Depreciation - Meaning, Definition, Causes, Objectives and Factors Affecting Depreciation
Depreciation - Meaning, Definition, Causes, Objectives and Factors Affecting Depreciation
Depreciation The non-trading fixed assets of a business like land, building, machinery, furniture etc. may be get depreciated in value due to various reasons. In other words, the value of such assets reduces each year due to use. Such gradual ad permanent reduction in the value of the assets due to wear and tear or from any other causes is called Depreciation. The word depreciation is de…
Depreciation, Fluctuation and Obsolescence
Depreciation, Fluctuation and Obsolescence
Depreciation It is a gradual deterioration or decrease in the value of asset after using that asset in our day to day work or after spending of time. In this world, everything is perishable, so making true profit and calculates true value of any asset at present time, it is very necessary to depreciate on fixed asset and deduct from it.
FluctuationIf you are doing business or linked with any business, you know that prices are always u…
Factors affecting the amount of Depreciation
Factors affecting the amount of Depreciation
It is almost impossible to calculate the actual and accurate amount of depreciation. However, to estimate the amount of depreciation following factors are considered:
1. Original Cost of the Assets: Original cost includes the purchase price of the asset plus freight and installation expenses. Depreciation is charged on cost of asset so, it is found as:
Cost of Asset = Purchase price Freight (Transportation expenses) Installation (er…
Methods of Depreciation
Methods of Depreciation
To find out the depreciation of assets or any kind of property, there are different forms or kinds of methods are available. The different kinds of depreciation methods are as follows:1. Fixed Installment or Straight line method.2. Diminishing Balance or written down value method.3. Sums of the digit method4. Annuity method5. Depreciation fund or Sinking fund method6. Insurance policy method7. Revaluation method8. Activity method
1. Fixed Installment or…
Provision of Depreciation Account
Provision of Depreciation Account
Provision of depreciation is the collected value of all depreciation .With making of this account we are not credited depreciation in asset account. But transfer every year depreciation to provision of depreciation account. Every year we adopt this procedure and when assets are sold we will transfer sold assets ‘total depreciation to credit side of asset account. For calculating correct profit or loss on fixed asset. This provision uses with …
Reserves - Meaning, Types and Credit Purchase
Reserves - Meaning, Types and Credit Purchase
Reserves: Reserves are accounting terms. In general, it is saving of money, but in accounting terminology , it has different meaning.
According to accounting technician, “ Reserves are that funds which withdraw from general or special profit of business and keep it in safe pocket of company. This sum is used when any loss happens in business."
Accounting Experts always in favor to keep some money or retain some fund for future …
Rules for Making Difference between Capital and Revenue Expenditure
Rules for Making Difference between Capital and Revenue Expenditure
Ist RuleAll expenses which are done for getting any fixed asset must be capital expenditure. For example, expenses of carriage and freight for getting fixed assets are also capital expenditure and will include in the total cost of fixed assets.
2nd RuleAll expenses which are done for increasing the size or improvement in fixed assets must be capital expenditure.
3rd RuleAll expenses which are done for getting s…
Retained Earnings - Meaning, Purpose, Advantages, Disadvantages and Calculation
Retained Earnings - Meaning, Purpose, Advantages, Disadvantages and Calculation
Retained Earnings or Ploughing Back of Profit: Retained earnings are an internal sources of finance for any company. Actually is not a method of raising finance, but it is called as accumulation of profits by a company for its expansion and diversification activities. Retained earnings are called under different names such as self finance, inter finance, and plugging back of profits. As prescribe…
Sinking Fund - Meaning, Types, Objectives, Advantages and Disadvantages
Sinking Fund - Meaning, Types, Objectives, Advantages and Disadvantages
Sinking Fund: A sinking fund is a fund which created for the purpose of repayment of liabilities (redemption of debentures) and replacing fixed assets. Every year a fixed amount either charged against profit or loss account or appropriated out of the profit and loss appropriation account. The same amount is withdraw from business in each year and invested on investments. The interest received on these inv…
Provisions
Provisions
Provisions: Provisions mean providing for possible losses or liabilities. The amount of which cannot be determined exactly. It is create to meet specific losses or liabilities which may be expected but not yet incurred. Provisions are usually created by debiting the profit and loss account. They are either deducted on assets side of balance sheet or shown on the liabilities under appropriate heading. The examples of some provision are:a. Provision for doubtful on d…
Bank Reconciliation Statement - Concept, Meaning, Definition and Characteristics
Bank Reconciliation Statement - Concept, Meaning, Definition and Characteristics
The word "reconcile" means 'to make compatible. It frequently happens in business that two'sets of figures which should agree, for some reason do not. For example, we might estimate that a certain profit should be made in a given period, but in fact we fail to achieve this expected profit. A good accountant would seek to reconcile the two sets of figures, examining the reasons f…
Objectives, Advantages and Importance of Bank Reconciliation Statement (BRS)
Objectives, Advantages and Importance of Bank Reconciliation Statement (BRS)
Bank Reconciliation statement is the basic document of the accounting. Preparation of it is not legally compulsory but by making it, following objects/advantages/importance are derived and is needed due to following causes:
1. To know the accuracy of entries in the Cash Book and the Pass Book: The basic object of preparing Bank Reconciliation Statement is to test the acuracy of causes of difference in…
Relationship Between Cash Book and Pass Book
Relationship between Cash Book and Pass Book
The traders record all the amounts or cheques deposited in the bank in the debit side of his Cash Book in bank column and whatever amount he withdraws from bank in cash or pays through cheque to other parties, he records them in the credit side of the Cash Book in bank column.
Bank also credits the customer's (Trader's) Account for the amount deposited by the customer and debits him for the amount withdrawn by him in his mai…
Rules for Recording Transactions in Bank Reconciliation Statement
Rules for Recording Transactions in Bank Reconciliation Statement
Rules:1. In the Books of Trader (Cash Book/Bank Column)
Increase in Bank Balance = Debit (Receipt Side)
Decrease in Bank Balance = Credit (Payment Side)
2.In the Books of Bank (Pass Book/Bank Statement)
Increase in Bank Balance = Credit
Decrease Bank Balance = Debit
Theoretically speaking there should not be any disagreement between Cash Book (Bank Balance) and Pass Book Balance (Bank Statement), as all banking trans…
Bill of Exchange - Concept, Meaning, Parties Involved, Characteristics and Essentials
Bill of Exchange - Concept, Meaning, Parties Involved, Characteristics and Essentials
The term bill of exchange has been defined under Section 5 of the Negotiable Instruments Act. A "bill of exchange" is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument.
The parties to a bill of exchange are• The make…
Promissory Note - Concept, Meaning and Essential Requirements
Promissory Note - Concept, Meaning and Essential Requirements
Promissory Notes: Promissory Note is a written, dated and signed two-party instrument containing an unconditional promise by the maker to pay a definite sum of money to a payee on demand or at a specified future date.
Essentials of Promissory NotePromissory notes must expressly fulfill the following essential requirements:1. The expressions "to the order" or "promissory note" in the note’s langua…
Difference between Pomissory Note and Bill of Exchange
Difference between Pomissory Note and Bill of Exchange
The distinctive features of these two types of negotiable instruments are tabulated below:
Promissory Note1. It contains a promise to pay.2. The liability of the maker of a note is primary and absolute (S.33. It is presented for payment without any previous acceptance by the maker.4. The maker of a promissory note stands in immediate relationship with the payee and is primarily liable to the payee or the holder.5. It canno…
Dishonor of Cheque
Dishonor of Cheque
Section 92 of the Negotiable Instruments Act states that:
“A promissory note, bill of exchange or cheque is said to be dishonored by non-payment when the maker of the note and acceptor of the bill makes default in payment.”
Dishonour of cheque is an offence.Section 138 of the Negotiable Instruments Act states that, A banker shall return the cheque when the money standing to the credit of the account holder is insufficient to honour the cheque.Dishonour of ch…
Trading Account - Concept, Meaning, Importance, Advantages and Format
Trading Account - Concept, Meaning, Importance, Advantages and Format
Meaning of Trading Account: Trading accounting is the first step of final account. The main objective of preparing trading account is to find out gross profit earned or loss suffered during an accounting period. Since, it is a nominal account, all direct expenses are debited and direct incomes are credited. It includes opening stock, purchase and expenses relating to purchase and factory expenses in the deb…
Final Account
Final Accounts
Every company should prepared trading account, profit and loss account, profit and loss appropriation account and balance sheet at the end of accounting period. The profit and loss account is prepared to ascertain earned or loss suffered during an accounting period of time where the balance sheet is prepared to depict the financial position on a particulars date. Final account is the combination of income statement (trading and profit and loss account) and bala…
All Adjustment of Accounts
Accounting Adjustments
Concept of Adjustments: In the previous chapter, we have discussed how the final account. i.e. trading account, profit and loss account, profit and loss appropriation account and balance sheet are prepared with the help of trial balance. The items, which appear in the trial balance, are recorded either in trading account or profit & loss account or profit and loss appropriation account or balance sheet. They have single effect in final account. The …
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