first of all I tell one story of one grocer Mr.modi.He starts her grocer shop.He has research his idea and prepaired a business plan and that documents like verious lisence etc.Mr.modi decides that the name for his corporation will be "All in one store".and keep permits and government identification numbers (like pan card,gst no.etc.) that will be needed for the new corporation.
Mr.modi is a hard worker and a smart man, but admits he is not comfortable with matters of accounting. He assumes he will use some accounting software, but wants to meet with a professional accountant before making his selection. He asks his businessmen friend to recommend a professional accountant who is also skilled in explaining accounting to someone without an accounting background. He wants to understand the financial statements and wants to keep on top of his new business.His banker recommends Mr.Shah, an accountant who has helped many of the small businessmen.
At his first meeting with Mr.shah, modi asks her for an overview of accounting, financial statements , and the need for accounting software. Based on modi's business plan, Mr.shah sees that there will likely be thousands of transactions each year. She states that accounting software will allow for the electronic recording, storing, and retrieval of those many transactions. Accounting software will permit modi to generate the financial statements and other reports that he will need for running his business.
modi seems puzzled by the term transaction, so Mr.shah gives him three examples of transactions that Direct Delivery, Inc. will need to record:
it seen expenses transections like ,he needed a vehical for home delivery of grocery.so that it's maintenense and fual expenses,driver's salary etc.,rent expenses for shop,electric exp.,advertizing exp....
There is purchase a/cs.it's recorded purchase from hole salers.
There is sale a/c.it's recorded sale to daily customer.
With thousands of such transactions in a given year, modi is smart to start using accounting software right from the beginning. Accounting software will generate sales invoices and accounting entries simultaneously , prepare statements for customers with no additional work, write checks, automatically update accounting records, etc.
By getting into the habit of entering all of the day's business transactions into his computer, modi will be rewarded with fast and easy access to the specific information he will need to make sound business decisions. Mr.shah tells modi that accounting's "transaction approach" is , reliable , and informative. She has worked with other small business owners who think it is enough to simply "know" their company made1,00000rs.e year (based only on the fact that it owns 1,00,000rs.it did on 1st april)are the people who start off on the wrong foot and end up in Mr.shah office for financial advice.
if modi enter all of Delivery's transactions into his computer, good accounting software will allow hisprint out his financial statements with a click of a button. In Parts 2 through 7 Marilyn will explain the content and purpose of the three main financial statements:
1.Income Statement
2.Balance Sheet
3.Statement of Cash Flows
let's learn it more,
Mr.modi is a hard worker and a smart man, but admits he is not comfortable with matters of accounting. He assumes he will use some accounting software, but wants to meet with a professional accountant before making his selection. He asks his businessmen friend to recommend a professional accountant who is also skilled in explaining accounting to someone without an accounting background. He wants to understand the financial statements and wants to keep on top of his new business.His banker recommends Mr.Shah, an accountant who has helped many of the small businessmen.
At his first meeting with Mr.shah, modi asks her for an overview of accounting, financial statements , and the need for accounting software. Based on modi's business plan, Mr.shah sees that there will likely be thousands of transactions each year. She states that accounting software will allow for the electronic recording, storing, and retrieval of those many transactions. Accounting software will permit modi to generate the financial statements and other reports that he will need for running his business.
modi seems puzzled by the term transaction, so Mr.shah gives him three examples of transactions that Direct Delivery, Inc. will need to record:
it seen expenses transections like ,he needed a vehical for home delivery of grocery.so that it's maintenense and fual expenses,driver's salary etc.,rent expenses for shop,electric exp.,advertizing exp....
There is purchase a/cs.it's recorded purchase from hole salers.
There is sale a/c.it's recorded sale to daily customer.
With thousands of such transactions in a given year, modi is smart to start using accounting software right from the beginning. Accounting software will generate sales invoices and accounting entries simultaneously , prepare statements for customers with no additional work, write checks, automatically update accounting records, etc.
By getting into the habit of entering all of the day's business transactions into his computer, modi will be rewarded with fast and easy access to the specific information he will need to make sound business decisions. Mr.shah tells modi that accounting's "transaction approach" is , reliable , and informative. She has worked with other small business owners who think it is enough to simply "know" their company made1,00000rs.e year (based only on the fact that it owns 1,00,000rs.it did on 1st april)are the people who start off on the wrong foot and end up in Mr.shah office for financial advice.
if modi enter all of Delivery's transactions into his computer, good accounting software will allow hisprint out his financial statements with a click of a button. In Parts 2 through 7 Marilyn will explain the content and purpose of the three main financial statements:
1.Income Statement
2.Balance Sheet
3.Statement of Cash Flows
let's learn it more,
1.INCOME STATEMENT
Modi points out that an income statement will show how profitable"all in one shop" has been during the time interval shown in the statement's heading. This period of time might be a week, a month, three months, five weeks, or a year—Modi can choose whatever time period he deems most useful.The reporting of profitability involves two things: the amount that was earned(revenues) and the expenses necessary to earn the revenues. As you will see next, the term revenues is not the same as receipts, and the term expenses involves more than just writing a check to pay a bill.
A. Revenues
The main revenues for shop are thesale of grocery to daily customer. Under the accrual basis of accounting (as opposed to the less-preferred cash method of accounting), revenues are recorded when they are earned, not when the company receives the money. Recording revenues when they are earned is the result of one of the basic accounting principles known as the revenue recognition principle.
For example,
if modi sale 1,000 packets of salt in December for 10rs. per packet, he has technically sale totalling 10000rs. for that month.
He sends invoices to his customer for these thing and his terms require that his customer must pay by January 10. Even though his customer won't be paying Direct Delivery until January 10, the accrual basis of accounting requires that the 10000rs. be recorded as December revenues, sincethat is when the delivery work actually took place. After expenses are matched with these revenues, the income statement for December will show just how profitable the company was in delivering parcels in December.
When Modi receives the 10000rs. worth of payment checks from his customers on January 10, he will make an accounting entry to show the money was received. This 10000rs. of receipts will not be considered to be January revenues, since the revenues were already reported as revenues in December when they were earned. This 10000rs. of receipts will be recorded in January as a reduction in Accounts Receivable. (In December Modi had made an entry to Accounts Receivable and to Sales.)
B.EXPENSES
Now Mr.shah turns to the second part of the income statement—expenses.there is two type of expenses
1. direct exp.
In this case which money is paid for purchase of grocery from hole seller,wages expenses etc. are direct expenses.
Mr.modi purchase some goods of 25000rs. at 8,december from Patel treders and due of payment is 10,january. then purchase a/c of december is debited 25000rs & account payable is credited 25000rs..when he pay 25000 (at 10,january) then,purchase a/c is credited 25000 & account payable is debited 25000
2.indirect exp.
In this case which money is paid for electic bill,fual expens,telephone bill,salary paid to emploies,shop maintain exp.etc. are indirect expense
If shop rent is 8000rs/month. then last date of every month 8000 is debited to rent exp. a/c & credited to account payable.and when he actualy paid, this entry is reverced
2.BALANCE SHEET
Mr.Shah moves on to explain the balance sheet, a financial statement that reports the amount of a company's (A) assets, (B) liabilities, and (C) stockholders' (or owner's) equity at a specific point in time. Because the balance sheet reflects a specific point in time rather than a period of time, Mr.Shah likes to refer to the balance sheet as a "snapshot" of a company's financial position at a given moment. For example, if a balance sheet is dated MARCH 31, the amounts shown on the balance sheet are the balances in the accounts after all transactions pertaining to March 31 have been recorded.
let's I explain part of Balance sheet
(A) Assets
Assets are things that a company owns and are sometimes referred to as the resources of the company.Modi readily understands this—off the top of his head he names things such as the company's vehicle,its cash in the bank, all of the stokes he has on hand, . Mr.Shah nods and shows Modi how these are reported in accounts called Vehicles, Cash, Supplies,and Equipment. She mentions one asset Modi hadn't considered—Accounts
Receivable. If Modi sale some goods, but isn't paid immediately for the bill, the amount which is recived letar an asset known as Accounts Receivable.
Prepaids
MR.Modi brings up another less obvious asset—the unexpired portion of prepaid expenses. Suppose "ALL IN ONE STORE" pays 12,000rs. on March 1 for a six-month insurance premium on its delivery vehicle. That divides out to be 1000rs. per month Between March 1 and March 31, 1000rs. worth of insurance premium is "used up" or "expires".The expired amount will be reported as Insurance Expense on March's income statement. Modi asks Mr.Shah where the remaining 11,000rs. of unexpired insurance premium would be reported. On the March 31 balance sheet, Mr.Shah tells him, in an asset account called Prepaid Insurance.
Other examples of things that might be paid for before they are used include supplies and annual dues to a trade association. The portion that expires in the current accounting period is listed as an expense on the income statement;the part that has not yet expired is listed as an asset on the balance sheet.
(B) Liabilities
The balance sheet reports store's liabilities as of the date noted in the heading of the balance sheet. Liabilities are obligations of the company; they are amounts owed to others as of the balance sheet date. Mr.Shah gives Modi some examples of liabilities: the loan he received from his aunt (Notes Payable or Loan Payable), the interest on the loan he owes
to his aunt (Interest Payable), the amount he owes to the supply store for items purchased on credit (Accounts Payable), the wages he owes an employee but hasn't yet paid to him (Wages Payable).
(C) Stockholders' Equity (owner's equity)
If the company is a corporation, the third section of a corporation's balance sheet is Stockholders' Equity.(If the company is a sole proprietorship, it is referred to as Owner's Equity.) The amount of Stockholders' Equity is exactly the difference between the asset amounts and the liability amounts.
so that,
ASSET= LIABILITIES + STOCKHOLDER'S EQUITY (OR OWNER'S EQUITY)
As a result accountants often refer to Stockholders' Equity as the difference (or residual) of assets minus liabilities. Stockholders'Equity is also the "book value" of the corporation.
Since the corporation's assets are shown at cost or lower (and not at their market values) it is important that you do not associate the reported amount of Stockholders' Equity with the market value of the corporation.(Hence, it is a poor choice of words to refer to Stockholders' Equity as the corporation's "net worth".) To findthe market value of a corporation, you should obtain the services of a professional familiar with valuing businesses.
Within the Stockholders' Equity section you may see accounts such as Common Stock, Paid-in Capital in Excess of Par Value-Common Stock, Preferred Stock, Retained Earnings, and Current Year's Net Income.
The account Common Stock will be increased when the corporation issues shares of stock in exchange for cash (or some other asset). Another account Retained Earnings will increase when the corporation earns a profit. There will be a decrease when the corporation has a net loss. This means that revenues will automatically cause an increase Stockholders' Equity and expenses will automatically cause a decrease in Stockholders' Equity. This illustrates a link between a company's balance sheet and income statement.
3.Statement of Cash Flows
The third financial statement that Modi needs to understand is the Statement of Cash Flows.This statement shows how "all in on store"'s cash amount has changed during the time interval shown in the heading of the statement.Modi will be able to see at a glance the cashgenerated and used by his company's operating activities, its investing activities, and its financing activities. Much of the information on this financial statement will come from store's balance sheets and income statements.
The three financial reports that Marilyn introduced to Joe—the income statement, the balance sheet, and the statement of cash flows—represent one segment of the valuable output that good accounting software can generate for business owners.
explore below topics to increase your knowledge about "Accounting & Taxation"
Modi points out that an income statement will show how profitable"all in one shop" has been during the time interval shown in the statement's heading. This period of time might be a week, a month, three months, five weeks, or a year—Modi can choose whatever time period he deems most useful.The reporting of profitability involves two things: the amount that was earned(revenues) and the expenses necessary to earn the revenues. As you will see next, the term revenues is not the same as receipts, and the term expenses involves more than just writing a check to pay a bill.
A. Revenues
The main revenues for shop are thesale of grocery to daily customer. Under the accrual basis of accounting (as opposed to the less-preferred cash method of accounting), revenues are recorded when they are earned, not when the company receives the money. Recording revenues when they are earned is the result of one of the basic accounting principles known as the revenue recognition principle.
For example,
if modi sale 1,000 packets of salt in December for 10rs. per packet, he has technically sale totalling 10000rs. for that month.
He sends invoices to his customer for these thing and his terms require that his customer must pay by January 10. Even though his customer won't be paying Direct Delivery until January 10, the accrual basis of accounting requires that the 10000rs. be recorded as December revenues, sincethat is when the delivery work actually took place. After expenses are matched with these revenues, the income statement for December will show just how profitable the company was in delivering parcels in December.
When Modi receives the 10000rs. worth of payment checks from his customers on January 10, he will make an accounting entry to show the money was received. This 10000rs. of receipts will not be considered to be January revenues, since the revenues were already reported as revenues in December when they were earned. This 10000rs. of receipts will be recorded in January as a reduction in Accounts Receivable. (In December Modi had made an entry to Accounts Receivable and to Sales.)
B.EXPENSES
Now Mr.shah turns to the second part of the income statement—expenses.there is two type of expenses
1. direct exp.
In this case which money is paid for purchase of grocery from hole seller,wages expenses etc. are direct expenses.
Mr.modi purchase some goods of 25000rs. at 8,december from Patel treders and due of payment is 10,january. then purchase a/c of december is debited 25000rs & account payable is credited 25000rs..when he pay 25000 (at 10,january) then,purchase a/c is credited 25000 & account payable is debited 25000
2.indirect exp.
In this case which money is paid for electic bill,fual expens,telephone bill,salary paid to emploies,shop maintain exp.etc. are indirect expense
If shop rent is 8000rs/month. then last date of every month 8000 is debited to rent exp. a/c & credited to account payable.and when he actualy paid, this entry is reverced
2.BALANCE SHEET
Mr.Shah moves on to explain the balance sheet, a financial statement that reports the amount of a company's (A) assets, (B) liabilities, and (C) stockholders' (or owner's) equity at a specific point in time. Because the balance sheet reflects a specific point in time rather than a period of time, Mr.Shah likes to refer to the balance sheet as a "snapshot" of a company's financial position at a given moment. For example, if a balance sheet is dated MARCH 31, the amounts shown on the balance sheet are the balances in the accounts after all transactions pertaining to March 31 have been recorded.
let's I explain part of Balance sheet
(A) Assets
Assets are things that a company owns and are sometimes referred to as the resources of the company.Modi readily understands this—off the top of his head he names things such as the company's vehicle,its cash in the bank, all of the stokes he has on hand, . Mr.Shah nods and shows Modi how these are reported in accounts called Vehicles, Cash, Supplies,and Equipment. She mentions one asset Modi hadn't considered—Accounts
Receivable. If Modi sale some goods, but isn't paid immediately for the bill, the amount which is recived letar an asset known as Accounts Receivable.
Prepaids
MR.Modi brings up another less obvious asset—the unexpired portion of prepaid expenses. Suppose "ALL IN ONE STORE" pays 12,000rs. on March 1 for a six-month insurance premium on its delivery vehicle. That divides out to be 1000rs. per month Between March 1 and March 31, 1000rs. worth of insurance premium is "used up" or "expires".The expired amount will be reported as Insurance Expense on March's income statement. Modi asks Mr.Shah where the remaining 11,000rs. of unexpired insurance premium would be reported. On the March 31 balance sheet, Mr.Shah tells him, in an asset account called Prepaid Insurance.
Other examples of things that might be paid for before they are used include supplies and annual dues to a trade association. The portion that expires in the current accounting period is listed as an expense on the income statement;the part that has not yet expired is listed as an asset on the balance sheet.
(B) Liabilities
The balance sheet reports store's liabilities as of the date noted in the heading of the balance sheet. Liabilities are obligations of the company; they are amounts owed to others as of the balance sheet date. Mr.Shah gives Modi some examples of liabilities: the loan he received from his aunt (Notes Payable or Loan Payable), the interest on the loan he owes
to his aunt (Interest Payable), the amount he owes to the supply store for items purchased on credit (Accounts Payable), the wages he owes an employee but hasn't yet paid to him (Wages Payable).
(C) Stockholders' Equity (owner's equity)
If the company is a corporation, the third section of a corporation's balance sheet is Stockholders' Equity.(If the company is a sole proprietorship, it is referred to as Owner's Equity.) The amount of Stockholders' Equity is exactly the difference between the asset amounts and the liability amounts.
so that,
ASSET= LIABILITIES + STOCKHOLDER'S EQUITY (OR OWNER'S EQUITY)
As a result accountants often refer to Stockholders' Equity as the difference (or residual) of assets minus liabilities. Stockholders'Equity is also the "book value" of the corporation.
Since the corporation's assets are shown at cost or lower (and not at their market values) it is important that you do not associate the reported amount of Stockholders' Equity with the market value of the corporation.(Hence, it is a poor choice of words to refer to Stockholders' Equity as the corporation's "net worth".) To findthe market value of a corporation, you should obtain the services of a professional familiar with valuing businesses.
Within the Stockholders' Equity section you may see accounts such as Common Stock, Paid-in Capital in Excess of Par Value-Common Stock, Preferred Stock, Retained Earnings, and Current Year's Net Income.
The account Common Stock will be increased when the corporation issues shares of stock in exchange for cash (or some other asset). Another account Retained Earnings will increase when the corporation earns a profit. There will be a decrease when the corporation has a net loss. This means that revenues will automatically cause an increase Stockholders' Equity and expenses will automatically cause a decrease in Stockholders' Equity. This illustrates a link between a company's balance sheet and income statement.
3.Statement of Cash Flows
The third financial statement that Modi needs to understand is the Statement of Cash Flows.This statement shows how "all in on store"'s cash amount has changed during the time interval shown in the heading of the statement.Modi will be able to see at a glance the cashgenerated and used by his company's operating activities, its investing activities, and its financing activities. Much of the information on this financial statement will come from store's balance sheets and income statements.
The three financial reports that Marilyn introduced to Joe—the income statement, the balance sheet, and the statement of cash flows—represent one segment of the valuable output that good accounting software can generate for business owners.
explore below topics to increase your knowledge about "Accounting & Taxation"
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