Planning of Financial gain and Loss Account

Rationalization of Selected items of Profit and Reduction Account

1. Salaries

Salaries are paid ?quickbooks tutorial with the services of employees and so are debited to financial gain and reduction ac- rely remaining oblique price. If any wage has long been compensated to proprietor or companions, it ought to be revealed independently mainly because it involves specific procedure at the time of income tax evaluation.

2. Salaries and Wages

When wages account is included with salaries it treated is as indirect price and is also taken into revenue and loss account.

3. Hire

Lease in the business office shop showroom or godown is really an indirect cost and so is debited to earnings & decline account. However, hire of factory is debited to trading account. When a part in the building has been sublet the rent received must be proven on the credit side of revenue and decline account as a separate item.

4. Rates and Taxes

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

5. Interest

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

If business has paid out any interest on capital to its proprietor or associates it should really also be debited in the profit and loss account but separately because this item needs specific therapy on 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 getting a selling expenses is shown on the debit side of profit and decline account. Sometimes commission is also compensated on purchases of goods, such 'as cost 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 revealed on the credit side of gain and loss 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 indirect expenses are dealt with cost and therefore are debited to gain and loss account..

9. Traveling Expenses

Unless mentioned otherwise, traveling expenses are dealt with as indirect expenses and are debited to income and reduction account.

10. Horse & stable Expenses

Expenses incurred for your fodder of horses and wages paid out for looking after stable are treated as oblique expenses and debited to revenue and decline account.

11. Apprentice Premium

This is the amount charged from persons to whom training is imparted by the business. It is undoubtedly an earnings which is credited to gain 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 loss account is credited with its share of money.

12. Bad debts

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

13. Life Insurance Premium

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

14. Insurance Premium

If insurance premium account appears in the trial balance, it stands with the insurance in the business. This is taken to gain and decline account. Insurance premium on goods purchased, factory building, factory machines are treated as direct cost and so are taken to trading account.

15. Revenue Tax

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

16. Discount allowed and Received

Discount is a reward for prompt payment. It is belief to show discount received and discount allowed separately 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 loss account at a fixed percentage. The students must exercise great care as regards the rate of depreciation. If rate is without words 'per annum', then the rate will be taken irrespective in 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 has actually been 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 for 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 revenue and loss account or balance sheet. Since stock in the end can be 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.