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Difference between accounts and finance

Accounts is debit, credit and Assets & Liability, income and Expenses it should be included finance is
nothing but only for future element it should be included for the data.
Answered by: vijen on: Dec 23rd, 2011
In simple language accounts is recording, classification, summarizing of all types of money transactions.
Finance work is taking important decision on the basis of accounts.

Retail invoice vs. Tax invoice


What difference between retail invoice and tax invoice?
Retail invoice is a normal invoice given to a customer at the time of sales, it is not concerned with tax-
credit. Whereas tax invoice is a mandatory invoice precribed by the tax authorities containin...
Whenever sales transaction does not involve any tax component, then retail invoice is issued. Such type
of invoice is also known as cash memo. No VAT credit can be claimed on retail invoices. Wheneve...

What is a chargeback?
Chargeback means refund / return of funds to the buyer. Here the bank reverts back the transaction
between the buyer and seller when chargeback is initiated

What are freight charges?


Freight charges is the cost of transporting the goods from the seller place to the purchasers location. This
cost shall include packing, loading / unloading, carriage, shipping cost etc.,

Why rule of nominal account is exactly opposite with the rule of personal and
real account?
The reason why rule of nominal account is opposite with the rule of personal and real account is that
Nominal Accounts CANNOT be SEEN & TOUCHED.

What is bank reconcilliation statement ?


BRS is a statement prepared by the company matching the bank ending balance as stated per bank
statement to the companies ending book balance

How to Perform a Bank Reconciliation?

Obviously the first thing you’ll need to do is to obtain both the bank statement for the period of interest and your
accounting records. If the ending bank statement and your accounting records match, then you’re done!

Chances are you’ll have an outstanding check that has not cleared with the bank. When we say it hasn’t cleared, this
usually means that the person with the check has not deposited it and thus the bank has not recorded it. For any
outstanding checks like this you will need to deduct them from the bank’s number.

On some occasions your company’s records will reflect a deposit that the bank has not recorded yet in its accounts.
This usually happens when you take a deposit to the bank late on a night when the bank is not opened. Your records
will indicate the deposit, but obviously the bank’s will not. In these situations you need to add the deposits to the bank’s
ending balance number.

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What is letter of credit?
A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for
the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank
will be required to cover the full or remaining amount of the purchase.

What is shADOw balance ?


Shadow balance is that balance which is not yet clear.
Consider any company's case.
Company has given money to someone by a cheque. Then they have shown in their cash book that
money has been given. Subsequently the balance will show lower. While the same balance in bank
account will look higher. The difference of unclear cheque is shadow balance.
Similarly for a cheque company has received is deposited in bank account. In cash book it will be shown
as clear credit while it is yet to be cleared. That balance is called shadow balance.

Liabilities are on Left side and assets on right side in balance sheet
Why always liabilities are on Left side and assets on right side in balance sheet?
The accounting equation is Assets= Liabilities + Stockholders Equity As you can see the assets are on
the left and Liabilities are on the right.

Types of Ledgers?

1)Sales ledger(credit customers personal accounts)


2)Purchase ledger(credit suppliers personalaccount)
3)General ledger (real and nominal accounts)

The book that contains the accounts in book keeping is known as ledger. Ledgers are also referred to in accounting
as the principal books of accounts. Accounts are basically of three types; real, personal and nominal. The Real
accounts are those that are concerned with property and assets. Personal accounts are those that refer to accounts
of a person and nominal accounts are concerned with incomes, gains and expenses and losses. The purchase and
sales books are not ledgers but are records of those transactions, whereas a cash or bank book is a kind of
subsidiary book. Journals are books in which the entries are originally made and then transferred to the respective
accounts of the ledgers. There can be a whole range of ledger accounts including goods account, creditors account,
profit and loss account,trading account, salaries account etc. At the end of the year a statement of the position of
assets and liabilities is prepared known as the balance sheet.

What will you do if there is a missing invoice?

However the answer is that we will transfer the amount to the Suspense account.

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Audit trail

An audit trail allows an individual to track a transaction from the journal entry to the general ledger
through to the financial statements. The audit trail can also find all the transactions that comprise the
dollar amount for each account listed on the income statement and balance sheet.
Audit trial is a chronological sequence of audit records, each of which contains evidence directly
pertaining to and resulting from the execution of a business process or system function

If an asset is purchased and the same is not used for the financial year, should
the company charge the depreciation and the reason for the same
Yes, we will charge depreciation on that asset which is not used in financial year because after some
some time its value will be reduced by obsolescences.

In this case, we will consider that asset which is not used in the financial year but depreciation will not
be considered.

Depreciation advantages and disadvantages(methods of depreciation)


What are the advantages and disadvantages of the following methods of depreciation?1. Straight line
method2. Reducing balance method3. Revaluation method4. Usage method5. Sum of digits method

Depreciation

Why depreciation is not charged on land?


Depreciation is not charged on land because you cannot estimate the useful life of land. The value of
land does not deteriorate with time like equipment,machinery and buildings.
Land is appreciated rather than deprecited.

Trail balance preparation


Why do we prepare trail balance?
Trial Balance is prepared in order to see if Debits=Credits. If Debits=Credits then you proceed to prepare
an income statement. Then prepare a balance sheet. Plain and simple.

Distinguish break even point from margin safety


BEP means sales level at which total cost of the product are equal. MOS means what business sales
above the BEP level sales.

Amortization
Amortisation is a concept very similar to depreciation.In case of depreciation, it is charged to assets
marking reduction in their value.In case of loans the repayment means amortisation.

Why net profit is shown in the liability side of the balance sheet?(important)
Net Profit is the amount earned by the Owner and it is always added to the Capital. As Capital is liabilty
of the firm/Co. therefore it is shown on the liability side of the balance sheet.

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What is debtors reconciliation?

A Debtor's reconciliation involves adding the total of your subsidiary Debtors (Accounts Receivable)
Accounts and agreeing that total to the amount in Trade Debtors (Current Assets) on the Balance Sheet

What is the provision? What is the entry for provision?


Debit to an EXPENSE ACCOUNT
Credit to PROVISION ACCOUNT

What is the difference between authorised capital and paid-up capital?


Authorized capital: The amount of capital with which a company is registered with the registrar of
companies (body responsible for registration of companies). It is the maximum amount of capital which a
company can raise through shares i.e. shared capital can be maximum up to the authorized capital and
not beyond. Due to this reason companies are registered with such authorized capital which is well above
their current needs of financing so that if more is needed in future then it is easily possible. Authorized
capital is also called Registered capital or Nominal capital.
Subscribed capital: The amount of capital (out of authorized capital) for which company has received
applications from the general public who are interested in buying shares. If this term is too technical to be
understood then subscription is simply an application in which investors expresses his interest to buy
shares in the company. Usually only that much shares are subscribed which company intends to issue
later. But sometimes, if company is in good shape then more and more people will be interested in buying
shares and in this case over-subscription will be the result. But if company’s financial position is not
sound or due to other factors it may be possible that subscriptions are received for lesser then intended
shares in which case there will be under-subscription.
Issued capital: The amount of capital (out of subscribed capital) which has been issued by the company to
the subscribers and thus are now shareholders.
Called-up capital: In some jurisdictions, company is permitted to ask for only part of the total issued
capital i.e. company will require shareholders to pay only part of the amount of the shares they hold and
not to pay fully. The partial amount (out of issued capital) so asked by the company from the shareholders
out of the total value of shares is called-up capital.
Paid-up capital: The amount of capital (out of called-up capital) against which the company has received
the payments from the shareholders so far.

What is the journal entry for cancelling a cheque?


If we issue a cheque we would have passed an entry (debit the receiver/firm & credit the bank) that
entry should be reversed (debit bank & credit the firm).

dr. party a/c


cr. bank a/c

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What is operative accounts ?
An operative accounts means an account for day-to-day operations of the business.

What is the full form of acronym fpna?


Fellow Professional National Accountant
by a disparity between receivables and collections.

What is inventory management ?


The direction and control of activities with the purpose of getting the right inventory in the right place at
the right time in the right quantity in the right form at the right cost.

Control account
General ledger account whose balance reflects the total of balances of related subsidiary
ledger accounts. Accounts receivable and accounts payable are the most commonly
used control accounts, and their balances serve as a crosscheck (control) of the accuracy of
the associatedsubsidiary records. Also called controlling account.

Debt securities
Any debt instrument that can be bought or sold between two parties and has basic terms defined,
such as notional amount (amount borrowed), interest rate and maturity/renewal date. Debt securities
include government bonds, corporate bonds, CDs, municipal bonds, preferred stock, collateralized
securities (such as CDOs, CMOs, GNMAs) and zero-coupon securities.

Minority interest
Minority interest (also known as Non-controlling interest) in business is an accountingconcept that
refers to the portion of a subsidiary corporation's stock that is not owned by the parent corporation. The
magnitude of the minority interest in the subsidiary company is generally less than 50% of outstanding
shares, else the corporation would generally cease to be a subsidiary of the parent.Ordinary shares
and preference shares

What is the difference between ordinary shares and preference share?


Ordinary shares better knows as Equity shares have following characteritics:a. They can participate in
Annual General Meeting and voteb. They do not have any fixed rate of return (dividend)c.
Preference shares have the preference over ordinary shares when it comes to dividend and repayment of
capital

Letters of credit
Letter of credit is always backed by Fixed Deposit. Bank does not issue letter of credit unless and until it
has tangible securities provided by you pledged in bank's favour.

What is the difference between capital reciept and revenue reciept?

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Capital receipt is a receipt when you sold any business asset like building, machine, furniture etc. Where
as revenue receipt refers to receipt of sale proceeds, comission received, tax refund etc.

Accounting objectives
1. To ascertain the profit or loss earned by the firm
2. To know the financial position of the firm

Investment in real esate for development


A companys' prinicpal activity is to buy land for development. It is like investing in land and then
developing it. Do you treat this land as available for sale or fair value through statement of income? Give
the answer to comply with the international financial reporting standard (ifrs)
Answer Question

What is off balance sheet finance?


form of financing in which large capital expenditures are kept off of a company's balance sheet
through various classification methods. Companies will often use off-balance-sheet financing to keep
their debt to equity (D/E) and leverage ratios low, especially if the inclusion of a large expenditure
would break negative debt covenants.

How to do credit control?


1. Consider whether you need to provide credit in the first place.
2. Establish your terms of trade
3. Establish who you are dealing with
4. Use a credit application and personal guarantees.
5. Secure your debt
6. Use a System – Review your accounts regularly
7. Avoid special cases
8. Classify bad debt from slow payers
9. Have a plan to collect bad debt
10. Don’t be afraid to outsource a debt to a professional

What is dormant account?


In general, a low-balance savings account which has shown no activity (deposits and/or withdrawals)
over a long period, other than posting of the interest and/or service charges. Statute of
limitations usually does not apply to dormant accounts, and their funds can be claimed by
their owner or beneficiary at any time.

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Q: Is it possible for a company to show positive cash flows but be in grave
trouble?

Cash Flow Basics

A cash flow statement shows the net change in cash flows for the company's
operating, investing and financing activities during a given period. While each
category affects overall cash flow, operating cash flow is especially critical
because it shows changes in cash from the company's primary business
activities. The culmination of the cash flow statemen t is the cash flow for the
period end date after positive or negative changes have been recorded.

Bad Debt

In his October 2010 article "Advance America -- Where High Cash Flow Is
Misleading" for GuruFocus.com, Saj Karsan points out an example of a company
that predicts and writes off significant bad debt accounts when formulating its
net income statement. However, the company's cash flow statement does not
account for these bad debts and shows a much higher positive cash flow than
the company will ever collect. In essence, it has millions of dollars of expected
cash it knows it will never receive.

Profitability Concerns

Sales and profits are two very distinct business concepts. Sales or revenue
simply means the company collects cash in exchange for the sale of products or
services. However, companies often sell products for less than they actually
paid for them. When this is done in desperation to generate cash to pay bills, to
avoid bankruptcy, or to drive immediate traffic, although it produces cash flow
the company is not profitable and is selling its inventory at a loss.

Short-Term Focus

Another potential problem with interpreting positive cash flow as a good


indicator of a company's viability is that cash flow is most beneficial in the
short term. Strong cash flow generally means the company can meet its current
loan payment obligations. However, a company burdened with overwhelming
long-term debt and a high-cost business model still faces ongoing pressure to

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generate more cash and income. Thus, comparing cash to long-term liabilities is
important.

Q: Why do capital expenditures increase assets (PP&E), while other cash


outflows, like paying salary, taxes, etc., do not create any asset, and
instead instantly create an expense on the income statement that re duces
equity via retained earnings?

A: Capital expenditures are capitalized because of the timing of their estimated


benefits – the lemonade stand will benefit the firm for many years. The
employees’ work, on the other hand, benefits the period in which th e wages are
generated only and should be expensed then. This is what differentiates an
asset from an expense.

How can a company make profit but still be cash flow negative?

You generate (or lose) cash from your operations (income statement). Yes,
that's definitely one of the components. But it is not an exact one to one
correlation.

Aren't there things included in your income statement that have nothing to do
with cash, such as depreciation and amortization? These non-cash items
included in your income statement are adjusted by those amounts.

Secondly, you have working capital (current liabilities and current assets)
changes. Even though you made sales (included in your income statement),
that doesn't mean you collected all the cash related to them. Similarly, you
incurred expenses (included in your income statement), but that doesn't mean
you paid all of the related cash (i.e. accounts payable would represented the
unpaid portion of expenses incurred). So those types of items, among others,
appear on the cash flows statement as changes in working capital.

Thirdly, you have may have used (or received ) cash for things that do not
appear on your income statement. Paid $1 million in capital expenditures to

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build your store that hasn't even opened yet? Borrowed $2 million in
preparation for new production equipment? Obviously, those balance sheet
items (assets and liabiltiies) affected whether cash went up or down, but had
nothing to do with your operations (income statement).

Q: I buy a piece of equipment, walk me through the impact on the 3


financial statements

A: Initially, there is no impact (income statement); cash goes down, while PP&E
goes up (balance sheet), and the purchase of PP&E is a cash outflow (cash flow
statement)

Over the life of the asset: depreciation reduces net income (income statement);
PP&E goes down by depreciation, while retained earnings go down (balance
sheet); and depreciation is added back (because it is a non -cash expense that
reduced net income) in the cash from opera tions section (cash flow statement).

Q: How is the income statement linked to the balance sheet?

A: Net income flows into retained earnings.

Q-What is a debit note and credit note? What are the journal entries for
these?

When the purchaser returns the goods to the seller the Purchaser sends a Debit
Note to the seller (ie. the purchaser debits the seller in his books ie. Purchasers
Books) and the Seller sends a Credit Note to the purchaser (ie. the seller credits
the Purchaser in his Books ie. Sellers Boo ks).

Following are the JVs to be passed:-

Sales Return inward A/c Dr.

To Debtor A/c (Being goods returned by the customer)

Creditor A/c Dr.

To Goods Return A/c (Being goods sent back to the seller)

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