Accounting

Accounting — No Comments
13
May 12

Examples of Fixed Cost

Fixed costs as the name suggests are those costs which remain fixed for a period of time. In simple words they are not dependent on the volume of output which the company will be producing; however they will change when the volume of output increases beyond certain limit. Given below are some of the examples of fixed cost –

  1. Salaries paid to employees
  2. Rent paid for warehouse or factory rent
  3. Insurance expense paid for building if it is owned by the company
  4. Depreciation on plant and machinery
  5. Office printing and stationary
  6. Office lighting and electricity related expenditure
  7. Telephone charges
  8. Bank and legal expense

Apart from above there can be many more items which can be included in the above depending on the industry and business in which company is operating.

 

Accounting — No Comments
10
May 12

Joint Products and By Products

Joint products and by products are the terms which are used in the context of manufacturing industry, these both terms connotes different meaning and therefore it is important to understand meaning of both of them so that one does not confuse both the terms.

Joints goods are those which are produced from the same process during manufacturing , example of joint product is gasoline and fuel which are produced during crude production while by product is a created along with some other manufactured goods. Common example of it is molasses which is produced during the production of sugar. The value of by product is much smaller as compared to primary produce which is not the case with joint goods.

While making cost accounts for a manufacturing concern the accountant should know the bifurcation of joint and by products and that is the reason why having technical knowledge regarding it assumes importance because the accounting treatment for both of them are different and if one does not know he basic difference than chances of making errors in the books of accounts increases substantially.

Accounting — No Comments
25
Apr 12

Advantages and Disadvantages of Cash Flow Statement

Cash flow statement is a statement which shows how the operations of the company affects the cash position of the company during a financial year and therefore companies usually make both cash and funds flow statement. Given below are some of the advantages and disadvantages of cash flow statement –

Advantages

  1. It shows the actual cash position available with the company between the two balance sheet dates which funds flow and profit and loss account are unable to show and therefore it is important to make a cash flow report if you want to know about the liquidity position of the company.
  2. It helps the company in making accurate projections regarding the future liquidity position of the company and hence arrange for any shortfall in money by making arrangements in advance and if there is excess than it can help the company in earning extra return out if idle funds.
  3. It acts like a filter and is used by many analyst and investors to judge whether company has prepared the financial statements properly or not because if there is any discrepancy in the cash position as shown by balance sheet with cash flow statement than it means that statements are incorrect.

Disadvantages

  1. Since it shows only cash position, it is not possible to arrive at actual profit and loss of the company by just looking at this statement alone.
  2. In isolation this is of no use and it requires other financial statements like balance sheet, profit and loss etc…, and therefore limiting its use
Accounting — No Comments
19
Apr 12

Reconciliation Meaning

Reconciliation is a very important step for the banks and every banker is expected to perform reconciliation at the end of month so as to ensure that there is no error. Now the question is what does it mean, well in simple words it is the method in which the bank account or statement is matched with the passbook of account holder so as to check whether there are any discrepancy between the two and if there is some difference then reasons for it are found and are corrected so as to ensure that both show the same balance. It is also called bank reconciliation.

Accounting — No Comments
16
Apr 12

Amortization Expense Entry

Amortization expenses are those which related to intangible assets like patents, trademarks and so on. These are allocated over the lifetime of such asset, so for example if a company has incurred $100000 for buying trademarks for a period of 10 years then company would amortize $10000 every year. While making entry in the books of account a company would debit amortization expense and credit the concerned intangible asset account. Given below is he journal entry for amortization expense

Amortization expense account Debit

To Intangible asset account

In the balance sheet the company keeps reducing the balance every year, so at the end of 1st year the trademark will be reduced by $10000 and in the balance sheet they would be shown as $90000.

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