Accounting

Accounting — No Comments
12
Aug 10

Working capital – Difference of Current Asset and Current Liability

Current assets can be defined as an asset on the balance sheet which is expected to be sold or otherwise used up in the near future, usually within one year, or one operating cycle – whichever is longer. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash. Current assets are important to businesses because they are the assets that are used to fund day-to-day operations and pay ongoing expenses.

Working capitalCredit : Flickr

Current liabilities can be defined as those liabilities that are to be paid or settled in cash within a year. Examples of current liability are accounts payable for goods, outstanding expenses etc…

The difference between current asset and current liability is known as working capital which represents operating liquidity available to business. Positive working capital is required to make sure that a company is capable to carry on its business and has adequate funds to satisfy both maturing short-term debt and future operational expenses.

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25
Jun 10

Where Accounts Receivable and Payable are shown in Balance Sheet

Accounts receivable can be defined as money which is payable to a company by a customer for products and services provided on credit. In the balance sheet account receivable is treated as current asset and shown on asset side of balance sheet. (Current assets are those assets payment from which is likely to be realized during next 12 months.)

Accounts Receivable and PayableCredit : Flickr

Accounts payable can be defined as money which is due but not paid by the company to its suppliers. In other word account payable is a form of credit that suppliers give to the company by allowing them to pay for a product or service after it has already been received. In the balance sheet it is treated as current liability and is shown on liabilities side of balance sheet. (Current liabilities are that liability that has to be paid during next 12 months.)

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1
Jun 10

Difference between Fixed and Fluctuating Capital Accounts

Fixed and fluctuating capital accounts are the terms which are often used in the context of partnership. Partners can maintain the capital accounts in two ways one is fixed capital account and other is fluctuating capital accounts, let’s look at the difference between both of them -

Difference between Fixed and Fluctuating Capital Accounts

Credit: Flickr

Fixed Capital Account – Under this system, the capital which is introduced by partners will remain fixed throughout the life of the partnership. Hence under this method two type of accounts are made one is capital account and other is current account. Therefore all entries relating to drawings, interest on capital, profit and loss share of partner are made in a separate account for each partner, it is called current account of partners. However when partner brings additional capital or withdraws capital permanently, then capital account is credited or debited respectively.

Fluctuating Capital Account – Under this method capital account of partners will not remain fixed rather they will keep fluctuating from time to time. In this method all the entries related to drawings, interest on capital and share of profit and loss of partner are recorded in capital account, hence in this method there is no need for current account.

Fluctuating capital account method is usually preferred by partners; however they can also use fixed capital account according to their business and preference.

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27
May 10

Difference between Hire Purchase and Installment Purchase

When the buyer of goods has not enough money to pay for the purchase, he or she may go for either hire purchase or installment purchase and pay money for the purchase in installment; however before going for it he or she must know the differences between the two. Let’s look at the differences between hire purchase and installment purchase –

Difference between Hire Purchase and Installment PurchaseCredit : Flickr

1. In hire purchase the ownership of the goods passes to the buyer on the payment of last Installment while in case of installment purchase the ownership of the goods passes to the buyer immediately.

2. In case of hire purchase the buyer can return the goods to the seller if he or she does not want to continue with the agreement which is not possible in case of installment purchase.

3. In case of hire purchase agreement if the buyer makes default in payment of Installment the seller can have his or her goods back while in installment purchase the seller can only bring a claim against buyer but cannot have his or her goods back.

4. Since under installment purchase the ownership of goods passes to the buyer immediately he or she can transfer the goods to third party which cannot be done in case of hire purchase.

Hence from the above one can see that there are many differences between hire purchase and installment purchase and buyer should carefully analyze both the option before deciding whether to go for hire purchase or installment purchase.

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1
May 10

Differences between Fund Flow Statement and Balance Sheet

Many people think that both fund flow statement and balance sheet are same however there are many differences between funds flow statement and balance sheet, let’s look at some of the differences between the two -

Fund Flow Statement 1. Fund Flow Statement is a statement which shows inflows and outflows of funds of the various items and their effect on the working Capital, while balance sheet is a schedule showing the balances of various accounts due to and due from the business at a particular date.

2. Fund Flow Statement can be prepared at any time while balance sheet is prepared at the end of accounting period only.

3. The objective behind preparing fund flow statement is to show change in various items of balance sheet between two balance sheet dates. But as far as balance sheet is concerned its objective is to show the financial position of the business at a particular date

4. While information contained in fund flow statement is used by internal management, but information contained in balance sheet is normally used by the outsiders.

5. While it is not necessary to publish the funds flow statement but publication of balance sheet is compulsory.

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