(38)-ACCOUNTING FOR FIXED ASSET DISPOSALS

Accounting For Fixed Asset Disposals Fixed assets are not purchased by a business with the intention of reselling them in the normal course of trade. However they might be sold off at some stage for example a business may sell fixed assets when their useful life is over. Whenever a business sells something it makes a profit or loss. So when fixed assets are disposed of there is a profit or loss on...

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(37)-PROVISION FOR DEPRECIATION

Provision for Depreciation A provision for depreciation is the amount written off for the wearing out of fixed assets.There are two basic aspects of the provision for depreciation to remember, A depreciation charge (provision) is made in the profit and loss account in each accounting period for every depreciable fixed asset. Nearly all fixed assets are depreciable, the most important exceptions being...

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(36)-APPLYING A DEPRECIATION METHOD CONSISTENTLY

Applying a depreciation method consistently It is up to the business concerned to decide which method of depreciation to apply to its fixed assets. Once that decision has been made, however it should not be charged the chosen method of depreciation should be applied consistently from year to year. Similarly it is up to the business to decide what a sensible life span for a fixed asset should be. Again...

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(35)-METHODS OF DEPRECIATION

Methods of Depreciation There are several different methods of depreciation. Of these the ones are, Straight line method. Reducing balance method. Sum of the digits method. Straight line method The total depreciable amount is charged in equal installments to each accounting period over the expected useful life of the asset. So the net book value of the fixed declines at a steady rate, or in a straight...

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(34)-DEPRECIATION IN THE ACCOUNTS OF A BUSINESS

Depreciation in the accounts of a business When a fixed asset is depreciated, two things must be accounted for, The charge for depreciation is a cost or expense of the accounting period. Depreciation is an expense in the profit and loss account. At a same time the fixed asset is wearing out and diminishing in value. So the value of the fixed asset in the balance sheet must be reduced by the amount...

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(33)-FIXED ASSETS DEPRECIATION

Fixed Assets Depreciation Depreciation can be described as a means of spreading the cost of a fixed asset over its useful life, and so matching the cost against the full period during which it earns profits for the business. Depreciation charges are an example of the application of the matching concept to calculate profits. Depreciation has two important aspects. Depreciation is a measure of the wearing...

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(32)-ACCOUNTING FOR STOCKS (SUMMARY)

Accounting for Stocks (Summary) The quantity of stocks held at the year end is established by means of a physical count of stock in an annual stocktaking exercise, or by a continuous stock take. The value of these stocks is then calculated, taking the lower of cost and net realizable value for each separate item or group of stock items. In order to value the stocks, some rule of thumb must be adopted....

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(31)-REPORTING REGULATIONS FOR STOCKS

Statutory Regulations and Accounting Standards Requirements for Stocks In the most businesses the value put on stock is an important factor in the determination of profit. Stock valuation is however, a highly subjective exercise and consequently there is a wide variety of different methods used in practice. The statutory regulations and accounting standards requirements have been developed to achieve...

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(30)-VALUING STOCKS

Valuing Stocks Determining the purchase cost Stock may be raw materials or components bought from suppliers, finished goods which have been made by the business but not yet sold, or work in the process of production, but only part completed. It will simplify matters however if we think about the historical cost of purchased raw materials and components which ought to be their purchase price. When...

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(29)-VALUING STOCKS

Valuing Stocks There are several methods which in theory might be used for the valuation of stock items. Stocks might be valued at their historical cost – The cost at which they were originally bought. Stock might be valued at net realizable value – Valued at their selling price less any costs still to be incurred in getting them ready for sale and then selling them. Stock might be valued at their...

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(28)-STOCKTAKING

Stocktaking Business trading is continuous activity, but accounting statements must be drawn up at a particular date. In preparing a balance sheet it is necessary to summarize the activity of a business so as to determine its assets and liabilities at a given moment. This includes establishing the quantities of stocks on hand, which can create problems. A business buys stocks continually during its...

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(27)-ACCOUNTING FOR STOCKS

Accounting for Stocks To calculate gross profit it is necessary to work out the cost of goods sold, and in order to calculate the cost of goods sold it is necessary to have value for the opening stock and closing stock. Normally purchases are introduced to the trading account.Trading account - DebitPurchases account - Credit When a stock take is made the business will have a value for its closing...

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(26)-ACCOUNTING ENTRIES FOR PROVISION FOR DOUBTFUL DEBTS

Accounting Entries for Provision for Doubtful Debts For this provision a business might know from past experience that say 5% of debtors balances are unlikely to be collected. It would then be considered prudent to make a general provision of 5%. It may be that no particular customers are regarded as suspect and so it is not possible to write off any individual customer balances as bad debts. The...

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(25)-ACCOUNTING ENTRIES FOR BAD DEBTS WRITE OFF

Accounting entries for bad debts write off For bad debts written off there is a bad debts account. The double entry bookkeeping is fairly straightforward, but there are two separate transactions to record. When it is decided that a particular debt will not be paid, the customer is no longer called an outstanding debtor, and becomes a bad debt.Bad debts account (expense) - DebitDebtors account - Credit...

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(24)-PROVISIONS FOR DOUBTFUL DEBTS

Provisions For Doubtful Debts When bad debts are written off, specific owed to the business are identified as unlikely ever to be collected, however because of the risks involved in selling goods on credit, it might be accepted that a certain percentage of outstanding debts at any time are unlikely to be collected. But although it might be estimated that, say 10% debts will turn out bad the business...

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(23)-BAD DEBTS

Bad Debts A bad debt is a debt which is not expected to be prepaid. Customers who buy goods on credit might fail to pay for them, perhaps out of dishonesty or perhaps because they have gone bankrupt and cannot pay. For one or another, a business might decide to give up expecting payment and to write the debt off. When a business decides that a particular debt is unlikely ever to be repaid, the amount...

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(22)-ACCOUNTING FOR DISCOUNTS

Accounting for Discounts A discount is a reduction in the price of goods below the amount at which those goods would normally be sold to other customers of the supplier. Discounts can identified as two parts, Trade Discounts – Trade discounts is a reduction in the catalogue price of an article, given by a wholesaler or manufacturer to a retailer. It is often given in return for bulk purchase orders....

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(21)-CALCULATING COST OF GOODS SOLD

Calculating Cost of Goods Sold Opening stock value -------------------------------------XXX(+)Cost of Purchase or cost of production -----XXX(-) Closing stock value -----------------------------------(XX)Cost of Goods Sold ---------------------------------------XXX Goods might be unsold at the end of an accounting period and so still be held in stock at the end of the period. The purchase cost or...

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(20)-NEED OF ACCOUNTING INFORMATION (EXTERNAL PARTIES)

Need of Accounting Information (External parties) We can identify external parties as below,Trade contacts. Providers of finance to the company. Employees of the business. The Inland Revenue. Government and their agencies. Financial analysts and advisers. The public. Trade Contacts This includes suppliers who supply goods and customers who purchase the goods or services. Suppliers want to know about...

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(19)-NEED OF ACCOUNTING INFORMATION (INTERNAL PARTIES)

Need of Accounting Information (Internal Parties) There are two main internal parties need accounting information in business, Managers Of the company.Shareholders of the company. Managers of the company Managers of a business need the most information, to help them take their planning and control decisions, and they have special access to information about the business, because they can get people...

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(18)-ACCRUALS AND PREPAYMENTS

Accruals and Prepayments The net profit for a period should be calculated by charging the expenses which are relate to that period, if we preparing financial statements of a business for a period of eight months it would be appropriate to charge eight months expenses and income.AccrualsAccruals or accrued expenses are expenses which are charged against the profit for a particular period, even though...

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(17)-EXAMPLE- TRIAL BALANCE AND PROFIT AND LOSS ACCOUNT

Example Trial Balance and Profit and Loss Account One of the trading company prepared ledger books and find following balances as at 31 March 2009 Cash ------------------------------(Dr) 430Bank ------------------------------(Dr) 192Capital ----------------------------(Cr) 500Rent -------------------------------(Dr) 60Carriage ---------------------------(Dr) 46Creditors --------------------------(Cr)...

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(16)-AN EXAMPLE FOR BOOKKEEPING

An Example for Bookkeeping A business is established with capital of $ 4000, and this amount is paid into bank account by proprietor. During the first year’s trading, following transactions occurred. Purchases of goods for resale on credit $ 8600Payments to trade creditors $ 7200Sales all on credit $ 11600Payments from debtors $ 6400Fixed assets purchased fir cash $ 3000Other expenses all paid in...

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