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Simerpreet
SimerpreetHelpful
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  2. Poorvi_*
    This answer was edited.

    When the Accumulated depreciation account is not maintained, the journal entry for vehicle depreciation shall be                              Particulars     Debit   Credit Depreciation a/c                                              Dr.      (xxx)      To Vehicle a/c      (xxx) (Being DepreciationRead more

    When the Accumulated depreciation account is not maintained, the journal entry for vehicle depreciation shall be

                                 Particulars     Debit   Credit
    Depreciation a/c                                              Dr.      (xxx)
         To Vehicle a/c      (xxx)
    (Being Depreciation charge on Vehicle made)

    For example, let us assume that a vehicle (Bike) was purchased on 1st April 2019 with INR. 2,50,000, the rate of depreciation is 15% and also the Company follows the straight-line method of calculating depreciation.

    Then the journal entries shall be,

    The depreciation charge for the 1st Year 

            Date                                Particulars  Debit  Credit
    31-03-2020 Depreciation a/c Dr.  37,500
        To Vehicle a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 2nd Year 

            Date                                Particulars  Debit  Credit
    31-03-2021 Depreciation a/c Dr.  37,500
        To Vehicle a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 3rd Year

            Date                                Particulars  Debit  Credit
    31-03-2022 Depreciation a/c Dr.  37,500
        To Vehicle a/c  37,500
    (Being Depreciation made on Vehicle)

    The respective ledger accounts for all three years are given below:

    When the Accumulated depreciation account is maintained, the journal entry for vehicle depreciation shall be

                                 Particulars   Debit   Credit
    Depreciation a/c                                              Dr.    (xxx)
         To Accumulated depreciation a/c    (xxx)
    (Being Depreciation charge on Vehicle made)

    Taking the above said example,

    The depreciation charge for the 1st Year 

            Date                                Particulars  Debit  Credit
    31-03-2020 Depreciation a/c Dr.  37,500
        To accumulated depreciation a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 2nd Year 

            Date                                Particulars  Debit  Credit
    31-03-2021 Depreciation a/c Dr.  37,500
        To accumulated depreciation a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 3rd Year

            Date                                Particulars  Debit  Credit
    31-03-2021 Depreciation a/c Dr.  37,500
        To accumulated depreciation a/c  37,500
    (Being Depreciation made on Vehicle)

    The respective ledger accounts for all three years are given below:

     

     

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Bonnie
BonnieCurious
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Debited to P&L A/C Credited to P&L A/C Debited to Capital A/C None

  2. GautamSaxena Curious .
    This answer was edited.

    Interest on Drawings  Interest on drawings is debited to the capital account. As Interest on drawings is charged on the drawings made by partners/proprietors from their respective capital accounts in a partnership firm or proprietary concern. Drawings refer to the amount withdrawn by an owner or parRead more

    Interest on Drawings 

    Interest on drawings is debited to the capital account.

    As Interest on drawings is charged on the drawings made by partners/proprietors from their respective capital accounts in a partnership firm or proprietary concern.

    Drawings refer to the amount withdrawn by an owner or partner for his personal use. Thereby, interest on drawings is an income of a firm payable by the owner hence, it’s deducted/debited.

    The Profit and Loss Account, on the other hand, shows the income and expenses of a business incurred over an accounting period. Accounts like interest on drawings and capital are not shown in the P&L a/c because they are internal transactions and P&L a/c focuses only on the financial statement that summarizes the revenues, costs, and expenses incurred during a specified period.

     

    Partners’ Capital A/c

     

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SidharthBadlani
SidharthBadlani
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Definition Gross profit is the excess of the proceeds of goods and services rendered during a period over their cost, before taking into account administration, selling, distribution, and financial expenses. Gross profit and net profit are gross profit estimates of the profitability of a company. WhRead more

    Definition

    Gross profit is the excess of the proceeds of goods and services rendered during a period over their cost, before taking into account administration, selling, distribution, and financial expenses.

    Gross profit and net profit are gross profit estimates of the profitability of a company.

    When the result of this computation is negative it is referred to as gross loss

    Formula :

    Total Revenues – Cost Of Goods Sold

    Net profit is defined as the excess of revenues over expenses during a particular period.
    Net profit is to show the performance of the company.

    When the result of this computation is negative it is called a net loss.

    Net profit may be shown before or after tax.

    Formula :

    Total Revenues – Expenses
    Or
    Total Revenues – Total Cost ( Implicit And Explicit Cost )

    Examples

    Now let me explain to you by taking an example which is as follows :

    In a business organization there were the following data given as purchases made Rs 73000, inventory, in the beginning, was Rs 10000, direct expenses made were Rs 7000, closing inventory which was Rs 5000, revenue from operation during the period was Rs 100000.
    Then,

    COST OF GOODS SOLD = Purchases + Opening Inventory + Direct Expenses – Closing Inventory.

    = Rs ( 73000 + 10000+ 7000- 5000)
    = Rs 85000

    GROSS PROFIT = REVENUE – COST OF GOODS SOLD

    = Rs ( 100000 – 85000 )
    = Rs 15000

    Now from the above question keeping the gross profit same if the indirect expenses of the organization are Rs 2000 and the other income is Rs 1000.
    Then,

    NET PROFIT = GROSS PROFIT – INDIRECT EXPENSES + OTHER INCOMES

    = Rs ( 15000 – 2000 + 1000)
    = Rs 14000

    Treatment

    Treatment of gross profit and net profit is given as follows :

    Gross profit

    • Gross profit appears on the credit side of the trading account.
    • Gross profit is located in the upper portion beneath revenue and cost of goods sold.

    Net profit

    • Net profit appears on the credit side of the profit and loss account.
    • It is treated directly in the balance sheet by adding or subtracting from the capital.

    Here is an extract of the trading and profit/loss account and balance sheet showing GROSS PROFIT & NET PROFIT :

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Rahul_Jose
Rahul_Jose
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  2. Pooja_Parikh Aspiring Chartered Accountant

    Financial Reporting is a common practice in accounting where the financial statements of the company are disclosed to present its financial information and performance over a particular period. It is important to know where a company’s money comes from and where it goes. Types of Financial StatementRead more

    Financial Reporting is a common practice in accounting where the financial statements of the company are disclosed to present its financial information and performance over a particular period. It is important to know where a company’s money comes from and where it goes.

    Types of Financial Statements

    There are 4 important types of financial statements such as:

    • Income Statement: This statement summarises a company’s revenue, expenses and profits. It is prepared to calculate the net profit of the company.
    • Balance Sheet: It portrays the company’s assets and liabilities in a statement. This is used to understand the financial position of the company.
    • Statement of Retained Earnings: This statement reveals a company’s changes in equity during an accounting period.
    • Cash Flow Statement: It shows the amount of cash flowing in and out of the business. It is helpful in understanding the liquidity position of the business.

    Importance of Financial Reporting

    • Understanding these financial statements is helpful in making financial decisions. One can identify certain trends and hurdles while analyzing financial statements.
    • It helps the top order management to keep a check on its outstanding debt and how to manage them effectively.
    • Financial reports are also required to be prepared by law for tax purposes. Therefore these statements have to be prepared to calculate taxable income. It also ensures that the companies are compliant with the required laws and regulations.
    • True and accurate financial reporting is also important for potential investors who need to understand the financial performance and position to come to a decision.

     

     

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Spriha Sparsh
Spriha Sparsh
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  2. Radhika
    This answer was edited.

    Working Capital is the capital used in the daily operations of the business. It is calculated as the difference between current assets and current liabilities. Gross working capital means current assets and net working capital means the difference between current assets and current liabilities. WorkRead more

    Working Capital is the capital used in the daily operations of the business. It is calculated as the difference between current assets and current liabilities. Gross working capital means current assets and net working capital means the difference between current assets and current liabilities.

    Working Capital indicates the short-term liquidity of its business. It means the ability of a company to meet its daily requirements through short-term financing.

    Working Capital can be;

    • Positive
    • Zero, or
    • Negative

    Positive or negative working capital follows a simple rule of math. If current assets are more than current liabilities, working capital is positive and if current assets are less than current liabilities, working capital is negative. When current assets are equal to current liabilities, working capital is zero.

    Negative working capital for a short period means that the company has made a big payment to its vendors, or a significant increase in the creditor’s account because of credit purchases.

    However, if working capital is negative for a longer period it indicates that the company is struggling with its operating requirements or that it has to finance its daily operations through long-term borrowings.

    The current ratio for a company is calculated as: 

    Current Assets divided by Current Liabilities.

    Working Capital and Current Ratio are interrelated. If the Current Ratio is more than 1, it means current assets exceed current liabilities and Working Capital is positive. However, if the Current Ratio is less than 1, it means current liabilities exceed current assets and Working Capital is negative.

    For example-

    If Current Assets are Rs 50,000 and Current Liabilities are Rs 70,000 then

    Working Capital= Current Assets – Current Liabilities

    WC           =        Rs 70,000   –     Rs 50,000

    WC           =                   Rs. 20,000

    Current Ratio = Current Assets / Current Liabilities

    CR        =         Rs.50,000/ Rs. 70,000

    CR        =                           0.71< 1

     

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A_Team
A_Team
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  2. GautamSaxena Curious .
    This answer was edited.

    Fixed Working Capital Permanent working capital is also known as fixed working capital. Working capital is the excess of the current assets over the current liability and further, it is classified on the basis of periodicity, into two categories, permanent working capital, and variable working capitRead more

    Fixed Working Capital

    Permanent working capital is also known as fixed working capital.

    Working capital is the excess of the current assets over the current liability and further, it is classified on the basis of periodicity, into two categories, permanent working capital, and variable working capital.

    Permanent working capital means the part of working capital that is permanently locked up in current assets to carry business smoothly and effortlessly. Thus, it’s also known as fixed working capital.

    The minimum amount of current assets which is required to conduct a business smoothly during the year is called permanent working capital. The amount of permanent working capital depends upon the nature, growth, and size of the business.

    Fixed working capital can further be divided into two categories:

    • Regular working capital: It is the minimum amount of capital required by a business to fund its day-to-day operations of a business. E.g. payment of wages, salary, overhead expenses, etc.
    • Reserve margin working capital: Apart from day-to-day activities, additional working capital may also be required for contingencies that may arise at any time like strike, business depression, etc.

     

    Whereas, on the other hand, variable working capital, also known as temporary working capital refers to the level of working capital that is temporary and keeps fluctuating.

     

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