Planning of Income and Decline Account

Clarification of Specific merchandise of Financial gain and Decline Account

1. Salaries

Salaries are paid ?learn quickbooks with the products and services of staff and are debited to profit and decline ac- count remaining indirect expenditure. If any income has long been paid to proprietor or companions, it ought to be demonstrated individually because it requires specific cure with the time of revenue tax evaluation.

two. Salaries and Wages

When wages account is provided with salaries it taken care of is as indirect expenditure and is particularly taken into earnings and decline account.

3. Lease

Lease from the office shop showroom or godown is really an indirect price and so is debited to gain & decline account. However, rent of factory is debited to trading account. When a part in the building is sublet the lease received should really be shown on the credit side of revenue and loss account as a separate item.

4. Rates and Taxes

These are levied by the local authorities to meet public expenditure. It being an indirect expenditure is shown on the debit side of income and loss account.

5. Interest

Interest on loan, overdraft or overdue debts is payable by the firm. It is undoubtedly an oblique cost; so debited to income and reduction account. Interest on loan advanced by the firm on depositor investments is an money from the firm and so is credited to the earnings and loss account.

If business has compensated any interest on capital to its proprietor or associates it should really also be debited in the income and reduction account but individually since this item needs unique procedure on the time of income-tax evaluation.

6. Commission

In business sometimes agents are appointed to effect sales, who are compensated commission as their remuneration. So this getting a selling expenses is demonstrated on the debit side of gain and decline account. Sometimes commission is also paid on purchases of goods, such 'as expense really should be debited in the trading account. Sometimes the firm can also act as an agent to the other business houses and in such cases it receives commission from them. Commission so received is proven on the credit side of revenue and reduction account.

7. Trade Expenses

They are also termed as 'sundry expenses'. Trade expenses represent expenses of such a nature for which it is not worthwhile to open separate accounts. Trade expenses are not taken to trading account.

8. Repairs

Repairs to the plant, machinery, building are oblique expenses are taken care of expenditure and therefore are debited to revenue and decline account..

9. Traveling Expenses

Unless mentioned otherwise, traveling expenses are dealt with as oblique expenses and so are debited to earnings and decline account.

10. Horse & stable Expenses

Expenses incurred to the fodder of horses and wages paid out for looking after stable are dealt with as oblique expenses and debited to profit and decline account.

11. Apprentice Premium

This is the amount charged from persons to whom training is imparted by the business. It is an cash flow and is particularly credited to revenue and reduction account. In case apprentice premium is charged in advance for two or three years, then the amount is distributed over number of years and each year's gain and decline account is credited with its share of income.

12. Bad debts

It is the amount which could not be recovered by the trader on account of credit sales. It is a business loss, so is debited in the profit and reduction account.

13. Life Insurance Premium

If the premium is paid on the life policy of the proprietor of your business; it is addressed as his drawings and is particularly demonstrated by way of deduction from the capital account. It should not be taken to gain and reduction account.

14. Insurance Premium

If insurance premium account appears in the trial balance, it stands to the insurance on the business. This is taken to revenue and reduction account. Insurance premium on goods purchased, factory building, factory machines are treated as direct price and therefore are taken to trading account.

15. Money Tax

In the case of merchant income-tax paid is treated as a personal expense and it is shown by way of deduction from capital account. Income-tax in case of companies is taken care of differently.

16. Discount allowed and Received

Discount is a reward for prompt payment. It is belief to show discount received and discount allowed individually on the credit and debit side of financial gain and loss account respectively instead of showing the net balance of this account.

17. Depreciation

Depreciation is a loss incurred on account of use of fixed assets in the business. Generally, it is charged from revenue and decline account at a fixed percentage. The students ought to exercise great care as regards the rate of depreciation. If rate is without words 'per annum', then the rate will be taken irrespective of the period of accounts. This is very important when the period of accounts is less than one year. On the other hand, if the rate of depreciation is 'per annum' the depreciation should be calculated on the assets with due consideration to the period for which the asset has become used in business during the year. In case of additions to assets during the year, it is advisable to ignore depreciation on additions if the date of additions is not given. Same rule shall hold good for the sale of assets during the year.

18. Stock with the end appearing in the trial balance.

It is important to emphasize the rule that balance appearing in the trial balance is taken to one and only one place. It may either be trading account or income and reduction account or balance sheet. Since stock at the end is surely an asset, it will betaken to balance sheet. On the other hand, so long as there is stock in trade, account for that must be kept open and thus be taken to the assets side of balance sheet.