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2012-11-27T12:26:00.001+05:00

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Learning English-Lesson Ten ( Saying Sorry )

2011-08-25T13:39:00.001+05:00

Learning English -- Lesson Nine ( F A M E )

2011-08-25T13:37:00.001+05:00

ANALYSIS AND INTERPRETATION

2011-07-24T12:22:00.000+05:00

ANALYSIS AND INTERPRETATION

1. What is the other name of Gross Profit Ratio?
Gross profit as a percentage of Turnover.

2. What is the formula to find out the GP%?
GP x 100
Sales

3. What would be the reason for the increase in GP%? Give 2 reasons.
(a) Selling goods, at higher prices.
(b) Buying the goods at cheaper prices.

4. What would be the reason for decrease in the GP%? Give 2 reasons.
(a) Selling goods at higher prices.
(b) Offering Trade discounts.
(c) Not passing on increase prices.
(d) Holding seasonal sales.

5. What is the formula to find out NP Ratio?
NP x 100;
Sales

6. What is the other name of NP Ratio?
NP as a % of sales
7. What is meant by liquidity?
It is the ability of the business to convert its assets into cash.

8. What is meant by working capital?
It is the money required to meet its every day expenses.

9. What does current Ratio measure?
It measures the ability of the business to meet its current liability as they fall due.

10. What is the standard current Ratio for a business?
Somewhere between 1.5 – 2:1.

11. What are the effects of not having enough working capital?
(i) Problems in meeting debts as they fall due.
(ii) Inability to take advantage of cash discount.
(iii) Difficulty in obtaining further supplies.
(iv) Inability to take advantage of business opportunity as they arise.

12. Quote 5 ways of improving working capital.
(i) Introduction of further capital.
(ii) Obtaining long-term loan.
(iii) Reducing owners drawings.
(iv) Selling out useless fixed assets.

13. What is the other name of Quick ratio?
Acid test Ratio

14. What is the formula to find out Quick Ratio?
CA – stock
CL

15. What is the standard quick ratio?
1:1

16. What is the formula to calculate stock turnover ratio?
Cost of goods sold
Average stock

17. In what way knowing the rate of stock turnover will be useful to the businessmen.

(i) For stock replacement.
(ii) For comparison.
(iii) For corrective action.
(iv) For identifying causes of changes.

18. What are the other names of debtors ratios?
Debtors Ratio/ Sales Ratio.

19. Give 4 ways of improving the collection period from debtors.
(i) Offer cash discount.
(ii) Charge interest on over dues.
(iii) Refuse further supplies.
(iv) Send regular reminder.

20. Give four ways of reducing the risk of bad debts.
(i) Obtain reference from new customers.
(ii) Fix a limit for each credit customer.
(iii) Follow up over dues promptly.
(iv) Refuse further supplies until old dues are paid.

21. Give two problem of inter-firm comparison.
1. All businesses are not same in all sense.
2. Different businesses follow different accounting policies.
3. One business may not be of the same size like the other.
4. Location of the business may not be at the same place.
5. They might have started at different dates.

22. Give four users of accounting information.
1. owner.
2. bank manager
3. business manager.
4. creditor

23. What are the limitations of ratio analysis?
Answer:
Accounting statements and ratio analysis provide valuable information about the business’s performance but it’s important to remember, however that they do have limitations. The comparison with other firms or previous years should be undertaken with caution for the following reasons:
(i) Difference in the type of stock which affects the rate of stock turnover and the gross profit margin.
(ii) Difference in the firm’s policy because some firms are selling on cash and on credit terms. Others do not use the same policy.
(iii) Difference in experience because some firms may not operate profitably in their early years of trading but this should not necessarily be the case expected in future years.
(iv) Difference in management: Because small firms such as a sole trader are not expected to use an efficient managers as well as large firms.
(v) Difference in location: because income and tastes and perhaps government policies may vary from one area to another, which will affect the performance of the firm.
(vi) Different accounting periods: because different firms are not expected to start their trading activities at the same date.
(vii) Difference in capital employed because some firms may have enough capital employed to finance purchases of premises and machinery while others do not and forced to pay more expenses.
(viii) Difference in accounting policies such as the application of the accounting concepts and methods of depreciation

CORRECTION OF ERRORS

2011-07-24T12:18:00.000+05:00

CORRECTION OF ERRORS

Effect of Errors on Profit or Loss

Some errors affect the profit while others do not. This distinction does not always coincide with whether or not the trial balance balances.

Errors affecting Profit or Loss

These errors affect those accounts which are included in the Trading and Profit and Loss Account eg purchases, sales, expenses etc. We must ask the following questions:

1) Does the error affect the gross profit, the net profit or both?
(a) Errors which affect items that go into the trading account affect gross profit and net profit to the same extent and in the same direction. Such items are sales, purchases, returns, stock, carriage inwards etc.
(b) Errors which affect items that are entered in the profit and loss section of the account, i.e. operating expenses, affect only net profit. Purchases of fixed assets affect profit only indirectly through provisions for depreciation.

2) In what direction is profit affected?
(a) If sales are overstated or purchases understated, both gross profit and net profit are too high and must be reduced by the relevant amount. The same applies if sales returns are understated or purchases returns overstated.
(b) If sales are understated or purchases overstated, both gross profit and net profit are too low and must be increased by the relevant amount. The same applies if sales returns are overstated or purchases returns understated.
(c) If miscellaneous receipts are overstated or if expenses are understated, gross profit is not affected but net profit will be high and must be reduced.
(d) If miscellaneous receipts are understated or if expenses are overstated, again gross profit is not affected but net profit is too low and must be increased.
(e) If capital expenditure is wrongly treated as revenue expenditure, eg if the purchase of a fixed asset is treated as an expense, then net profit will be too low and must be increased. The opposite applies if revenue expenditure is treated as capital expenditure.
3) Does the errors that affect items in the balance sheet affect profit as well? The answer is only those that were adjusted after the trial balance was prepared. Errors affecting fixed assets, current assets and liabilities do not normally affect profit but if one of these items has changed as a result of an adjustment, then profit is affected. For example:
(a) If the closing stock has been overvalued, the stock figure in the balance sheet is too high and so are the gross profit and the net profit. The opposite is true of a closing stock which is undervalued. Remember that closing stock adds on to gross profit and opening stock takes away from it.
(b) If an accrued or prepaid expense is the wrong amount, both profit and the item in the balance sheet are wrong. If an amount owing is overstated or a prepayment is understated, profit is too low and must be increased, and vice versa.
(c) The opposite to (b) applies in the case of accrued or prepaid receipts.

Estimating the effects of errors can be confusing and you must keep a clear mind. Think how the original figure has affected profit and then try to see in which direction the error is affecting the profit.

CONCEPTS OF ACCOUNTING

2011-07-24T12:12:00.000+05:00

CONCEPTS OF ACCOUNTING

These are the basic assumptions or rules to be followed while recording and presenting accounting information.

1. Business Entity Concept: This concept explains that the business is distinct from the proprietor. Thus, the transactions of business only are to be recorded in the books of business.

2. Duality Concept: According to this concept every transaction has two aspects i.e. the benefit receiving aspect and benefit giving aspect. These two aspects are to be recorded in the books of accounts.

3. Money Measurement Concept: According to this concept only those transactions which are expressed in money terms are to be recorded in accounting books.

4. Going Concern Concept: This concept assumes that the business has a perpetual succession or continued existence.

5. Realisation Concept: This concept speaks about recording of only those transactions which are actually realised. For example Sale or Profit on sales will be taken into account only when money is realised i.e. either cash is received or legal ownership is transferred.

6. Matching Concept: It is referred to as matching of expenses against incomes. It means that all incomes and expenses relating to the financial period to which the accounts relate should be taken in to account without regard to the date of receipts or payment.

7. Consistency Concept: This Concept says that the Accounting practices should not change or must remain unchanged over a period of several years.

8. Prudence Concept: According to this concept all the losses incurred or expected to be incurred are to be taken in to account but not all anticipated profits to be taken into consideration while finding the profit. Similarly while finding the value of closing stock, least of the two values i.e. Market price or Cost price is to be taken into account.
“Lower of the cost or net realisable value”.

DEPRECIATION

2011-07-24T12:10:00.000+05:00

DEPRECIATION

“Depreciation is the gradual and permanent decrease in the value of an asset from any cause.”

Causes Of Depreciation:

2. Some Assets get worn or torn out due to its constant use in production.
3. Some Assets get decreased in their value with the passage of time.
4. Some Assets may meet an accident and therefore it may get depreciated in its value.

Reasons For Providing Depreciation:

1. To reveal the correct profit or loss of a business.
2. To show correct financial position of a business.
3. To make provision for replacement of an asset.

Methods Of Providing Depreciation:

There are three methods of providing depreciation

1. Straight Line Method: This is also termed as Fixed instalment method. Under this method Fixed Percentage on original cost is written off the asset every year. The amount of depreciation is calculated as follows.

2. Reducing Balance Method: This method is also known as Diminishing balance method or written down value method. Under this method depreciation is charged at a fixed rate on the reduced balance every year.

3. Revaluation Method: Sometimes it is not possible to maintain detailed records of certain types of fixed Assets, such as very small items of equipment packing cases and hand tools. In such case the revaluation method is used. under this method the assets are revalued at the end of each year and this value is compared with the value at the beginning of the period. The difference is treated as depreciation.

Formula = Value of Assets beginning + Purchases of Assets during the period –
value of Asset at the end.

Provision For Depreciation: It means saving a part of profit for the replacement of the Asset.

Prudence Concept: According to this concept all the losses incurred or expected to be incurred are to be taken in to account but not all anticipated profits to be taken into consideration while finding the profit. To apply this concept that we take depreciation in the profit and loss account.

BOOKS OF ORIGINAL ENTRIES

2011-07-24T12:08:00.000+05:00

BOOKS OF ORIGINAL ENTRIES

These are the books of first entry. The transactions are first recorded in these books before being entered in the ledger books. These books are also called as books of Prime entry or Subsidiary books. They are six in number.

1. Purchases Journal (or Purchases Book) used to record all credit purchases of goods. It is written up from invoice.

2. Sales Journal (or Sales Book) is used to record all the credit sales of goods. It is written up from the invoice.

3. Sales Returns Journal (or Return Inwards Book): It is used to record all returns inwards. It is written up from the copies of the credit notes send to customers.

4. Purchases Return Journal (or Returns Outwards Book): It is used to record all purchases returns. It is written up from the credit notes received from the suppliers.

5. Cash Book: It is used to record all receipts and payments of cash and cheques. It is been given the ruling in such a way that it acts both as a book of original entry and ledger account.

6. General Journal (or Journal): This book is used to record all those items or transactions that can not be recorded in any other book of original entry like
i. Correction of errors
ii. Opening entries
iii. Purchase or Sale of Assets on Credit etc.

PETTY CASH BOOK

2011-07-24T12:06:00.000+05:00

PETTY CASH BOOK

Imprest System: It is a system where a reimbursement is made of the total amount paid in a period or it can also be called as a system where petty cashier begin each new accounting period with the same amount of petty cash.

Advantages Of Petty Cash Book:

1. The number of entries in the main cashbook is reduced.
2. The main cashier’s burden is reduced.
3. The chances of mistakes in recording is minimised.
4. Posting become more easy with the Total’s Analysis Columns.

Advantages of using Analysis columns:
It let us know the money spent on each different nature of small expense.
The double entry for each analysis column by transferring the totals of the analysis columns to their respective accounts which are available in the General ledger.

Cash Book

2011-07-24T12:05:00.000+05:00

CASH BOOK

Cash book is the only book of original entry which is given ruling in such a way that it could act at the same time as a book of original entry and as a ledger account.

1. Trade Discount: It is an allowance or deduction given by the supplier to the retailer on the catalogue price or list price.
i. It is given to encourage him to buy in bulk.
ii. It is given so that retailer could make some profit.
Note: It is not recorded in the books either by the seller or the buyer.

2. Cash Discount: It is an allowance or deduction given by the receiver of cash to the payer of cash for prompt payment.
It is of two types discount allowed and discount received.

i. It is given to encourage the payer to pay on or before the due date.

ii. Note: This discount is recorded in the Cash Book. Discount allowed is recorded at the debit side and discount received on the credit side.

iii. Note: Discount columns are never balanced. It is just totalled.

iv. Note: Every month the Total’s of discount allowed column is transferred to debit side of Discount allowed account in General ledger and the total of discount-received column is transferred to the credit side of Discount received account in the General ledger.

2. Contra Entry: When a transaction effects both cash and bank accounts at the same time, such entries are called as Contra Entries.

Bank Reconciliation Statement

2011-07-24T12:03:00.000+05:00

BANK RECONCILIATION STATEMENT

The purpose of bank reconciliation statement is to explain any difference between the bank balance appearing on the bank statement provided by the bank..

Reasons For Difference:

Sometimes it so happen that some entries are made in cash book but they are not recorded in the bank. Like.
1. Cheques deposited but not credited in the Bank.
2. Cheques issued but are not presented in the bank.

Sometimes it so happens that some entries are made in bank statement but they are not recorded in cashbook. Like.
1. Direct deposits in the bank by our customers
2. Direct collections made by the bank on our behalf
3. Direct payments made by bank
4. Interest allowed by the bank and charged by the bank
5. Dishonoured cheques.

Therefore a statement is prepared to reconcile this difference. This statement is called as “Bank Reconciliation statement”.

Methods Of Preparing Bank Reconciliation Statement:

Step I: Compare the bank column of the cashbook with the bank statement. Tick all those receipts and payments which can be found in both the cash book and the bank statement, when this has been done, there remains some unticked items in cash book and the bank statement.

Step II: Make Adjusted cash book by taking into account all the existing cash book entries plus the unticked bank statement items into the cash book and calculate the new balance. This balance is considered as the true bank balance of the business and this figure will be shown in the balance sheet as bank balance.

Step III: Prepare Bank Reconciliation Statement.
Note: When we prepare B.R.S. we do not look at the entries of bank statement. We just take into account the entries which are in Cash Book but not in Bank Statement.
1. Start with the balance shown in the Adjusted cash book..
2. Add the entries that are credited in the cash book but not debited on the bank statement. (unpresented cheques)
3. Deduct any items that are debited in the cash book but are not credited in the bank statement.
The resulting figure should be equal to Bank Statement balance.

Reasons For Preparing bank Reconciliation Statement:

1. To ensure that the cash book entries are complete.
2. To discover bank errors.
3. To discover errors in cash book.
4. To check Fraud and embezzlement.
5. To discover dishonoured cheques.

Journal

2011-07-24T11:53:00.000+05:00

Accounting Equations

2011-07-24T11:10:00.000+05:00

Debit or Credit k Asool!

2011-07-07T20:43:00.002+05:00

Debit or Credit k Asool!

In asoolo se pehlay app ko batata chaloon k Accounting 4 pillars pe khari hay. Jaisy 4 families kon kon se?

1. Assets

o Cash in hand

o Cash at Bank

o Furniture

o Office Equipment

o Plant

o Machinery

o Buildings

o Closing Stock

o Debtors ( jin ko udhaar pe sale ki jati hay)

o Receivables (Rent, Commission, Interest)

o Bills Receivable

o Purchases (aik kisam ka asset)

o Vehicles (Cars, Truck, Motor Bike, Bus, Van,)

o Prepaid expenses

2. Expenses

o Salaries

o Wages

o Utility Bills ( Gas, Electricity, Telephone, etc)

o Commission Paid

o Discount Allowed

o Depreciation

o Interest paid

o Rent paid

o Charity

o Advertisement expense

o Any Loss ( choori ho gayee ya aag lag gayee)

o Stationary

o Carriage

o Drawings (aik kisam ka expense lakin asal main Capital ki amount kam hoti hay)

o Freight

3. Liabilities ( Owner’s Equity bhi aik kisam ki liability hai)

o Capital

o Creditors ( jin se udhaar khareeda jata hay)

o Payables (Tax, rent, Salaries, wages, etc)

o Bills payable

4. Income/Revenue

o Sales

o Commission received

o Rent received

o Interest Received

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Asool Number 1

Her entry main se kam se kam do account dhondanay hain jaisa k

· Ahmed Started Business with Cash Rs. 100,000/-

· Or

· Ahmed Commenced Business with cash Rs 100,000/-

· Or

· Ahmed Invested Rs. 100,000/-

In entries main do terha k account hain aik to Cash jo k saaf zahir hay or doosra Capital kion k Ahmed ne new business start kia hay or jab bhi koi new business start kerta hai to wo invest kerta hay or apnay business main apni investment Capital kehlati hay is ko owner’s Equity bhi kehtay hain

Accounts	Families	Increase / Decrease	Debit / Credit
Cash
Capital

Asool Number 2

In dono accounts Cash or Capital ko dekhna or soochna hay k yeh oper batay gayee 4 main se kis family se taluq rukhtay hain

1. Asset

2. Expense

3. Liability

4. Income/Revenue

To hum ne dekha k Cash Assets ka hisa hay or Capital Libility se taluq rukhta hay

Accounts	Families	Increase / Decrease	Debit / Credit
Cash	Assets
Capital	Liability

Asool Number 3

Ab sab se ziada yaad rekhnay wali baat

Pehly dono families yani k Asset and Expense main jab bhi Izafa ho ga to wo Debit hoon gi

Pehly dono families yani k Asset and Expense main jab bhi Kami ho gi to wo Credit hoon gi

Akhri dono families yani k Liability and Income/Revenue main jab bhi Izafa ho ga to wo Credit hoon gi

Akhri dono families yani k Liability and Income/Revenue main jab bhi Kami ho gi to wo Debit hoon gi

Asset	Expense	Liability	Income/Revenue
If Increase then Dr	If Increase then Dr	If Increase then Cr	If Increase then Cr
If Decrease then Cr	If Decrease then Cr	If Decrease then Dr	If Decrease then Dr

Ab hum ne dekha k Cash business main berh raha hay kion k pehlay business k pass kuch nahi tha is liay yeh Debit (Dr) ho ga

Or isi terha business ki liability bhi berh rahi hay kion k pehlay us business se humain kush wapis nahi lena tha is liay wo Credit (Cr) ho ga

Accounts	Families	Increase / Decrease	Debit / Credit
Cash	Assets	Increase	Dr
Capital	Liability	Increase	Cr

ab or examples

· He open a bank account in MCB Bank and deposit there Rs. 30,000/-

Accounts	Families	Increase / Decrease	Debit / Credit
Bank	Asset	Increase	Dr
Cash	Asset	decrease	Cr

· He Borrows Rs 50,000/- from Miss Zaima at 12% interest annually

· OR

· He Borrows Rs 50,000/- from Miss Zaima

· OR

· He Borrows Rs 50,000/- from Miss Zaima at 12% interest per annum (p.a.)

Accounts	Families	Increase / Decrease	Debit / Credit
Cash	Asset	Increase	Dr
Creditor (Zaima)	Liability	Increase	Cr
Is entry main sirf jo loan lia gaya hay us ki entry kerna hay 12% saal k end main deina hay to us ki entry sall k akhir main hi kerian gay kion k interest salaana daina hay to entry bhi saal k end main hi kerain gay

· He Purchase furniture worth Rs. 20,000/- for Cash

Accounts	Families	Increase / Decrease	Debit / Credit
Furniture	Asset	Increase	Dr
Cash	Asset	decrease	Cr

· He purchases goods from Mr. Dogar for Rs 25,000/- and paid cash Rs. 15,000/-

Accounts	Families	Increase / Decrease	Debit / Credit
Purchases	Asset	Increase	Dr
Cash	Asset	decrease	Cr
Mr Dogar (Creditor)	Liability	Increase	Cr

· He Sells goods for cash Rs. 9,000/-

Accounts	Families	Increase / Decrease	Debit / Credit
Cash	Asset	Increase	Dr
SALES	Income/Revenue	Increase	Cr

· He sells goods for Rs. 5,000/- to Mr. Amjad on credit basis

· or

· He sells goods for Rs. 5,000/- to Mr. Amjad on account

· Or

· He sells goods for Rs. 5,000/- to Mr. Amjad

Accounts	Families	Increase / Decrease	Debit / Credit
Amjad (Debtor)	Asset	Increase	Dr
SALES	Income/Revenue	Increase	Cr

· He Purchases Stationery for Rs. 3000/-

Accounts	Families	Increase / Decrease	Debit / Credit
Stationery	Expense	Increase	Dr
Cash	Asset	decrease	Cr

· He Purchases a fan for Rs. 2,000/- and safe for Rs. 8,000/- and pays by cheque

Accounts	Families	Increase / Decrease	Debit / Credit
Fan	Asset	Increase	Dr
Safe	Asset	Increase	Dr
Bank (MCB)	Asset	Decrease	Cr
Jab bhi koi payment via cheque ki jay ki to humaray bank main se paisy kam hon gay to humara Bank account credit ho ga

· He pays Rs.6000/- to Mr Dogar on account

Accounts	Families	Increase / Decrease	Debit / Credit
Mr Dogar (Creditor)	Liability	Decrease	Dr
Cash	Asset	decrease	Cr
Mr Dogar se hum ne good purchase ki thee to wo humary liability bun gaya tha. Ab hum us ko kuch payment ker rahay hain to wo utni amount se kam ho jay ga to is wastay Mr Dogar Dr ho ga

· He returns defective goods to Mr Dogar worth Rs. 1,000/-

Accounts	Families	Increase / Decrease	Debit / Credit
Mr Dogar Creditor	Liability	Decrease	Dr
Purchase return	Asset	decrease	Cr
Mr Dogar se hume jo goods purchase ki thee wo defective nikly to hum ne us ko wapis ker di. Is se ab hum ne us k kam paisy wapis kernay hain to liability decrease ho jay gi. Or humara assets bhi kam ho jay ga.

· Goods are returned by Mr Amjad Rs 500/- to the business

Accounts	Families	Increase / Decrease	Debit / Credit
Sales Return	Income/Revenue	Decrease	Dr
Mr Amjad (Debtor)	Asset	decrease	Cr
Jis terha hum ne defective goods return ki isi terha Mr Amjad ne hum ko Defective goods wapis ki jis se humary Sales kum ho gayee to Dr or assets bhi kam ho gaya to Cr

· Cash Paid to Mr Dogar Rs 2,800/- in full satisfaction of his claim of Rs. 3,000/-

Accounts	Families	Increase / Decrease	Debit / Credit
Mr Dogar Creditor	Liability	Decrease	Dr
Cash	Asset	Decrease	Cr
Discount Received	Income/ Revenue	Increase	Cr
In entry main 3 account involve huway Mr Dogar ki payment 3000 settle ker di 2800 cash de ker 200 dicount hasil ker k

· Cash received from Mr. Amjad Rs.4400/- in full satisfaction of his debts of Rs. 4500/-

Accounts	Families	Increase / Decrease	Debit / Credit
Cash	Assets	Increase	Dr
Discount Allowed	Expense	Increase	Dr
Mr Amjad Debtor	Assets	Decrease	Cr
Is entry main Mr Amjad se hum ne 4500 lena tha per us ne hum ko 4400 dia jis ki wajah se Discount expense ki soorat main samnay aya

· Cash withdrawn from the bank for business use Rs.5000/-

Cash	Asset	Increase	Dr
Bank (MCB)	Asset	Decrease	Cr
Cash Bank se kam ho gaya or Office main cash main izafa ho gaya

Interest is paid on Money

Learning English-Lesson Eight-(Stress & Worry)

2011-03-23T12:53:00.001+05:00

Learning English - Lesson Seven - (Health & Exercise)

2011-03-23T12:50:00.001+05:00

Learning English - Lesson Six ( Happy / Sad )

2011-03-23T12:49:00.001+05:00

Learning English-Lesson Five (Good/Bad)

2011-03-23T12:48:00.001+05:00

Learning English - Lesson Four (Response to 'Please'/'Thank You')

2011-03-23T12:47:00.001+05:00

Learning English-Lesson Three (Please & Thank You)

2011-03-23T12:43:00.001+05:00

Learning English - Lesson Two (Hello/Goodbye)

2011-03-20T16:12:00.001+05:00

Rules of Debit Credit in Urdu with detailed Example

2011-03-20T12:52:00.000+05:00

What is a deferred cost? with examples

2011-03-05T13:14:00.003+05:00

A deferred cost is a cost that you have already incurred, but which you will not charge to expense until a later reporting period. The period in-between, it appears on the balance sheet/Statement of Financial Position as an asset.

The details for deferring recognition of the cost as an expense is that you have not yet fully consumed the item. You may also defer recognition of a cost if you wish to make out it at the same time as related revenue is recognized, under the matching principle.

For example, if you pay Rs. 1,000 for March rent in February, then it is a deferred cost in February, and you in the beginning record it as a prepaid asset. Once March arrives, you consume the asset, and change the asset into rent expense. Other examples of deferred costs are:

The cost of an intangible asset (Goodwill, Copyrights, Patents etc) that is charged to expense over time as amortization

Interest cost that is capitalized as part of a fixed asset under IAS 23 borrowing cost

The cost of a fixed asset that is charged to expense over time in the form of depreciation

Insurance paid in advance for coverage in future periods

The costs incurred to register a debt issuance

You should defer the costs of some expenditure when GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards) require that they be included in the cost of a long-term asset, and then charged to expense over a long period of time.

For example, you may have to include the cost of interest in the cost of a constructed asset, such as a building, and then charge the cost of the building to expense over many years in the form of depreciation. In this case, the cost of the interest is a deferred cost.

Important Terms

2011-03-03T20:57:00.001+05:00

Before attempting to learn the art or science of bookkeeping it will be better to clarify some of the terms that will have to be used again and again.

Assets: These are the things of value possessed by a businessman such as building, land, machinery, furniture, etc. Assets are categorized as

Current Assets: those assets which are already in cash or which is easily and quickly converted into cash after some time like Cash, Accounts Receivable, Stocks etc, and

Fixed Assets: Assets purchased for permanent use or for use more than one accounting period in the business are called fixed assets. These are further classified as

Tangible: those assets which have there physical existence such as Building, Land, Machinery, Plant, Vehicles, Furniture and fittings, and

Intangible: those assets which have not there physical existence (Goodwill, Patent, Copy right, Franchise etc)

Liabilities: They are the debt due by a business to its proprietor and others. In other words, the claims of the outsiders against the assets of the business are also called liabilities. These are further classified as

Currents Liabilities: which are payable within one year

Long term Liabilities: These are liabilities which are not payable immediately or in the near future.

Equity: A claim which can be enforced against the assets of the firm is called equity. In other words, the rights to properties (Owner of the business) are called equities. Equities are of two types:

The right of creditors: The equities of creditors represent debts of the business and are called liabilities. and

The right of owners: The equity of the owner is called capital, proprietorship or owner's equity.

Expenditure:

Expenditure takes place when assets or service is acquired.

The benefit will be available for future activities of the business.

Expense:

It means an expenditure whose benefit is finished or enjoyed immediately such as salaries, rent etc.

the benefit of the former is consumed by the business in present

Income or Revenue: All sorts of income received or accrued are called as income/revenue. In business revenue/income may be earned from sale of goods, commission, interest, discount etc earned

Transaction: Any dealing between two persons or things in a transaction or money’s worth is called transaction. It may relate to purchase and sale of goods, receipt and payment of cash and rendering of services by one party to another. Transaction is of two kinds –

Cash transaction: When cash is paid or received as a result of an exchange, the transaction is said to be a cash transaction, and

Credit transaction: When the payment or receipt of cash is postponed for future date, this transaction is said to be credit transaction (Goods purchased on account from Qamar etc)

Business: It includes any activity undertaken for the purpose of earning profit e.g., banking business, and insurance business, a merchant business etc., etc.

Proprietor: He is the owner of a business. He invests capital in it, gives his time and attention to it. He is entitled to receive the profit or bear loss arising out of it.

Drawings: The cash or goods taken away by the proprietor from the business for his personal uses are called have drawings.

Purchases: Goods purchased are called purchases. When the goods purchased for cash they are called cash purchases but if they are purchased for which payment will have to be made at some future date it is known as credit purchases.

Purchases Returns/ Returns Outwards: If goods purchased are found defective or unsatisfactory, they are sometimes returned to the persons from whom they were purchased or to suppliers are called purchases returns or returns outwards.

Sales: Goods sold are called sales. When goods are sold for cash they are called cash sales, but when they are sold without having received payment, they are credit sales.

Sales Returns/ Returns Inwards: If a person to whom goods have been sold finds that they are defective or unsatisfactory and return them, are called sales returns or returns inwards.

Trade Discount: It is rebate or allowance from the scheduled price granted by the seller to the buyer. Trade discount is usually granted in the following circumstances:

When selling to a fellow trader.

When the buyer is an old customer.

When sales are made in bulk.

As a custom of trade.

Cash Discount: It is deduction or allowance allowed by creditor to a debtor. If a person pays his debit before the due date of payment the recipient may grant him an allowance for doing so. This allowance is known as cash discount

Commission: It is a form of remuneration for services rendered by one person to another.

Account: A summarized record of transactions relating to person or thing is called an account.

Debtor (Account Receivable): A person who owes money to another is a debtor. When we say that we owe Mr. Sunny $200, we mean that we have received from Mr. Sunny $200 which we have to repay. We stand as debtor to Mr. Sunny for $200. It is also termed as accounts receivable.

Creditor (Accounts Payable): A person who pays out something or to whom money owes is a creditor. It is also termed as accounts payable.

Voucher: Any written evidence in support of a business transaction is called a voucher. When a ream of paper is bought from a stationer, he gives a cash memo. The cash memo is a voucher for the payment. When wages for the month are paid to the peon, receipt is taken from him. The receipt serves as a voucher for the payment.

Goods (Merchandise): It includes all merchandise commodities which are purchased by the business for selling.

Stock (Inventory): Goods or merchandise on hand, that is goods remaining unsold, is called stock, stock in trade, or inventory.

Entry: to record a business transaction in the book with and with two kind of financial changes is known as entry

Narration: It is the remark or explanation put below each entry in the Journal is called narration.

Course Scheme For I.Com

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Course of StudyCourse of StudyCompulsory Subjects for 1st Year and 2nd Year

English
Urdu
Pakistan studies
Islamic Education

Elective SubjectsThese are the elective subjects in I.Com

For 1st Year	For 2nd Year
Principles of Accounting	Principles of Accounting
Principles of Economics	Commercial Geography
Principles of Commerce	Computer Studies / Banking
Business Mathematics	Statistics