What is the meaning of TDS? How it is charged?
TDS means Tax Deduct at the source. It is deducted by the customer who gets the services from vendor or supplier and is deposited to IT Department.
What is the difference between Finance & Accounts?
Finance is related to money. whereas accounts is an art of recording, summarizing, classifying the books of accounts
Finance is the art of managing money, whereas accounting is the language which we use to manage money transactions.
What is difference between account payable and bills payable?
Bills Payable:
Bills drawn by the creditor and accepted by the trader in settlement of accounts.
AP: Amount owed by the company to its vendors or suppliers in respective of goods/services purchased on credit.
Vendor Account Reconciliation;
Vendor account reconciliation what is the amount of vendor in our books. Vendor account and our account much be tally that like this payment, invoice, debit note, credit note, closing or opening balance.
Vendor account reconciliation is outstanding of suppliers or sundry creditors.
In the 2 way matching process quantity and amount on the invoice are matched to the quantity and amount on the corresponding purchase order
The 3 way matching process is used when an operating location is using online receiving,
In 3 way matching an invoice is matched to the corresponding purchase order for quantity and amount and to receiving information.
The 4 way matching process is used when an operating location is using online receiving and inspection. In 4 way matching an invoice is matched to the corresponding purchase order for quantity and amount, receiving, and inspection information.
There are four types of purchase orders.
1) Standard: This PO is created for one-time purchase of material.
2) Blanket: In this PO delivery schedule are not known clearly (Net price 1 and qty should invoice value while creating PO).
3) Contract: In this PO material required are not specified.
4) Regular PO: It is a long term agreement PO. In this PO it specifies materials, estimated costs, and tentative delivery schedules.
The Typical Procure to Pay Cycle
These steps are usually involved in your typical procure to pay cycle:
Identification of Requirement
Authorization of Purchase Request
Final Approval of Purchase Request
Procurement
Identification of Suppliers
Inquiries
Receipt of the Quotation
Negotiation
Selection of the Vendor
Purchase Order Acknowledgement
Advance Shipment Notice
Goods Receipt
Invoice Recording
3 Way Match
Payment to Supplier
Depreciation – What is depreciation?
Definition: Depreciation is permanent and continuing diminution in the quality, quantity or value of an asset.
Depreciation is the measure of wearing out of a fixed asset. All fixed assets are expected to be less efficient as time goes on.
Depreciation is calculated as the estimate of this measure of wearing out and is charged to the Profit & Loss account either on a monthly or annual basis. The cost of the asset less the total depreciation will give you the Net Book Value of the asset.
Types of depreciation
Common methods of depreciation are as follows: Straight Line Depreciation; same depreciation is charged over the entire useful life.
Reducing Balance Depreciation; Depreciation expense decreases at a constant rate as the life of an asset progresses.
Sum of the Year' Digits Depreciation; Depreciation charge declines by a constant amount as the life of the asset progresses.
Units of Activity Depreciation; Depreciation charge varies each period in proportion to the change in level of activity
Accruals Concept;
Accrual Definition
An accrual is a journal entry that is used to recognize revenues and expenses that have been earned or consumed, respectively, and for which the related cash amounts have not yet been received or paid out. Accruals are needed to ensure that all revenues and expenses are recognized within the correct reporting period, irrespective of the timing of the related cash flows. Without accruals, the amount of revenue, expense, and profit or loss in a period will not necessarily reflect the actual level of economic activity within a business.
Examples of accruals that a business might record are:
Expense accrual for interest. A local lender issues a loan to a business, and sends the borrower an invoice each month, detailing the amount of interest owed. The borrower can record the interest expense in advance of invoice receipt by recording accrued interest.
Expense accrual for wages. An employer pays its employees once a month for the hours they have worked through the 26th day of the month. The employer can accrue all additional wages earned from the 27th through the last day of the month, to ensure that the full amount of the wage expense is recognized.
Expense accrual for supplier goods and services. A supplier delivers goods at the end of the month, but is remiss in sending the related invoice. The company accrues the estimated amount of the expense in the current month, in advance of invoice receipt.
Sales accrual. A services business has a number of employees working on a major project for the federal government, which it will bill when the project has been completed. In the meantime, the company can accrue revenue for the amount of work completed to date, even though it has not yet been billed.
What is the difference between a Credit and a Debit balance?
A debit is an entry on the left side of an account. For example, the account Cash is debited when cash is received. The account Cash will be credited when cash is paid out. (A credit is an entry on the right side of an account.)
Credit balance: balance in an account showing that more money has been received than is owed
Debit balance: balance in an account showing that more money is owed than has been received
Explain Bank Reconciliation Statement. Why is it prepared?
Bank Reconciliation Statement is a statement prepared to reconcile the balances of cash book maintained by the concern and pass book maintained by the bank at periodical intervals. At the end of every month entries in the cash book are compared with the entries in the pass book. The causes of differences in balances of both the books are scrutinized and then reconciliation statement is prepared. This statement is prepared for a special purpose and once in a month. It is prepared with a view to indicate items which cause difference between the balances as per the bank columns of the cash book and the bank pass book at a particular date.
What are the reasons which cause pass book of the bank and your bank book not tally?
* Cheque deposited into the bank but not yet collected
* Cheques issued but not yet presented for payment
* Bank charges
* Amount collected by bank on standing instructions of the concern.
* Amount paid by the bank on standing instructions of the concern.
* Interest debited by the bank
* Interest credited by the bank
* Direct payment by customers into the bank account
* Dishonor of Cheques
* Clerical errors
Process flow for Procure to pay will go through two departments
(Commercial & Finance)
Procure - Commercial Department the following steps involve to procure any item
1. Received Requisition from concern Department
2. Request for Quotation from Suppliers at least three
3. Finalize the best Quotation by keeping in mind about our companies standard
4. Check the Budget for the same
5. Negotiate with supplier for more economic pricing and finalize the payment terms
6. Process the PO and forward to the supplier to supply the goods and services
Pay Cycle - Finance Department
The following steps need to be fulfil
1. Invoice should be match with PO
2. Invoice should has all the supporting documents such as PO copy, Delivery note duly signed by receiver (our staff who authorized to received goods / store keeper)
3. If the invoice is for services then it should be forwarded to the concern department head or project manager for his confirmation of work done and his approval
4. Even if it not the services invoice, it should forwarded to the concern person's approval who request the PO for the same
5. Finance can reject the invoice if it is not budgeted and ask for the reasons.
6. After receiving all the confirmation and approvals from the concern department heads the invoice will be update in to the accounting system first in order to avoid any duplication of Invoice and PO (it shown on accounting package if the invoice is duplicate if not, ate last it tells you if the PO already used or cancel)
7. Finance approved the invoice and process the payment base on payment terms with the supplier.
A provision can be a liability of uncertain timing or
amount. A liability, in turn, is a present obligation of the entity arising
from past events, the settlement of which is expected to result in an outflow
from the entity of resources embodying economic benefits.
Though it is often thought to be, a provision should not be
a form of savings. Examples are income tax liability, product warranty,
environment restoration, etc
Accounts payable -- Amounts
owed by the company for the goods or services it has purchased from outside
suppliers.
Accrual basis, system, or method -- An accounting system that records revenues and expenses at the time the transaction occurs, not at the time cash changes hands. If you buy a coat and charge it, the store records or accrues the sale when you walk out with the coat, not when you pay your bill. Cash basis accounting is used by individuals. Accrual basis accounting is used by most businesses.
Accrued expenses, accruals -- An expense
which has been incurred but not yet paid for. Salaries are a good example.
Employees earn or accrue salaries each hour they work. The salaries continue to
accrue until payday when the accrued expense of the salaries is eliminated.
Aging -- A process where accounts receivable are sorted out by age (typically current, 30 to 60 days old, 60 to 120 days old, and so on.) Aging permits collection efforts to focus on accounts that are long overdue.
Amortize -- To charge a regular portion of an expenditure over a fixed period of time. For example if something cost $100 and is to be amortized over ten years, the financial reports will the entire $100 would show up on the financial report as an expense in the year show an expense of $10 per year for ten years. If the cost were not amortized, the expenditure was made. (Entries on Expenditure and Expense.)
Appreciation-- An increase in value. If a machine cost
$1,000 last year and is now worth $1,200, it has appreciated in value by $200.
(The opposite of depreciation.)
Assets-- Things of value owned by a business. An asset may be a physical property such as a building, or an object such as a stock certificate, or it may be a right, such as the right to use a patented process.
Current Assets- Are those assets that can be expected to turn into cash within a year or less. Current assets include cash, marketable securities, accounts receivable, and inventory.
Fixed
Assets- Cannot be quickly turned into cash without interfering with
business operations. Fixed assets include land, buildings, machinery, equipment,
furniture, and long-term investments.
Intangible Assets- Are items such as patents,
copyrights, trademarks, licenses, franchises, and other kinds of rights or
things of value to a company, which are not physical objects. These assets may
be the most important ones a company owns. Often they do not appear on financial
reports.
Audit-- A careful
review of financial records to verify their accuracy.
Bad debts
-- amounts owed to a company that are not going to be paid. An
account receivable becomes a bad debt when it is recognized that it won't be
paid. Sometimes, bad debts set up to provide for possible bad debts. Creating
or adding to a reserve is are written off when recognized. This is an expense.
Sometimes, a reserve is also an expense.
Balance sheet -- a statement of the
financial position of a company at a single specific time (often at the close
of business on the last day of the month, quarter, or while liabilities and
capital are listed on the right side or bottom. The total year.) The balance
sheet normally lists all assets on the left side or top numbers on the right
side or bottom. A balance sheet balances according to this of all numbers on
the left side or top must equal or balance the total of all equation: Assets =
Liabilities + Capital.
Bond -- A written
record of a debt payable more than a year in the future. The bond shows amount
of the debt, due date, and interest rate.
Book value --Total assets minus total liabilities. (See also net worth.) Book value also means the value of an asset as recorded on the company's books or financial reports. Book value is often different than true value. It may be more or less.
Breakeven point -- The amount of revenue from
sales which exactly equals the amount of expense.
Breakeven point is often expressed as the number of units that
must be sold to produce revenues exactly equal to expenses. Sales above the
breakeven point produce a profit; below produces a loss.
Capital-- Money invested in a business by its owners. (See
equity.) On the bottom or right side of a balance sheet.
Capital
also refers to buildings, machinery, and other fixed assets in a long-term use.
Capitalize-- To capitalize means to record an expenditure on the balance sheet
as an asset, to be amortized over the future. The opposite is to expense. For
example, research expenditures can be capitalized or expended. If expended,
they are charged against income over a period of time usually related to the
life of the products or the expenditure occurs. If capitalized, the expenditure
is charged against services created by the research.
Cash --Money
available to spend now. Usually in a checking account.
Cash flow -- The amount of actual cash generated by business operations, which usually differs from profits shown.
Chart of
accounts -- A listing of all the accounts or categories into which business
transactions will be classified and recorded. Each account usually has a
number. Transactions are coded by this number for manipulation on computers.
Contingent liabilities --Liabilities not recorded on a company's financial reports, but which might become due. If a company is being sued, it has a contingent liability that will become a real liability if the company loses the suit.
Retained
earnings -- Profits not distributed to shareholders as dividends, the
accumulation of a company's profits less any dividends paid out. Retained
earnings are not spendable cash.
Sales
Two, Three, and Four Way Matching x the expense or cost of
all items sold during an accounting period. Each unit sold has a cost of sales
or cost of the goods sold. In businesses with a great many items flowing
through, the cost of sales or cost of goods sold is often During the Period -
Ending Inventory.
Computed
by this formula: Cost of Sales = Beginning Inventory + Purchases
Credit-- An
accounting entry on the right or bottom of a balance sheet. Usually an increase
in liabilities or capital, or a reduction in assets. The opposite of credit is
debit. Each credit in a balance sheet has a balancing debit. Credit has other
usages, as in credit your account with the refund." "You have to pay
cash, your credit is no good." Or "we will
Debit-- An
accounting entry on the left or top of a balance sheet. Usually an increase in
assets or a reduction in liabilities. Every debit has a balancing credit.
Deferred
income -- A liability that arises when a company is paid in advance for
goods or services that will be provided later. For example, when a magazine
subscription is paid in advance, the magazine publisher is liable to provide
magazines for the life are delivered of the subscription. The amount in
deferred income is reduced as the magazines
Depreciation-- An expense that is supposed to reflect the loss in value of a fixed asset. For example, if a machine will completely wear out after ten year's use, the cost of the machine is charged as an expense over the ten-year life rather than all at once, when the machine is purchased. Straight line depreciation charges the same amount to expense each year. Accelerated depreciation charges more to expense in early years, less in later years. Depreciation is an accounting expense. In real the depreciation period ends. life, the fixed asset may grow in value or it may become worthless long before,
Discounted
cash flow -- A system for evaluating investment opportunities that discounts or
reduces the value of future cash flow. (See present value.)
Dividend--
A portion of the after-tax profits paid out to the owners of a
business as a return on their investment.
Double
entry -- A system of accounting in which every transaction is recorded
twice -- as a debit and as a credit.
Earnings
per share -- A company's net profit after taxes for an accounting period,
divided by the average number of shares of stock outstanding during the period.
80 - 20
rule -- a general rule of thumb in business that says that 20% of the
items produce 80% of the action -- 20% of the product line produces 80% of the
sales, 20 percent of the customers generate 80% of the complaints, and so on.
In evaluating any of the transactions you are concerned with. This rule is not
exactly accurate, business situation, look for the small group which produces
the major portion but it reflects a general truth, nothing is evenly
distributed.
Equity-- The
owners' share of a business.
Expenditure-- An expenditure occurs when something is acquired
for a business -- an asset is purchased, salaries are paid, and so on. An
expenditure affects the balance sheet when it occurs.
However,
an expenditure will not necessarily show up on the income statement or affect
profits at the time the expenditure is made. All expenditures
eventually most expenditures involve the exchange of cash for something,
expenses need not show up as expenses, which do affect the income
statement and profits. While involve cash. (See expense below.)
Expense--
An expenditure which is chargeable against revenue during an
accounting period. An expense results in the reduction of an asset. All
expenditures are not expenses. For example, a company buys a truck. It trades
one asset - cash - to acquire another asset. An expenditure has occurred but no
expense is recorded. Only as the truck is depreciated will an expense be
recorded. The concept of expense as different is important in understanding how
accounting works and what financial reports from an expenditure is one reason
financial reports do not show numbers that represent spendable cash. The
distinction between an expenditure and an expense when the expenditure occurs.
The opposite is to capitalize.) Mean. (To expense is a verb. It means to charge
an expenditure against income
Fiscal
year -An accounting year than begins on a date other than January.
Fixed
cost -- A cost that does not change as sales volume changes (in the short
run.) Fixed costs normally include such items as rent, depreciation, interest,
and any salaries unaffected by ups and downs in sales.
Goodwill-- In accounting, the difference between what a companies
pays when it buys the assets of another company and the book value of those
assets. Sometimes, real goodwill is involved- a company's good reputation, the
loyalty of its customers, and so on. Sometimes, goodwill is an over payment.
Interest--
A charge made for the use of money.
Inventory-- The supply or stock of goods and products that a company has for
sale. A manufacturer may have three kinds of inventory: raw materials waiting
to be converted into goods, work in process, and finished goods ready for sale.
Inventory
obsolescence -- Inventory no longer salable. Perhaps there is too much on hand,
perhaps it is out of fashion. The true value of the inventory is seldom exactly
what is shown on the balance sheet. Often, there is unrecognized obsolescence.
Inventory
shrinkage --a reduction in the amount of inventory that is not easily
explainable. The most common cause of shrinkage is probably theft.
Inventory
turnover -- A ratio that indicates the amount of inventory a company uses to
support a given level of sales. The formula is: Inventory Turnover = Cost of Sales
Average ratio is significant in comparison with the ratio for previous periods
or the Inventory. Different businesses have different general turnover levels.
The ratio for similar businesses.
Invested
capital -- The total of a company's long-term debt and equity.
Journal--
A chronological record of business transactions.
Ledger-- A record
of business transactions kept by type or account. Journal entries are usually
transferred to ledgers.
Liabilities-- Amounts owed by a company to others. Current liabilities are
those amounts due within one year or less and usually include accounts payable,
accruals, loans due to be paid within a year, taxes due within a year, and
so on. Long-term liabilities normally include the amounts of
mortgages, bonds, and long-term loans that are due more than a year in the
future.
Liquid-- Having
lots of cash or assets easily converted to cash.
Marginal
cost, marginal revenue -- Marginal cost is the additional cost incurred by
adding one more item. Marginal revenue is the revenue from selling one more
item. Economic theory says that maximum profit comes at a point where marginal
revenue exactly equals marginal cost.
Net worth
-- Total assets minus total liabilities. Net worth is seldom the true
value of a company.
Opportunity cost --A useful concept in
evaluating alternate opportunities. If you choose alternative
A, you
cannot choose B, C, or D. What is the cost or loss of profit of not alternative
A.? In personal life you may buy a car instead of taking a European choosing B,
C, or D? This cost or loss of profit is the opportunity cost of the vacation.
The opportunity cost of buying the car is the loss of the enjoyment
Overhead--
A cost that does not vary with the level of production or sales,
and usually a cost not directly involved with production or sales. The chief
executive's salary and rent are typically overhead.
Post --To enter
a business transaction into a journal or ledger or other financial record.
Prepaid
expenses, deferred charges -- Assets already paid for,
that are being used up or will expire. Insurance paid for in advance is a
common example. The insurance protection is an asset. It is paid for in
advance, it lasts for a period of time, and expires on a fixed date.
Present
value -- A concept that compares the value of money available in the future
with the value of money in hand today. For example, $78.35 invested today in a
5% savings account will grow to $100 in five years. Thus the present value of
analyze investment opportunities that have a future payoff. $100 received in
five years is $78.35. The concept of present value is used to
Price-earnings (p/e) ratio -- The market price of a share
of stock divided by the earnings (profit) per share. P/E ratios can vary from
sky high to dismally low, but often do not reflect the true value of a company.
Profit-- The amount left over when expenses are
subtracted revenues.
Gross profit is the profit left when cost of sales is subtracted
from sales, before any operating expenses are subtracted. Operating profit is the
profit from the primary operations of a business and is sales minus cost of
sales minus operating expenses. Net profit before taxes is operating profit
minus non-operating expenses and plus non-operating income. Net Profit after
taxes is the bottom line, after everything has been subtracted. Also called
income, net income, and earnings. Not the same as cash flow and does not
represent spendable dollars.
Retained
earnings -- Profits not distributed to shareholders as dividends, the
accumulation of a company's profits less any dividends paid out. Retained
earnings are not spendable cash.
Return on investment (ROI) -- A measure of the effectiveness and efficiency with which managers use the resources available to them, expressed as a percentage. Return on equity is usually net profit after taxes divided by the shareholders' equity. Return on invested capital is usually net profit after taxes plus interest paid on long-term debt divided by the equity plus the long-term debt. Return on assets used is usually the operating profit divided by the assets used to produce the profit. Typically used to evaluate divisions or subsidiaries. ROI is very useful but can only be used to compare consistent entities -- similar companies in the same industry industries have different ROIs. or the same company over a period of time. Different companies and different.
Revenue-- The amounts received by or due a company for goods or services it
provides to customers. Receipts are cash revenues. Revenues can also be
represented by accounts receivable.
Risk --The possibility of loss; inherent in all business activities. High
risk requires high return. All business decisions must consider the amount of
risk involved.
Stock-- A certificate (or electronic or other record) that indicates
ownership of a portion of a corporation; a share of stock. Preferred stock
promises its owner a dividend that is usually fixed in amount or percent.
Preferred shareholders get paid first out of any profits. They have preference.
Common stock has no preference and no fixed rate of return. Treasury stock was
originally issued to shareholders but has been subsequently acquired by the corporation.
Authorized by issued stock is stock which official corporate action has
authorized but has not sold or issued. (Stock also means the stock of goods,
the stock on hand, the inventory of a company.)
Sunk
costs -- Money already spent and gone, which will not be recovered no
matter what course of action is taken. Bad decisions are made when managers
attempt to recoup sunk costs.
Trial
balance -- At the close of an accounting period, the transactions posted in
the ledger are added up. A test or trial balance sheet is prepared with assets
on one side and don't, the accountants must search through the transactions to
find out why. Liabilities and capital on the other. The two sides should
balance. If they they keep making trial balances until the balance sheet
balances.
Variable cost -- A cost that changes as sales or production change. If a business is producing nothing and selling nothing, the variable cost should be zero. However, there will probably be fixed costs.
Working
capital -- Current assets minus current liabilities. In most businesses the
major components of working capital are cash, accounts receivable, and
inventory minus accounts payable. As a business grows it will have larger
accounts receivable and more inventory. Thus the need for working capital will
increase.
Write-down-- The partial reduction in the value of an asset,
recognizing obsolescence or other losses in value.
Write-off-- The total reduction in the value of an asset,
recognizing that it no longer has any value. Write-downs and write-offs are
non-cash expenses that affect profits.
Prepaid expenses
Prepaid expenses are those expenses which are paid in advance to
the party. Which ideally comes under Assets side in balance sheet. Journal Entry:
- PP exp A/c --- Dr to Cash/Bank A/c.
What is a Non-PO Invoice?
Non-PO invoices means fast line purchasing done for emergency
purpose or purchase without proper procurement planning.
Non Po
invoices are the invoices issued for utility bills such as rental charges,
water bills, telephone charges & electricity charges. While making
payment against Non Po invoices, approval from d...
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