools current assets?
Current assets are all the assets of the company which are expected to be used, sold, or consumed within one year. Current assets are those assets that can be converted into cash easily. For example - Inventory, Accounts Receivable, Cash, and Cash Equivalents. Loose tools are parts of machinery or sRead more
Current assets are all the assets of the company which are expected to be used, sold, or consumed within one year. Current assets are those assets that can be converted into cash easily.
For example – Inventory, Accounts Receivable, Cash, and Cash Equivalents.
Loose tools are parts of machinery or spare parts of machinery. Loose can be classified on the nature of use whether it is a fixed asset or a current asset. If loose tools are used regularly or within one accounting year, it is classified as a current asset.
Loose tools are usually classified as a current asset, however, there is one exception i.e it is excluded from the current ratio.
They are excluded from the current ratio because the current ratio takes into account only current assets, and the nature of loose tools is either a fixed asset or a current asset and can’t be converted into cash easily.
The current ratio is calculated to check the liquidity of the company.
Loose tools appear in the Asset Side of the Balance Sheet under the head Current Asset, subhead Inventories.
The extract of the Balance Sheet is as follows:
When the balance sheet prepared under Schedule III loose tools is shown under notes to accounts under sub-head Inventories on the asset side.
When the balance sheet is in a T format loose appears as a current asset after recording fixed assets on the asset side.
See less