Preparation of Financial gain and Decline Account

Rationalization of Sure objects of Revenue and Decline Account

1. Salaries

Salaries are paid ?quickbooks tutorial for your companies of personnel and so are debited to gain and loss ac- rely remaining indirect expense. If any wage is paid to proprietor or partners, it should be proven individually because it necessitates distinctive remedy on the time of cash flow tax evaluation.

2. Salaries and Wages

When wages account is included with salaries it addressed is as oblique cost and it is taken into income and reduction account.

three. Hire

Rent on the workplace shop showroom or godown is really an oblique cost and so is debited to income & loss account. However, lease of factory is debited to trading account. When a part with the building has long been sublet the hire received really should be demonstrated on the credit side of gain and reduction 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 profit and decline account.

5. Interest

Interest on loan, overdraft or overdue debts is payable by the firm. It can be an oblique cost; so debited to gain and loss account. Interest on loan advanced by the firm on depositor investments is really an cash flow of the firm and so is credited to the income and decline account.

If business has paid out any interest on capital to its proprietor or companions it should really also be debited in the income and loss account but individually due to the fact this item needs distinctive treatment method for the time of income-tax assessment.

6. Commission

In business sometimes agents are appointed to effect sales, who are paid commission as their remuneration. So this staying a selling expenses is proven on the debit side of earnings and loss account. Sometimes commission is also paid out on purchases of goods, such 'as price should really 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 decline 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 handled price and therefore are debited to income and decline account..

9. Traveling Expenses

Unless mentioned otherwise, traveling expenses are addressed as oblique expenses and are debited to profit and decline account.

10. Horse & stable Expenses

Expenses incurred with the fodder of horses and wages paid out for looking after stable are treated as oblique expenses and debited to gain 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 also credited to income and loss 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 income 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 earnings and loss account.

13. Life Insurance Premium

If the premium is paid on the life policy of your proprietor from the business; it is handled as his drawings which is demonstrated by way of deduction from the capital account. It should really not be taken to income and decline account.

14. Insurance Premium

If insurance premium account appears in the trial balance, it stands for that insurance with the business. This is taken to income and loss account. Insurance premium on goods purchased, factory building, factory machines are addressed as direct price and therefore are taken to trading account.

15. Revenue Tax

In the case of merchant income-tax compensated is addressed as a personal expense and it is proven by way of deduction from capital account. Income-tax in case of companies is dealt with differently.

16. Discount allowed and Received

Discount is a reward for prompt payment. It is belief to show discount received and discount allowed independently on the credit and debit side of gain and reduction 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 reduction account at a fixed percentage. The students really should exercise great care as regards the rate of depreciation. If rate is without words 'per annum', then the rate will be taken irrespective from 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 must be calculated on the assets with due consideration to the period for which the asset is 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 that sale of assets during the year.

18. Stock on 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 profit and decline account or balance sheet. Since stock with the end is definitely 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.