Financial Accounting

Income Summary Accounts Income summary account is a temporary account and is used to transfer out balances of all income and expenses accounts. As it is a temporary account, its balance is also transferred into retained earning account. As we have already discussed in closing entries post, the items...
last updated on 20-Aug-2017
Company buys products and services from outside parties either on cash and credit. Mostly, the companies purchase these products and services on credit terms with its suppliers. In order to manage working capital cycle, this is of great importance to manage accounts payable payment terms effectively...
last updated on 10-Jan-2017
In order to run a business smoothly and without cash issues, company management has to recover its receivables from sales made to customers. Most of the business sells its products and services to its customers on cash and credit terms. But, if we look out in practical life, the credit sales account...
last updated on 10-Jan-2017
As we have discussed that you cannot prepare accounts on the basis of unadjusted trial balance. Because it does not have the effect of adjusting entries, we cannot do final accounting such as preparation of income statement, balance sheet and statement of changes in equity. So, an adjusted trial bal...
last updated on 22-Dec-2016
Adjusting entries are passed in order to comply with accrual basis of accounting. This is to ensure that revenues and expenses are recognized in the accounts in the month to which they relate. These are necessary entries to present a true and fair view of financial information. These adjusting entri...
last updated on 22-Dec-2016
Financial ratios are the best tools to analyze the performance of a company. There are so many ratios which helps a lot in understanding the issues and find out solutions to resolve the problems. Ratios can alone tell a complete story of the issues and problems inside the company and attract managem...
last updated on 14-Dec-2016
Cash ratio is the most liquid financial ratio in accounting. It is used to know if the company has cash and cash equivalent to repay its current obligations. Here, we do not add any stock, prepaid advance payments, marketable securities and accounts receivable to arrive at Cash Assets. Cash Assets =...
last updated on 10-Jan-2017
Closing entries are the tool to close the temporary accounts and are passed to transfer the balances of the temporary accounts into the permanent accounts. These closing entries are made on the basis of accounts in the adjusted trial balance. Closing entries are passed for all items of income and ex...
last updated on 20-Aug-2017
Account Cycle Page
last updated on 02-Dec-2016
Compound entry or compound journal entry is the combination of two or more simple entry. It involves more than one debit or credit. In simple entry, we have only one debit and credit. However, in compound entry, we make more than one debit, credit or to both. The purpose is to avoid too many account...
last updated on 20-Aug-2017
Current ratio is the most popular and fundamental financial accounting ratio. It shows the company ability to repay its short term liabilities. It can be calculated by dividing current assets by current liabilities. In order to run business without any cash flow problems, the current liabilities sho...
last updated on 10-Jan-2017
Inventory turnover ratio is used to calculate how many times total inventory get sold out in the company. It is calculated by dividing cost of goods sold figure by inventory amount. The outcome comes in times. That is why; we say number of times total inventory sold out in a year. Inventory turnover...
last updated on 10-Jan-2017
Journal entries are a way to record financial transaction. It simultaneously records a debit and a credit to a particular account balance. All over the world, double-entry system of accounting is used to record financial transactions. The result is that at any point of time, company’s accounti...
last updated on 20-Aug-2017
Ledger accounts are the T accounts. The data are posted to the debit and credit side of the relevant ledger account from the journal entries. We have discussed the journal entries in detail earlier. Once the 1st step of accounting cycle completes, that is recording financial transactions via journal...
last updated on 20-Aug-2017
Post closing trial balance is just like an adjusted trial balance but the major difference is that it incorporates the effect of closing entries. It means that those temporary accounts which were visible into the adjusted trial balance are no longer visible in the post closing trial balance. All rev...
last updated on 22-Dec-2016
Trial balance is a simple list of all the balance of the ledger accounts. Usually trial balance is prepared at the end of the accounting period. Most of the organizations prepare monthly financial statements. So, trail balance is also prepared at the end of the month. An unadjusted trial balance is ...
last updated on 22-Dec-2016
Quick ratio is also a very fundamental ratio. It is more liquid ration than the current ratio. In this ratio, we calculate liquid asset which is calculated by subtracting stock/ inventory and advance prepaid payments from the total current assets. Actually, by liquid assets we mean assets which can ...
last updated on 10-Jan-2017
Reversing entries are the important journal entries in the accounting. It actually helps a lot in implementation of the accrual basis of accounting which requires the recording of expenses and revenue items in the month/ year to which they relate. No matter whether the payment is paid/ received or n...
last updated on 22-Dec-2016
Cash conversion cycle is an important financial ratio as it helps the company in calculating the number of days it takes to convert its accounts receivable and inventories into cash. It is also called Net Operating Cycle and is denoted by CCC. Actually, what happens is that in order to manufacture p...
last updated on 10-Jan-2017
Company needs to be well aware of the number of days it takes to sell its average level of inventories. This helps a lot in maintaining a decent level of inventory in the store and works as a great tool in doing the effective inventory management. It is also called Days of inventory or day’s s...
last updated on 10-Jan-2017
Days payables outstanding is the activity ratio and it tells us the number of average days a company takes to pay its suppliers for the purchases. It is also known as number of days of payables and is denoted as DPO. A lower day of payables shows the good working management because company might be ...
last updated on 10-Jan-2017
Days sales outstanding is an activity ratio and is used to know the average number of days a company takes to collect the payments from its customers for sales made to them on credit terms. This is also called day’s sales in receivables or average collection period and denoted by DSO. Using th...
last updated on 10-Jan-2017
Debt ratio is a ratio which is used to calculate the debt percentage of the company with respect to its assets. That is why; it is also called debt to asset ratio. It can be calculated by the following formula: Debt Ratio = Debt / Total Assets Actually, this ratio tells us how much assets is finance...
last updated on 10-Jan-2017
Debt to capital ratio is the important solvency ratio. This is used to measure the leverage of the company and that is why; banks and financial institutions give it a lot of importance while allowing any company to take loan from the bank or financial institution. A high debt to equity ratio is not ...
last updated on 10-Jan-2017
Defensive internal ratio is an important liquidity ratio which helps a company understand its liquidity in such a way that it could be aware of how much quick assets it has to repay its daily expenses. During this, we assume that the company is not receiving any cash inflows during the period. Defen...
last updated on 10-Jan-2017
In a profit earning company, every year profit is either distributed to shareholders or kept in the company for future growth which is called retained earnings. The percentage of the profit which is distributed to shareholders is called dividend payout ratio. Dividend Payout Ratio Formula Dividend P...
last updated on 10-Jan-2017
Dividend yield is the valuableprofitability ratio. It is most relevant to investors. Because they want to know how their investment in the company is going. It is also called dividend price ratio. Dividend yield formula It is calculated by dividing the total dividend payment by the total market capi...
last updated on 10-Jan-2017
DuPont analysis is the extended version of return on equity ratio. Actually, it takes into account three factors which are: 1. Total asset turnover 2. Net profit margin 3. Financial leverage This DuPont ratio came into existence when DuPont Corporation started it in 1920 to assess its performance. D...
last updated on 10-Jan-2017
Equity multiplier is a leverage ratio and is calculated by dividing total asset by total equity. It is also called financial leverage. Equity multiplier formula: Equity multiplier = Total assets / total equity Actually, it is used to find out how much percentage of total assets has been financed by ...
last updated on 10-Jan-2017
Fixed asset turnover ratio is an activity ratio. It tells about us the performance of the company regarding its utilization of fixed assets to generate revenue. Fixed asset turnover formula It is calculated by dividing net revenue by the average fixed assets. Fixed asset turnover = Net revenue / ave...
last updated on 10-Jan-2017
Fixed Charge Coverage ratio is an important solvency ratio. It is used to analyze profit before interest, taxes and lease payment is enough to cover the lease and interest payments. Formula It is calculated by dividing the profit before interest, tax and lease payment by the sum of interest and leas...
last updated on 10-Jan-2017
Price earning is the ratio of current market price of the share divided by the earning per share. Or, we can say that it is obtained by dividing the market capitalization by the total net earnings of the company. Formula PE ratio is calculated from the following formula: P/E = Share Current Market P...
last updated on 10-Jan-2017
In a profit making company, every year profit is either distributed among the shareholders or it is kept inside the company for reinvestment. The portion of the profit amount which is kept inside the company is called the retained earnings. When we divide the retained earnings by the total earnings,...
last updated on 10-Jan-2017
Return on assets ratio is best tool to examine the management performance as how efficiently it is using its assets to generate revenue. It is calculated by dividing the annual net earnings after tax by the total assets. Usually, we use average assets figure in this ratio calculation. It is denoted ...
last updated on 10-Jan-2017
Operating margin ratio is the profitability ratio. It is calculated by taking the figures of profit before interest and taxes and net revenue. Formula It is calculated by dividing the profit before interest and tax by the net revenue figure. Operating Margin Ratio = Profit before interest and taxes ...
last updated on 10-Jan-2017
Price to cash flow ratio is a very important valuation ratio. Often investor’s use this to evaluate various companies so that they could make investment. Formula It is calculated by dividing the current market price of the share by the cash flow per share. Price to Cash Flow Ratio = Market pri...
last updated on 10-Jan-2017
Gross margin ratio is a profitability ratio and is also called gross profit ratio. It is calculated by dividing the gross profit by the revenue figure. Formula Gross margin ratio = Gross Profit / Revenue Gross profit can be found from the income statement or it can be calculated by subtracting cost ...
last updated on 10-Jan-2017
Net profit margin is the profitability ratio. It is used to identify the percentage of revenue left after paying for all types of expenses. Formula It is calculated by dividing the net profit figure by the net sales figure. Net profit margin = net profit / net sales The higher net profit margin rati...
last updated on 10-Jan-2017
Operating cycle is the time required to purchase the goods, sell the goods & collect payments from customers. It is an efficiency ratio and can do wonders if corrective actions are taken to improve this ratio. Short operating cycle is considered as the good one because company is recovering the ...
last updated on 10-Jan-2017
Return on capital employed is the profitability ratio and is used to analyze the return shareholders are earning over their amount of capital invested. It is denoted by ROCE. Formula It is calculated by dividing the profit before interest and tax by the amount of capital employed. ROCE = Profit befo...
last updated on 10-Jan-2017
Return on equity ratio is a profitability ratio. It is invaluable performance indictor for the investor. Investors base their decision over this ratio while making any decision. It is actually an indicator regarding the management’s efficiency of generating earnings from the money invested by ...
last updated on 10-Jan-2017
Working capital is the backbone of any company. It should be kept in positive to allow the business to continue as a going concern. Actually, it can be calculated by subtracting the current liabilities from the current assets of the company. The idea behind the calculation of Working capital is that...
last updated on 10-Jan-2017
Working capital turnover ratio is calculated to get an idea how the company is using its working capital to generate sales or revenue. It is an important activity ratio which looks at the short term performance of the company. Formula Working capital turnover = Sales Revenue / Average Working Capita...
last updated on 10-Jan-2017
Debt to equity ratio is the important solvency ratio. It is a good yardstick to measure the financial leverage of the organization. It is denoted by D/E. It is calculated by dividing the total liabilities by the stockholder’s equity. Formula Debt to Equity Ratio = Total liabilities / Stockhold...
last updated on 10-Jan-2017
Times Interest Earned Ratio is the solvency ratio. It is used to assess the company’s performance as to the payment of interest expense. It is a tool to judge whether the company has sufficient earnings or profit to pay its interest payments. It is calculated by dividing the earnings before in...
last updated on 10-Jan-2017
Accounting Principles are the building blocks over which all the accounting system works. This is universally acceptable concepts which every entity around the world has to follow. If anyone decides not to follow the accounting principles, no one is going to accept his or her financial statements. T...
last updated on 20-Dec-2016
Accrual concept is one of the basic accounting principle and is followed all over the world. According to this principle, revenues should be recognized when they are earned, no matter payment is received or not. On the other hand, expenses are recognized when they occur, no matter payment is paid or...
last updated on 15-Dec-2016
In accounting, we treat business and the owners two different person. This is we called as Business Entity Concept. All the transactions which are relevant to the owner(s), are treated separately and are not mixed with accounting for business. This concept is also called Economic Entity concept. Car...
last updated on 15-Dec-2016
Going Concern Concept is the basic concept behind the preparation of financial statements. Every year, when financial statements are prepared, they are made on the assumption that the operation of the company will continue for the foreseeable future. However, if the management has decided to close i...
last updated on 15-Dec-2016
Monetary unit assumption is a concept which requires that accounting transactions and relationships can be measured and recorded in monetary terms only. It is also called Money Measurement Concept. Under this concept, we cannot record only information for which we cannot identify monetary value. So,...
last updated on 16-Dec-2016
Companies are setup to run for the long term business operations. But as far as the reporting of financial transactions are concerned, we need to do that over a certain time period such as monthly, quarterly, half yearly and annually. This principle is also called time period assumption. In order to...
last updated on 16-Dec-2016
Revenue Recognition Principle states that revenue should only be recognized when the risk and rewards associated with the goods and services has also been transferred to the buyer. This concept is a cornerstone of accrual basis of accounting as revenue is recognized only when an item is sold and not...
last updated on 16-Dec-2016
Full disclosure principle requires that financial statement must disclose all the material information whether on the face or in notes to the accounts. This concept is very closely related to the materiality concept of accounting. The purpose for this is to avoid anything from the users of the finan...
last updated on 16-Dec-2016
Accounting transactions are recorded on the date when they incur. So, they remain reflected on the value at which we have recorded them. So, a transaction recorded for sales revenue in the last 5 years ago will stay be there as it is. This is the historical cost concept of accounting. In accounting,...
last updated on 16-Dec-2016
Matching principle is one of the fundamental accounting concepts and has great importance as well. It emphasizes that expenses should be recorded in the period in which the related revenues are earned. The application of this principle invalidates the cash basis recording of expenses in which accoun...
last updated on 17-Dec-2016
Relevance and reliability are the two main accounting principles. By relevance we mean the information available for a given set of financial figures in order to accommodate the user of the financial statements in making an informed decision. On the other hand, by reliability we mean the level of tr...
last updated on 17-Dec-2016
Materiality is one of the main accounting principles and has a vast effect in the preparation of the financial statements. In order to judge whether the information is material or not, one has to judge its effect over the financial statements if it is not included. It means that materiality is somet...
last updated on 17-Dec-2016
In order to present true and fair view of the financial statements, accountants need to reflect transactions over the basis of economic substance rather than over the legal form. Substance over Form is a major accounting principle and its applicability is very wide in the industry. Although the lega...
last updated on 19-Dec-2016
Prudence concept is a fundamental accounting principle which requires the accountant to record the expenses and liabilities as soon as possible. On the other hand, prudence principle requires accountant to record revenues only when they are assured or actually realized. It is also called conservatis...
last updated on 17-Dec-2016
Understandability concept is one of the qualitative accounting principles. This concept requires that the transactions and events should be presented in financial statements in such a way that users of it can easily read and understand it. A user here we mean any person who have some degree of busin...
last updated on 19-Dec-2016
Consistency Concept has fundamental importance in the preparation of financial statements. According to this, an entity must continue to use the same accounting policies from one period to another and so on. This ensures consistency of accounting policies and makes it easy for the users of the finan...
last updated on 19-Dec-2016
Comparability is also an important accounting principle. It requires that financial information must be comparable from one accounting period to another. But, this is possible only if the entity is using the same accounting policies from one period to another. Ratio analysis is also possible and use...
last updated on 19-Dec-2016
Chart of Accounts is the list of all general ledger accounts which enables the recording of double entry to keep the accounting equation in balance at any point of time. Due to the arrival of modern accounting systems, various kinds of numberings are allotted to various heads to easily manage the ac...
last updated on 22-Dec-2016
Journal is like a register where accountant records all the financial transactions in a debit and credit side. Transactions are recorded in the journal in order by date. Often, it is called book of original entry. Whenever, accountant passes a financial transaction with little description into the j...
last updated on 22-Dec-2016
Accounting equation is the basis of double entry system of accounting. In double entry accounting, we make a debit and a credit of the same amount. As a result, the whole accounting system remains in the balance. We described the equation as follows: Assets = Equity + Liabilities Assets are company&...
last updated on 22-Dec-2016
As it is clear from the name of the topic, when we expand the standard accounting equation further, it is called Expanded Accounting Equation. In this form of equation, we only play with equity portion and leave the assets and liabilities as it is. The expanded form varies greatly according to the n...
last updated on 22-Dec-2016
In conducting, numerous types of transactions take place on a daily basis. But, transactions which can only be described in monetary value are recorded in accounting system by passing a entry in the book which is called Journal. Any sort of event which cannot express in monetary state, are not calle...
last updated on 22-Dec-2016
Purchase journal is like a register which records all the credit purchases. In most of the businesses, entities buy-in raw material or other stock items on a credit line in order to manage the working capital cycle. So, these credit purchases exist in vast quantities. Posting each and every credit p...
last updated on 22-Dec-2016
In order to record the transaction in accounting, accountant needs a storage point. T – Account serves this purpose very well. T – Account saves all the debit and credit transaction in a chronological order. This helps a lot in later records searching. Assets, Liabilities, Equity, Income...
last updated on 22-Dec-2016
Contra account is the opposite of the normal account which is presented in the balance sheet. Normally, a contra account is created for an asset account such as provision for doubtful debt and allowance for depreciation. Both of these are contra accounts and are created for accounts receivable and f...
last updated on 22-Dec-2016
Financial Accounting is a branch of accounting which provides methods of recording financial transactions. Using various methods of recording, summarizing and presentation, these transactions are the source of financial statements such as income statement, balance sheet, cash flow statement and stat...
last updated on 10-Jan-2017
Subsidiary ledgers are the detailed register or records which provide details about the main general ledger. They are also called sub ledgers. These subsidiary ledgers are very useful where the customers and suppliers are in big quantity. So, it become very tedious to account for each and every cust...
last updated on 22-Dec-2016
Some accounting transactions are done repetitively and as a result, if we directly post these transactions into general ledger, there will be increased chances of mistakes and complexity. In order to simplify that accounting process, we record such repetitive transactions into special journals. Afte...
last updated on 22-Dec-2016
Assets in any item from which economic benefits could be derived by an entity. It is the property of the entity which can be converted into cash. It is estimated that asset will increase the firm value and will enhance the firm’s business operations. Types of Assets Accounts There are two type...
last updated on 23-Dec-2016
Liability is the obligation of the entity which it needs to pay to settle its debts. When the obligations are settled, it results the outflow of assets of the entity. Liabilities may be short term and long term. If liability is required to be settled within 12 months period, it is referred to as a s...
last updated on 23-Dec-2016
The interest of the owners in the assets of the entity is termed as equity. In case of entity going into liquidation, after paying for all sorts of creditors, shareholders are the persons who get the remaining assets of the company. That is why; it is also called assets minus liabilities or net asse...
last updated on 23-Dec-2016
When an entity sells services or products to customers, it records revenue. Point to be notes here is that revenue recognition is not dependent upon the receiving of cash. Revenue has to be recorded irrespective of the receiving of cash or not. This method of revenue is called revenue recognition co...
last updated on 23-Dec-2016
In order to generate revenue from business operation, the cost incurred is called the expense. It is also explained as the consumption of the assets of the company. In accounting, expenses are recorded irrespective of the cash outflow. It means that an entity has to record electricity expense in the...
last updated on 23-Dec-2016
In order to record transaction in financial accounting, accountant has to make debit and credit entry. In order to make any item debit and credit, there are certain rules to be followed. These are called debit credit rules. An item is debited under following situations: Increase in assets Decrease i...
last updated on 24-Dec-2016
Double entry accounting is a method of recording accounting transactions in such a way that one account is debited while the other account is credited. It is also called bookkeeping and is worldwide accepted method of recording transactions. This is the double entry accounting system which keeps the...
last updated on 24-Dec-2016
Financial statements are the reports which tell all about the financial performance and financial position of an entity. Actually, these are the final output of all the accounting transactions entered into an accounting system. Easily, we can say it is the summary report of an accounting system of a...
last updated on 10-Jan-2017
Income statement is the term used to define a financial statement component which calculates profit or loss of a period. It is also called profit and loss account, statement of financial performance, statement of operations, earning statements and operating statements. Income statement may be prepar...
last updated on 25-Dec-2016
Balance sheet is an extended representation of the standard accounting equation. It represents the financial position of the entity at any point of time. That is why; it is also called Statement of Financial Position. Accounting equation is written as: Assets = Equity + Liabilities Following the equ...
last updated on 29-Dec-2016
It is one of the most simple and easy to prepare income statement format. In this approach, we sum up all the revenues and gains and likewise sum up all the expenses. After that, we subtract the expenses total from the revenue and gains total to arrive at net income. Net income/ net profit = (Revenu...
last updated on 25-Dec-2016
It is one of the two most popular income statement preparation methods. The other method is single step income statement. Multi step format involves more than one subtraction to arrive at net income or net profit figure. The best thing about this format is that the figures of gross profit and operat...
last updated on 25-Dec-2016
In an organization, various products are manufactures or services are offered. In a big entity, operations are performed in various locations, cities, and states and even overseas in various countries. Some of the locations are identified as profit centers because they incur expenses and make revenu...
last updated on 27-Dec-2016
The income statement only shows up revenues which have been realized. So, in order to show up the unrealized income and the income which must bypass the income statement, comprehensive income is calculated as follows: Comprehensive income = net income + other comprehensive income Other comprehensive...
last updated on 27-Dec-2016
This is the method of preparing income statement according to the nature of expense. Here, we accountant does not pay attention to the function or department. This method is utilized in single step income statements. Small companies often use this method because of the simplicity of their business o...
last updated on 27-Dec-2016
This is the method of income statement in which expenses are grouped according to their functions or classes such as cost of goods sold, administrative expenses, selling expenses. The beauty of this method is that it allows the calculation of gross profit and operating profits. That is why, it is us...
last updated on 27-Dec-2016
Income statements should represent income from continuing operations and discontinue operations to give clear informations to the users of the financial statements. As a result, profit from discontinued operafion will not affect their decision making for the estimation of next year net income. The n...
last updated on 27-Dec-2016
Companies who are earning net income, often distribute this to its shareholders in the form of dividend. It is not necessarily that company issues dividend as it has the option to keep this money for future growth. The money which is not distributed and kept for future growth and need, is disclosed ...
last updated on 29-Dec-2016
Extra ordinary items are losses or profits arises from activities which are of unsual and infrequent nature. The losses or profits are included in the income statement of an entity. This portion is a line item in the income statement and is included just beneath the Income from discontinued operatio...
last updated on 29-Dec-2016
In order to prepare cash flow statements, there are two options to present the cash flow from operating activities, direct method and indirect method. Here, we are going to discuss the direct method and its implications. In direct method, cash flows are listed from operating activities on the basis ...
last updated on 29-Dec-2016
In order to prepare cash flow statements, there are two options to present the cash flow from operating activities, direct method and indirect method. Here, we are going to discuss the indirect method and its implications. Under indirect method, accountant has to start with income before interest an...
last updated on 29-Dec-2016
It is also called cash flow statement and is one of the main financial statements. Unlike income statement, it is made on the cash basis. It is compulsory for an entity to prepare its cash flow statement along with other financial statements such as income statement and balance sheet on periodic bas...
last updated on 29-Dec-2016
As we have discussed in previous articles that cash flow statement consists of three components: Operating, financing and investing. Here we will pour light on Cash Flows from Investing Activities. Cash flow from investing activities arises from long term investments in financial markets and in capi...
last updated on 30-Dec-2016
As we have discussed in previous articles that cash flow statement consists of three components: Operating, financing and investing. Here we will pour light on Cash Flows from Financing Activities. It is the last section in the statement of cash flows and shows cash or cash equivalent transactions d...
last updated on 30-Dec-2016
Statement of changes in equity is an important financial statement which shows movements in shareholder’s equity portion during the reporting period. It discloses two types of movements which are: Transaction with shareholders such as issuance of new shares or declaration of dividends Transact...
last updated on 30-Dec-2016
Management Discussion and Analysis is denoted by MDA and is a part of annual report. This is an unaudited part of the report because here the management of the entity discusses the entity’s performance by comparing the past performance with the current one and project the performance for the f...
last updated on 31-Dec-2016
On the face of balance sheet, income statement, statement of cash flows and statement of changes in equity, all the information cannot be presented. In order to provide additional information about the figures, accountants take the support of notes and disclosure. So, if the user of the financial st...
last updated on 31-Dec-2016
Financial statements are prepared over the basis of accounting principles. So, it is the entity’s responsibility to follow the same policies year by year. This ensures comparability concept of accounting is being followed in the preparation of financial statements. Usually, entity cannot chang...
last updated on 31-Dec-2016
In order to prepare financial statements, sometimes the management of the entity has to use its best judgment to give a value for certain items such as provision for doubtful debt, warrant claim etc. These estimates might go wrong and in such case, the management has to change its estimate. The chan...
last updated on 31-Dec-2016
In preparing the financial statements, accountant may do some types of errors which is called accounting errors. In order to resolve this matter IAS 8 requires the entity to correct the error by restating its financial statement via retrospective effect. Examples Omission to charge depreciation on f...
last updated on 31-Dec-2016
Cash and cash equivalent is the part of the current assets and is presented on the face of the balance sheet or statement of financial position. It is considered to be the most liquid form of current assets because it is used to pay of current liabilities and meet day to day operational expenses. Th...
last updated on 12-Jan-2017
The balance as per bank statement and the bank balance in the ledger accounts differ in most cases. That is why; there is a need to reconcile the difference between two sets of balances. There are plenty of reasons for the differences and accountant need to identify these items for reconciliation. R...
last updated on 02-Jan-2017
If the entity takes out money more than the balance available in the bank account, the bank balance goes into negative. The amount of this negative balance is called Bank Overdraft or simply OD. Under this facility from the bank, whenever, a check is presented into the bank for the amount more than ...
last updated on 02-Jan-2017
Petty cash is the amount which is kept in to meet daily expenses requirement of the business. Usually, the amount of petty cash is a relatively low amount and in order to give proper supports of the expenses, a custodian is appointed. He or she can only provide cash against the authorized transactio...
last updated on 02-Jan-2017
Receivables are the current assets of the company and show the amount that need to be collected from the third parties. Types of Receivables 1. Trade Receivables An entity that sells goods or services usually has to do so by providing credit term to the customers. As a result, the accounts receivabl...
last updated on 12-Jan-2017
Cash discount is the term quite common in sales made to customers on credit terms. As we know that very few customers hardly pay on the spot of the transaction. So, they negotiate with the company the possible credit terms to pay off their liabilities. On the other hand, company wants to collect its...
last updated on 02-Jan-2017
Bad debts are the expenses which appear in the income statement. These actually arise due to making sales on credit terms. If an entity wants to avoid the risk of bad debts, it may stop selling on credit terms. But this will affect the entity’s sales badly and the entity has to suffer from sev...
last updated on 12-Jan-2017
There are two methods for writing off the accounts receivable. One of them is bad debt direct method. Under this, accountant does not take support from any estimate and as a result, the bad debt expense entry is passed only when the bad debt actually gets confirmed. In this method, no allowance for ...
last updated on 12-Jan-2017
In order to write off accounts receivable, there are two methods available. Here, we will be discussing the indirect method which is called bad debt allowance method. The management decides the allowance rate based over the past trends and uses this to create a allowance for the risk. This method is...
last updated on 12-Jan-2017
Entity records bad debt expense and create allowance based on estimation. When the chances of recovery get very low, entity decides to write off the bad debt. But as all the calculation depends upon the estimation, the customer may pay the invoices amount later in case its financial position gets im...
last updated on 12-Jan-2017
In order to find out the allowance for doubtful debt figure, entity has to apply % to a value.This value may be based on accounts receivable ending balance or the sales figure of the reporting figure. Here we are talking about the sales method. In this method, we do not pay attention to the balance ...
last updated on 12-Jan-2017
Bad debt may be estimated on the edning balance of the accounts receivable. The another method is estimated based on credit sales method. At the end of the period, entity apply certain % on the ending balance of the accounts receivable and then adjust this balance with any balance in allowance for d...
last updated on 12-Jan-2017
In order to exercise control on making credit sales to customers, it is necessary to implement aging system. Accounts Receivable Aging Method actually let the accountant aware about the length of time, the dues from customers are outstanding. If the dues are too much old, then there are strong chanc...
last updated on 04-Jan-2017
By assignment of accounts receivable, we mean the granting of rights to collect payment from customer on making the credit sales. This situation appears in case where the entity needs money on urgent basis and it borrows the money from a lender. The lender of the money, then acquires the assignment ...
last updated on 04-Jan-2017
Factoring is a term used in connection with accounts receivable. It refers to a situation where the actual owner of the receivables transfer the ownership to a new entity called factor. Factor acquires all the right of the receivable and collects the payment from the accounts receivable on it own. T...
last updated on 05-Jan-2017
Inventory is a part of non-current assets of the company and as such it is presented in the current asset portion of the balance sheet or statement of financial position. It is also called stock in various parts of the world. Inventory may be raw material, work in process and finished goods which is...
last updated on 12-Jan-2017
There are several methods of inventory valuation and FIFO is one of them. Under this method, we assume that items purchased first are also sold first. It means that the remaining inventory/closing inventory is the one which is purchased/ manufactured at the end. The cost of sale under this method wh...
last updated on 05-Jan-2017
There are several methods of inventory valuation and LIFO is one of them. Under this method, we assume that items purchased last are also sold first. It means that the remaining inventory/closing inventory is the one which is purchased/ manufactured at the beginning. The cost of sale under this meth...
last updated on 05-Jan-2017
This is another method of inventory valuation like FIFO and LIFO. It is also called AVCO method. In order to apply this method, a moving rate is calculated at the end of the reporting period. In order to calculate the moving rate, you can use this formula: Average rate = Total cost / Total Units The...
last updated on 06-Jan-2017
Under this method, we calculate a pre-determined price and this price is kept constant for a definite time period. In this method of inventory valuation, we post all receipts into the stock ledger account and sales/ issues are valued at the pre-determined price (standard price). If there is any diff...
last updated on 06-Jan-2017
Replacement Price Method is a very effective tool when the entity wants to reflect the current price in cost. By replacement price we mean the price at which the materials would be replaced, that is the market price at the time of making sale. Inventories are valued using the replacement price in or...
last updated on 06-Jan-2017
Net realizable value (NRV) is the estimated selling price which the entity expects to gain in the normal course of the business minus any cost to make or complete the inventory and the cost to make it suitable for the sale. Inventory is measured at the lower of cost and net realizable value. Formula...
last updated on 06-Jan-2017
Under this method, we estimate the ending figure of the closing inventory based on the gross profit percentage. In this approach, we assume that the gross profit % remain constant during the reporting period. This method is also known as Gross Profit Method. Procedure to calculate ending inventory u...
last updated on 06-Jan-2017
In this system of inventory, the entity continuously updates its inventory records in such as way that every purchase, purchases returns, sales and sales return are updated. This ensures that at every point of time, entity is available with up to date status of the inventory. The other benefit is th...
last updated on 08-Jan-2017
In this system of inventory, the entity does not update its inventory records after each transaction of purchase, purchase returns, sales and sales return. Instead, it does so at the end of the accounting period by methods such as physical count of inventories or stocks. This method is not good for ...
last updated on 08-Jan-2017
Perpetual and periodic are the two different inventory systems and as such there are so many differences between these which are as follows: Perpetual Periodic This system shows update inventory records. Entity can easily exercise regular inspection of inventories. In this system, bin card system ca...
last updated on 08-Jan-2017
Current asset is a term used to describe the assets from which the entity expects to receive future economic benefit within twelve months or within it normal operating cycle. In the financial statements, there are two categories of assets which are displayed over the face of balance sheet. One is No...
last updated on 10-Jan-2017
Prepaid Expenses are the prepayments which an entity makes to third parties on account of services or goods to be received in some future date within the next 12 months. It is also called as Prepayments. An entity cannot record the prepaid expense as an asset in the income statement because matching...
last updated on 08-Jan-2017
Activity Ratio is used to assess the entity's ability to use assets, liabilities and capital to generate sales and cash. It is further classified into following ratios. Inventory turnover ratio Accounts receivable turnover ratio Accounts payable turnover ratio Days sale outstanding Days payable outs...
last updated on 12-Jan-2017
Efficiency Ratio is used to analyze the entity's ability about its assets usage and how it is using them to smoothly run the operations. It is further classified into. Fixed asset turnover ratio
last updated on 12-Jan-2017
Liquidity Ratio is a used to analyze the entity's ability to pay off its short term obligations. There are several typesof this ratio which is used to judge the company's performance. Most common are as follows. Quick ratio Current ratio Cash ratio Defensive interval ratio Cash conversion cycle
last updated on 12-Jan-2017
Profitability Ratio is a very good metrics to calculate the entity's strnegth in generating profit while incurring expenses and other costs to generate the revenue. There are so many types of profitability ratios which are as follows. Return on equity (ROA) Return on capital employed (ROCE) Net prof...
last updated on 12-Jan-2017
It is the measure to judge the company's ability to meet its long term obligation. That is why, financial institutions and banks pay a lot of importance to this yardstick. Solvency ratio is further classified into following ratios. Times Interest Earned Ratio Debt to Equity Ratio Fixed Charge Covera...
last updated on 12-Jan-2017
In order to judge the performance of the business operations, an entity needs some type of measurement criteria and one of them is Operating performance ratio. It is further classified into: Working Capital Working Capital Turnover Operating Cycle
last updated on 12-Jan-2017
Non-current assets are assets which are expected to be converted into cash in more than 12 months from the reporting period. The other type of asset is current asset which is expected to be converted in to cash within 12 months from the reporting period. Non-current assets are also called illiquid a...
last updated on 12-Jan-2017
Capital expenditure is one which is incurred to gain future economic benefit for more than one reporting period. It is denoted by CAPEX. This type of expenditure is not of a recurring nature and that is why, it is presented over the face of the balance sheet and amortized or depreciated over the use...
last updated on 12-Jan-2017
Property, Plant and Equipment is the non-current asset and as such it cannot be converted into cash within 01 year time period from the reporting period. It is a tangible asset and is used to drive future economic benefits from its use. Due to the use of the tangible assets, they may lose its value ...
last updated on 12-Jan-2017
This refers to all the expenses which the entity incurs in order to maintain the fixed assets in its normal and good condition. Such expenses include ordinary repair and maintenance, small parts replacement expenses etc. As these are routine basis expenses over fixed assets, these are called ordinar...
last updated on 12-Jan-2017
Voucher system is an important tool to summarize all the cash expenditures in the entity. No matter for what purpose the expenditure is done, all cash transactions are recorded using the voucher system. In a voucher system, following things are maintained: Vocuher Voucher register Check register Pai...
last updated on 13-Jan-2017
Partner is an arrangement in which two or more persons agree to share in the profits of the company. The business may be run by all of them or any one of them working on behalf of the all. Persons so involved under such an agreement are called individually partners and collectively the firm. A partn...
last updated on 13-Jan-2017
In order to form the partnership, partners have to invest in the entity. The investment may be in the form of fixed assets which is taken in the partnership business at the value as mutually decided among the partners. The investment may be in the form of cash as well. Example Adam, Boon and Chelsey...
last updated on 13-Jan-2017
During the course of partnership business, any partner may ask for withdrawal of funds or other assets. Such withdrawal is recorded into the drawing account of each partner. Just like the sole proprietors accounting, the drawing account is maintained for each partner in the accounting system. Exampl...
last updated on 13-Jan-2017
Partnership firm is formed with an objective to earn profit. However, due to unforeseeable conditions, the loss may arise in the firm’s business. In this topic, we will discuss about the accounting treatment for profit or loss arising in the course of partnership business. In distribution, the...
last updated on 14-Jan-2017
It is also called floating method. In this method, capital account is used for all adjustments of interest on capital, drawings, partner’s salaries, commission and share of profit. Journal Entries To record distribution of net profit: Description Debit Credit Profit & Loss account xxx Adam...
last updated on 14-Jan-2017
In this method of profit & loss distribution, we do not touch capital accounts of partners. Instead, separate current accounts are opened against for each partner to record transactions of drawings, interest on capital, commission, partner’s salaries. Capital accounts in this method remain...
last updated on 14-Jan-2017
Revaluation is an important topic in partnership accounting. It is required in cases of death, admission or retirement cases of partners. When assets are revalued, then the resulting profit or loss are distributed to the existing partners in compliance with the agreed terms and conditions as specifi...
last updated on 14-Jan-2017
Partnership busines may be expanded and for this, some new partners may be introduced in order to effectively run the operations of the business. When new partners are added, some changes and adjustments are made in the accouting books. After becoming the partners, the new partners will be responsib...
last updated on 15-Jan-2017
This is a private method of acquiring the existing partner’s interest in the firm. Whenever a new person wants to become a partner, he or she negotiates with the existing partner and pays him outside the firm any amount agreed upon to get certain proportion in the business. In this method, fir...
last updated on 15-Jan-2017
In this case, new partners are added into the firm by bringing new investments just like existing partners have invested in order to start the firm’s business. The new partners share the proportion of the profit & loss according to the agreement as mutually decided. Journal Entry Descripti...
last updated on 15-Jan-2017
Goodwill arises due to good name and reputation of the business and partners. It is calculated by subtracting the book value and the value of investment made by the new partner. This method is used when the existing partners do not agree to reduce their capital. Journal Entry Description Debit Credi...
last updated on 15-Jan-2017
In this method, existing partners agree to reduce their capital in the partnership firm. The difference between the investment of the new partner and the book value of the capital is called the Bonus and is distributed among the existing partners. Journal Entry Description Debit Credit Cash xxx Adam...
last updated on 15-Jan-2017
Any partner in the firm has the right to leave the firm. The partner so going out from the firm is called the retiring partner or outgoing partber. There are various reasons for getting retired from the business and someof them are as under: Transfer of interest This retirenemnt can be in the form o...
last updated on 16-Jan-2017
When the partnership firm ceases to operarte as a going concern, it is calledDissolution of Partnership. There may be numerious reasons for the dissolution. Few of them are: the completion of the period for which partnership was formed, the completion of the task or project the death of a partner th...
last updated on 16-Jan-2017
Depreciation is the cost of the fixed asset which has been consumed. It is applied over the fixed or permanent nature assets. For example,machinery, vehicle, furniture, computers etc. However, keep in mind that though Land is a fixed and permanent nature fixed asset, it is not depreciated and it usu...
last updated on 16-Jan-2017
There are variety of methods of depreciation. The method used depends upon the nature of the business, nature of the asset and the industry. Most common methodof depreciation are as under: Straight line Write down value (WDV)/ Declining balance Sum of year digit Units of production Journal Entry In ...
last updated on 17-Jan-2017
This is the most simple method of depreciating the fixed asset. Here, we split thecost of the fixed asset over the useful life which results in equal depreciation expense charged every year. The formula to calculate depreciation is as follows: Straight Line Method Formula Annual Depreciation = (Cost...
last updated on 17-Jan-2017
Thhis method is the mostly used depreciation methodoffixed assets. In this method, decling depreciation is charged every period, that is why, it is declining method. In order to find out depreciation for the period, the following formulais used: Formula Periodic Depreciation Expense = Book value of ...
last updated on 16-Jan-2017
Sometimes, the nature of the asset is such that it loose its value by the usage of every unit of production or for the number of hours used. In this situation, the best method to depreciate the asset is the Units of Production method. The following formula is used to calculate depreciation over the ...
last updated on 17-Jan-2017
It is a method of depreciation where asset is depreciated just like the declining method but at a fraction of the sum of all the years. As a result, depreciation expense in initial years shows more balance then the later years. That is why it is also called Accelerated depreciation method. SYD Formu...
last updated on 17-Jan-2017
In the ordinary course of business, it is quite common that an entity exhange the old asset with the new asset in order to fully utilize its production capacity. The such exchnage may be at a loss or gain to the entity. Any difference between the value of old asset and new asset is settled by the pa...
last updated on 17-Jan-2017
Work Sheet is an important tool to make adjustment in the unadjusted trial balamnce. As a result, adjusted trial balance, income statement and balance sheet can easily be prepared without any difficulty. Work Sheet is not a part of journal and not a part of financial statement. It is just like a wor...
last updated on 19-Jan-2017
In order to prepare the work sheet, the only requirement is the that you input the right figure into the right side. You need to follow the following steps to perform this task: Enter the figures from unadjusted trial balance into the trial balance column, Enter the adjusting figures into the adjust...
last updated on 19-Jan-2017
Normally, a worksheet consists of five columns, but there is no hard and fast rule. It may contain any number of columns as needed. We are sharing with you a sample specimen form of work sheet which is quite common. Head of Account Trial Balance Adjustments Adjusted Trial Balance Income Statement Ba...
last updated on 19-Jan-2017
Reserve and funds are the two different items in the financial accounting and as such, they are treated quite utterly. In this following lines, we are differentiating Reserve and fund as follows: Reserve Fund 1. It is created from the retained earnings, 2. It is a portion of owner's equity, 3. It re...
last updated on 21-Jan-2017
The asset looses its value after usage and technical obsolescence to which we called decline in the value of the asset. Such a decline is called Valuation reserve or offset accounts or contra accounts. This decline may be for both current and fixed assets and are usually treated via headings such as...
last updated on 21-Jan-2017
In order to meet the liability of certain types, this reseve is created. A liability may arise in future for which we are not aware of the exact amount. This is quite common in deciding the value of income taxes. The value estimated by the entity may be declared invalid by the tax authorities and in...
last updated on 21-Jan-2017
As the name suggests, it is a type of reserve which is not shown on the balance sheet and is actually created by too much depreciation or by excessive provision for doubtful debt. The purpose of creating this Secret Reserve is to meet the sudden heavy losses or any other unusual situation. However, ...
last updated on 21-Jan-2017
Capital reserve is created by capital profits of the company which is not kept for distribution to the shareholders in the form of dividend. Common example may the the goodwill which is created prior to the incorporation of the entity. This is included in the retained earning statements. How Capital...
last updated on 21-Jan-2017
A lease is a contract between the lessor and the lessee in such a way that lessortransfer to the lesseethe right to use an asset for a specificperiod of time. In return, lessor takes a series of payments from the lessee. The lease is used in cases where the asset cost is so much high that the entity...
last updated on 22-Jan-2017
Finance Lease is a type of lease in which all the risks and rewards incidental to the ownership of the asset is transferred to the lessee. It is not necessary that the title of the asset is transferred to the lessee eventually. Characteristics of Finance Lease In order to qualify as a finance lease,...
last updated on 22-Jan-2017
Any lease other than the finance lease is called operating lease. In this type of lease, the lease rentals are charged to theincome statement as an expense over the term of the lease. Under operating lease, the ownership of the asset remains in the custody of the leased asset provider and never tran...
last updated on 22-Jan-2017
In thefinance lease, the interest payments are charged to various years on the basis of different methods. It depends upon the situation and the nature of the lease term. The common methods are: Straight line method In straight line method of interest allocation, the same amount is charged to every ...
last updated on 22-Jan-2017
Capital reduction and reconstruction is a way to reduce the capital amount of the company. Within the company, there are several reasons for such treatment but here are some common ones: Purpose of Capital reduction in order to pay off the unnecessary capital of the company which is of no use. in or...
last updated on 24-Jan-2017
Absorption of Company is a way of business arrangement in which an existing company takes over the business of the another entity. The entity who gets absorbed goes into the liquidation process. The payment for such absorption to the old entity can be made either in cash or in shares or mixture of b...
last updated on 24-Jan-2017
Amalgamation is a type of business arrangement in which two or more entities are merged to form a new entity in such a wat that old entities cease to exist. All the assets and liabilities of the old entities are taken over by the newly formed merged company. Purpose The major purpose of amalgamation...
last updated on 25-Jan-2017
The Purchase consideration is the amount or consideration that the old entity is getting in the new company after ceasing to loose its former status. In the question, information is provided regarding how to calculate the purchase consideration. Example Question Two companies Alpha and Beta are in t...
last updated on 25-Jan-2017
In order to complete the process of amalgamation/ merger, there is a need to close the books of the old company. Entities cannot keep their records open due to the fact they are going to loose their status. In order to understand the closing entries, we take the support of the same example. Example ...
last updated on 25-Jan-2017
After the formation of the new merged/ amalgamated company, there are some necessary entries which are required to be passed. All the assets and liabilities are recorded in the new company and share capitals are recorded according to the purchase consideration. We will explain this process using the...
last updated on 25-Jan-2017
Installment sales is a term used to describe a sale which is done on a deferred payment option. This is most apparent in real estate business where the builders and developers transfer the apartments or flats over a number of periods by taking monthly, quarterly and yearly payments. In the electroni...
last updated on 26-Jan-2017
There are various advantages in installment sale transaction for both the buyer and the seller.In developing countries where people cannot afford asset by making a lump sum payment, this mode of asset acquisition is awesome. Some of them are: Some of the benefits - advantages are as follows: Seller ...
last updated on 26-Jan-2017
As with anything, there are associated disadvantages or drawbacks. We can call them as limitations as well. The common drawbacks are as follows: The installment sales is a valid contract between buyer and the seller whereby the sellers transfer the possession of the asset to the buyer over down paym...
last updated on 26-Jan-2017
In installment sales, the seller keeps the title of the asset with itself and the buyers getthe possession of the assets. But, in order to protect its interest, seller need to do something sufficient to reduce the chances of defaults in payments from the customer. In order to protect its interest, s...
last updated on 26-Jan-2017
As the installment sales involveprofit earning over a long period of time. Accountant uses two different methods for recording Profit and Loss on Installment Basis. Methods 1. The accrual basis 2. The installment basis 1. The accrual basis Under this basis, the saleis treated as a credit sale and th...
last updated on 27-Jan-2017
Branch is anycompany or office located at some distance from the head office of the company. This distant office has the full capacity to store inventories, make thesale and perform the recovery processes from the customers. The recovery that the branch collects from the customer is deposited into t...
last updated on 27-Jan-2017
In the branch setup, there are various types of branch system exist. They are different over the basis of right, duties, authorization and the level of independence from the head office. Some of the common types are as follows: branch receives the products/ goods from the head office and sells the s...
last updated on 27-Jan-2017
There are several reasons for opening branch offices such as in order to market the product and to counter strike the movement of the competitor and to snatch the market share. Whatever is the reason, the head office is always interested in knowing the performance of the branch office and this can o...
last updated on 27-Jan-2017
ByConstruction Contracts, we mean the contract to build or develop the asset or combination of the assets closely related. As a matter of fact, construction takes more than one accounting period to complete, which causes various problems for the accountant such as: how much cost should be charged to...
last updated on 28-Jan-2017
In construction contracts, customers pay the amount in installment and the full amount of revenue cannot be recorded in the firstyear of the project. Instead, a portion of the revenue is recorded using the estimates of the professional surveyor. As accountant cannot record the full amount as the rev...
last updated on 28-Jan-2017
In order to prepare the income statement for each period, there is a need to identify the relevant sales revenue and related cost to come up with the profit figure. In order to judge how to recognize revenue in construction, there are two methods which are mostly used in the industry: 1. Percentage ...
last updated on 28-Jan-2017
In order to record revenue, there is a specific accounting standard called IAS 18 Revenue Recognition. There is a complete guide as when to record revenue from the sale of goods, rendering of services and the receipt/ collection of royalties, dividends and interest. Sale of Goods In order to recogni...
last updated on 04-Feb-2017
When there are multiple companies exist under the common control, there is a need to consolidate them. This is called consolidation accounting for the group. In order to better understand the concept, we need to identify the parent company and the subsidiaries. Subsidiaries are those companies which...
last updated on 04-Feb-2017
Associates are the companies over which the other company has significantinfluence in such a way that it does not hold more than 50 percent shares. By significant influences we mean the power or right to participate in the operating and financial decisions but such influence does not allow the inves...
last updated on 04-Feb-2017
In order to qualify the entity as a subsidiary, the required percentage of shareholding is more than 50%. However, there is no hard and fast rule as there are some other conditions which could lead you to consider an entity as a subsidiary even if the percentage of holding shares are less than 50%. ...
last updated on 04-Feb-2017
Join venture is a contract between more than one parties to carry on an economic operation or activity which is under the control of all the parties jointly. A joint venture (JV) can take several forms in practice, but there are two characteristics which are common to a JV: the establishment of JV c...
last updated on 05-Feb-2017
Financial analysis is a broad topic and involves the calculation of various types of financial ratios. But in this topic, we will target topics such as Horizontal, vertical and common size analysis. In order to evaluate the entity's performance over a long period of time, it is necessary to take sup...
last updated on 05-Feb-2017
Horizontal analysis can be conducted when the information is available for at least two years. This analysis is also called Trend analysis. This is quite helpful in determining the performance and growth of the company over several numbers of reporting periods. Financial analyst often takes support ...
last updated on 05-Feb-2017
Vertical analysis is a way of expressing the figures of financial statements in proportion to a total amount such that the total of each individual portion/item comes to 1 or 100%. This type of analysis can be done for balance sheet as well as for income statement. In balance sheet analysis, we divi...
last updated on 05-Feb-2017
Common Size Analysis is actually the vertical analysis but for more than one reporting periods. As it covers more than one accounting period, it is of high importance for the financial analyst because he or she can easily see the trends across the years for making informed decisions. Common size ana...
last updated on 06-Feb-2017
Events After the Balance Sheet Date is an important term used in financial accounting and refers to those significant activities or events that happen after the balance sheet date but before the date of authorization for the issuance of financial statements. International Accounting Standard (IAS) 1...
last updated on 06-Feb-2017
Deferred tax is the very important topic in financial accounting. It arises due to differences in tax profit and accounting profit. There are two main reasons for such differences: Permanent difference This difference arises when an item of expense is not an allowable expense in tax. As a result, th...
last updated on 06-Feb-2017
Timing Difference Approach is used to account for the impact of differences over the income statement. In this approach, we add back the accounting depreciation into the accounting profit to arrive at before depreciation profit figure. After that, we deduct the tax depreciation from this profit figu...
last updated on 06-Feb-2017