Depreciation and amortisation both meant to reduce the value of the asset year by year, but they are not one and the same thing. The difference between the two must be appreciated. Writing off tangible assets for the period is termed as depreciation, whereas the process of writing off intangible fixed assets is amortization. Fixed assets refers to the assets, whose benefit is enjoyed for more than one accounting period. Fixed assets can be tangible fixed assets or intangible fixed assets. The … [Read more...]

Many use the terms bookkeeping and accounting interchangeably, but the fact is the former is the first step to the latter, i.e. bookkeeping is the stepping stone of accounting. As far as the scope is of these two processes is concerned, Accounting is much wider and analytical than bookkeeping. Bookkeeping it is only a part of accounting, which creates a base for accounting. While bookkeeping stresses on the recording of transactions and so the work is clerical in nature. On the other hand, … [Read more...]

One of the major concern of the enterprise is to maximize the profit, which is possible only through decreasing the cost of production. For this purpose, two efficient tools are used by the management, i.e. cost control and cost reduction. Cost Control is a technique which provides the necessary information to the management that actual costs are aligned with the budgeted costs or not. Conversely, Cost Reduction is a technique used to save the unit cost of the product without compromising its … [Read more...]

Based on variability, the costs has been classified into three categories; they are fixed, variable and semi-variable. Fixed costs, as its name suggests, are fixed in total i.e. irrespective of the number of output produced. Variable costs vary with the number of output produced. Semi-variable is the type of costs with the characteristics of both fixed and variable costs. Many cost accounting students are not able to bifurcate fixed and variable costs. Fixed costs are one that does not change … [Read more...]

Cost Accounting refers to that branch of accounting which deals with costs incurred in the production of units of an organization. On the other hand, financial accounting refers to the accounting concerned with recording financial data of an organization, in order to exhibit exact position of the business. Cost accounting generates information so as to keep a check on operations, with an aim of maximizing profit and efficiency of the concern. Conversely, Financial accounting ascertains the … [Read more...]

Balance Sheet is a statement which exhibits the company's financial position on a specific date, by listing out the assets, liabilities, and capital. It is used to denote the ownership and owings of the company, at a given point in time. It plays a pivotal role in indicating the financial health of the entity, to help the users of the statement to take rational decisions. It is not exactly same as a consolidated balance sheet. Consolidated Balance Sheet is prepared when the details of … [Read more...]

Balance Sheet, or otherwise called as Position statement, is an integral part of the financial statement which shows the statement of affairs of an entity, in terms of what the business owns and what it owes to the external parties and to the owners, on a particular date. Balance Sheet of a trading concern and that of a banking concern are prepared differently because the act which rules the two are different. So, there are different formats provided in advance for the preparation of Balance … [Read more...]

Gross Profit and Gross Profit Margin are two closely related terms that it is hard for one to recognize their difference, in general. Gross Profit is described as the difference between amount earned from the sales and the amount spent on production activities. And if we talk about gross profit margin, it is a profitability ratio, which is expressed as a percentage of gross profit to sales, during the accounting period. These two are used as a key indicator of operational efficiency, overall … [Read more...]

Every business organization, irrespective of the size, structure, and nature, needs cash for running the business smoothly. In the absence of sufficient cash, the business may not be able to fulfill long term and short term obligations, which might lead to discontinuation of business. The movement of cash can be of two types i.e. cash flow and free cash flow. Cash flow refers to the inflow and outflow of cash to/from the organization. On the contrary, Free cash flow, as the name suggests, is … [Read more...]

Revenue, profit and income, are three terms which sound same to a layman, although in business terminology there is a huge difference between them. Revenue implies the money received by the company from its day to day operations, alongwith the non-operating activities. On the other hand, profit implies the financial gain, which is arrived after deducting amount spent from the amount earned, by the concern, during the course of business in an accounting period. Income can be understood as the … [Read more...]