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Capital Receipt
Revenue Receipt
Capital Payment
Revenue Payments
Deferred Revenue Expenditure
Capital
Revenue
Receipt Payment
Classification of Capital and Revenue
Non profit Organizations
Difference Between capital and revenue
Capital receipt are those receipt which are not revenue in nature.
Capital Receipt
Sale of Land and Building other than a
dealerRaising of loans
Accounting
Treatment
These are credited to the respective account of Capital nature.
Non profit Organizations
Difference Between capital and revenue
Revenue receipt are those receipt which arise in the normal course of business.
Revenue Receipt
Accounting
Treatment
These are credited to the Trading and Profit & Loss Account.
Sale of Land and Building by a dealer
Raising of loans by a person engaged in the
same business
Non profit Organizations
Difference Between capital and revenue
Expenditure incurred to increase the productivity and earning capacity.
Capital Payment
Cost of Land and Building
Cost of Plant and Machinery
Accounting
Treatment
It is debited to the respective asset account.
Non profit Organizations
Difference Between capital and revenue
Expenditure incurred to maintain the productivity and earning capacity.
Revenue Payment
Repair to Building Wages
Accounting
Treatment
It is debited to the Trading and Profit & Loss Account.
Non profit Organizations
Difference Between capital and revenue
Expenditure for which expenditure has been made or the liability has been incurred which will benefit over a subsequent period.
Deferred Revenue Expenditure
Expenditure on Advertisement
Accounting
Treatment
Normally such expenditure will be written off over a period of 3 to 5 years.
Non profit Organizations
Difference Between capital and revenue
Balance Sheet for the year ended 31st December 2012Liabilities Amount Assets Amount
Rs. Rs.
Owners funds Non-Current Assets
Capital 12,000 Furniture 15,000
Add Net profit 19,500 31,500 Current AssetsNon-Current Liabilities Debtors 15,500
Long-term loan 5,000 Bank 5,000
Current Liabilities Cash 1,000
Creditors 15,000 Closing Stock 15,000
51,500 51,500
Accounting Treatment for Special Items Closing Stock
In Balance sheet
When expenses of an accounting period remain unpaid at the end of an accounting period, they are termed as outstanding expenses.Accounting Treatment:Trading Profit & Loss A/c Balance Sheet
Added to the Concerned Expense
Shown on the Liability side of the balance sheet
Outstanding ExpenseAccounting Treatment
for Special Items
Trading a/c for the year ended 31st December 2012Dr. Cr.Expenses/Losses Amount Revenues/Gains Amount
Rs. Rs.
Purchases 75,000 Sales 1,25,000
Wages8,000
Add Outstanding wages 500 8,500 Closing stock 15,000Gross profit c/d 56,500
1,40,000 1,40,000
Concerned Expense
Outstanding Amount+
Outstanding Expense
In Trading P&L A/c
Accounting Treatment for Special Items
Balance Sheet for the year ended 31st December 2012
LiabilitiesAmoun
t AssetsAmoun
t
Rs. Rs.
Owners Funds Non-Current Assets
Capital 12,000 Furniture 15,000
Add Profit 19,000 31,000 Current Assets
Non-Current Liabilities Debtors 15,500
Long-term loan 5,000 Bank 5,000
Current Liabilities Cash 1,000
Creditors 15,000 Closing stock 15,000Outstanding wages 500
51,500 51,500
Outstanding Expense
In Balance sheet
Accounting Treatment for Special Items
These are expenses which are paid in advance in the normal course of business operations and may be carried forwarded to the next year.Accounting Treatment:Trading Profit & Loss A/c Balance Sheet
Deducted from the Concerned Expense
Shown on the Asset side of the balance sheet
Prepaid ExpenseAccounting Treatment
for Special Items
Trading a/c for the year ended 31st December 2012Expenses/Losses Amount Revenues/Gains Amount
Rs Rs.Purchases 75,000 Sales 1,25,000Wages 8,000 Closing stock 15,000Add Outstanding wages 500 8,500Gross profit c/d 56,500
1,40,000 1,40,000
Salaries 25,000 Gross profit b/d 56,500Less Prepaid salary (5,000) 20,000Rent of building 13,000 Commission received 5,000Bad debts 4,500Net profit (transferred to Ankit 24,000capital account)
61,500 61,500
Outstanding Expense
Concerned Expense
Prepaid Amount
Accounting Treatment for Special Items
Balance Sheet for the year ended 31st December 2012Liabilities Amount Assets Amount
Rs. Rs.
Owners Funds Non-Current AssetsCapital 12,000 Furniture 15,000Add Profit 24,000 36,000 Current AssetsNon-Current Liabilities Debtors 15,500Long-term loan 5,000 Prepaid Salary 5,000Current Liabilities Bank 5,000
Cash 1,000Creditors 15,000 Closing stock 15,000Outstanding wages 500
56,500 56,500
Outstanding ExpenseAccounting Treatment
for Special Items
Some times certain items of income such as interest on loan, commission, rent, etc. are earned during the current accounting year but have not been actually received by the end of the same year. Such incomes are known as accrued income. Accounting Treatment:Trading Profit & Loss A/c Balance SheetAdded to the Concerned Income
Shown on the Liability side of the balance sheet
Accrued IncomeAccounting Treatment
for Special Items
Trading a/c for the year ended 31st December 2012Expenses/Losses Amount
Revenues/Gains Amount
Rs. Rs.
Purchases 75,000 Sales 1,25,000
Wages 8,000 Closing stock 15,000
Add Outstanding 500 8,500
Gross profit c/d 56,500
1,40,000 1,40,000
Salaries 25,000Gross profit b/d 56,500
Less Prepaid salary (5,000) 20,000
Rent of building 13,000
Commission received 5,000
Add Accrued1,50
0 6,500
Bad debts 4,500 commission
Net profit (transferred to Ankit’s Capital A/c 25,500
63,000 63,000
Accrued IncomeAccounting Treatment
for Special Items
Balance Sheet for the year ended 31st December 2012
Liabilities Amount Assets Amount
Owners Funds Non-Current Assets
Capital 12,000 Furniture 15,000
Add Profit 25,500 37,500 Current AssetsNon-Current Liabilities Debtors 15,500
Long-term loan 5,000 Prepaid salary 5,000
Current Liabilities Accrued commission 1,500
Creditors 15,000 Bank 5,000
Outstanding wages 500 Cash 1,000
Closing stock 15,000
58,000 58,000
Accrued IncomeAccounting Treatment
for Special Items
Sometimes, a certain income is received but the whole amount of it does not belong to the current period. The portion of the income which belongs to the next accounting period is termed as income received in advance or an Unearned Income.Accounting Treatment:Trading Profit & Loss A/c Balance Sheet
The total amount will be deducted from the concerned income in the credit side of the P&L a/c.
Shown on the Liability side of the balance sheet
Income Received in Advance
Accounting Treatment for Special Items
Balance Sheet for the year ended 31st December 2012
LiabilitiesAmoun
t AssetsAmoun
tRs. Rs.
Owners Funds Non Current AssetsCapital 12,000 Furniture 15,000Add Net profit 25,500 37,500 Current AssetsNon Current Liabilities Debtors 15,500Long-term loan 5,000 Prepaid salary 5,000Current Liabilities Accrued commission 1,500Creditors 15,000 Bank 5,000Outstanding wages 500 Cash 4,000Rent received in advance 3,000 Closing stock 15,000
61,000 61,000
Income Received in Advance
Accounting Treatment for Special Items
Depreciation is the decline in the value of assets on account of wear and tear and passage of time. It is treated as a business expense and is debited to profit and loss account.
Accounting Treatment:Trading Profit & Loss A/c Balance Sheet
It is treated as a business expense and is debited to profit and loss account.
Deducted from the concerned Asset.
DepreciationAccounting Treatment
for Special Items
Trading a/c for the year ended 31st December 2012
Expenses/Losses Dr. Amount Revenues/Gains Cr. AmountPurchases 75,000 Sales 1,25,000Wages 8,000 Closing stock 15,000Add Outstanding wages (500) 8,500Gross Profit c/d 56,500
1,40,000 1,40,000
Salaries25,00
0 Gross profit b/d 56,500
Less Prepaid salary(5,000
) 20,000
Rent of building 13,000Commission received 5,000 6,500Add Accrued 1,500
Depreciation-Furniture 1,500 CommissionBad debts 4,500Net profit (transferred to 24,000Ankit’s capital account)
63,000 63,000
Income Received in Advance
Accounting Treatment for Special Items
Balance Sheet for the year ended 31st December 2012
Liabilities
Amount Rs. Assets
Amount Rs.
Owners FundsNon-Current Assets
Capital 12,000 Furniture 15,000
Add Profit 24,000 36,000 Less Depreciation(1,500
) 13,500Non-Current Liabilities Current Assets
Long-term loan 5,000 Debtors 15,500
Current Liabilities Prepaid salary 5,000
Creditors 15,000Accrued commission 1,500
Outstanding wages 500 Bank 5,000Rent received in advance 3,000 Cash 4,000
Closing stock 15,000
59,500 59,500
DepreciationAccounting Treatment
for Special Items
Bad debts refer to the amount that the firm has not been able to realize from its debtors. It is regarded as a loss and is termed as bad debt.Accounting Treatment:
Trading Profit & Loss A/c Balance SheetAmount of further bad debts is added to the existing bad debts in the debit side of the P&L a/c.
Deducted from the existing debtors amount
When the bad debts is given in P&L a/c and Trial Balance (Further Bad Debts)
Bad DebtsAccounting Treatment
for Special Items
Trading a/c for the year ended 31st December 2012
Expenses/Losses Amount Revenues/Gains AmountPurchases 75,000 Sales 1,25,000Wages 8,000 Closing stock 15,000Add Outstanding wages 500 8,500Gross profit c/d 56,500
1,40,000 1,40,000
Salaries25,00
0 Gross profit b/d 56,500Less Prepaid salary
(5,000) 20,000
Rent of building 13,000Commission received 5,000Add Accrued 1,500 6,500
commissionDepreciation – Furniture 1,500Bad Debts 4,500Add Further bad debts 2,500 7,000Net profit (transferred to 21,500Ankit’s capital account)
63,000 63,000
Bad DebtsAccounting Treatment
for Special Items
Balance Sheet for the year ended 31st December 2012
LiabilitiesAmoun
t AssetsAmoun
tRs. Rs.
Owners FundsNon-Current Assets
Capital12,00
0 Furniture 15,000
Add Profit21,50
0 33,500 Less Depreciation (1,500) 13,500Non-Current Liabilities Current Assets
Long-term loan 5,000 Debtors 15,500Less Further bad debts (2,500) 13,000
Current Liabilities and Provisions Prepaid salary 5,000Creditors 15,000
Accrued commission 1,500
Bank 5,000
Outstanding Wages 500 Cash 4,000
Closing stock 15,000Rent received in advance 3,000
57,000 57,000
Bad DebtsAccounting Treatment
for Special Items
Provision for bad and doubtful debt is the estimated loss provided upon the debtors for the future.
Accounting Treatment:Trading Profit & Loss A/c Balance Sheet
Debited to the P & L a/c Deducted from the existing debtors amount after further bad debts
Provision for Bad DebtsAccounting Treatment
for Special Items
Trading a/c for the year ended 31st December 2012
Expenses/LossesAmoun
tRevenues/Gains
Amount
Purchases 75,000 Sales 1,25,000Wages 8,000 Closing stock 15,000Add Outstanding 500 8,500Gross profit c/d 56,500
1,40,000 1,40,000
Salaries 25,000 Gross profit b/d 56,500
Less Prepaid salary(5,000
) 20,000
Rent of building 13,000Commission received 5,000
Depreciation – Furniture 1,500 Add Accrued 1,500 6,500Bad debts 4,500 commissionAdd Further bad debts 2,500 7,000Provision for doubtful debts 650Net profit (transferred to Ankit’s 20,850capital account)
63,000 63,000
Provision for Bad DebtsAccounting Treatment
for Special Items
Balance Sheet for the year ended 31st December 2012
Liabilities AmountAssets Amount
Owners FundsNon-Current Assets
Capital 12,000 Furniture 15,000Add Net profit 20,850 32,850 Less Depreciation (1,500) 13,500Non-Current Liabilities Current AssetsLong-term loan 5,000 Debtors 15,500
Less Further bad debts 2,500
13,000Less Provision for 650 12,350
doubtful debtsCurrent Liabilities & Provisions Prepaid salary 5,000
Creditors 15,000Accrued commission 1,500
Outstanding wages 500 Bank 5,000Rent received in advance 3,000 Cash 4,000
Closing stock 15,000
56,350 56,350
Provision for Bad DebtsAccounting Treatment
for Special Items
This is the amount of commission allowed to the managers on the net profit of the company.
Managers Commission
Net Profit beforeCommission
Net Profit after commission
Suppose the net profit of a business is Rs. 110 before charging commission. If the manager is entitled to 10% of the profit before charging such commission, the commission will be calculated as :
= Rs. 110 × 10/100= Rs. 11
In case the commission is 10% of the profit after charging such commission, it will be calculated as := Profit before commission ×
Rate of commission/ (100 + commission)
= Rs. 110 × 10 = Rs. 10 110
Managers CommissionAccounting Treatment
for Special Items
Trading a/c for the year ended 31st December 2012Expenses/Losses Amount Revenues/Gains Amount
Purchases 75,000 Sales 1,25,000
Wages 8,000 Closing stock 15,000Add Outstanding wages 500 8,500
Gross profit c/d 56,500
1,40,000 1,40,000
Salaries 25,000 Gross profit 56,500
Less Prepaid salary (5,000) 20,000
Rent of building 13,000Commission received 5,000
Add Accrued 1,500 6,500Depreciation – Furniture 1,500 commission
Bad debts 4,500
Add Further bad debts 2,500 7,000
Provision for doubtful debts 650
Provision for discount on debtors 227
Manager’s commission 2,062Net profit (transferred to 18,561
Ankit’s capital account)
63,000 63,000
Provision for Bad DebtsAccounting Treatment
for Special Items
Liabilities Amount Rs. Assets Amount Rs.
Owners Funds Non-Current Assets
Capital 12,000 Furniture 15,000
Add Net profit 18,561 30,561 Less Depreciation (1,500) 13,500
Non-Current Liabilities Current Assets
Long-term loan 5,000 Debtors 15,500
Less Further bad debts(2,500)
13,000
Less Provision for bad
Current Liabilities and Provisions and doubtful (650)
Creditors 15,000 debts 12,350
Less Provision for
discount on debtors (227) 12,123
Outstanding wages 500 Prepaid salary 5,000
Rent received in advance 3,000 Accrued commission 1,500
Bank 5,000
Cash 4,000
Manager’s commission 2,062 Closing stock 15,000
56,123 56,123
Provision for Bad DebtsAccounting Treatment
for Special Items
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