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...]

In business, the transaction may occur in two ways, i.e. cash or credit. For recording cash transaction, there are separate books or accounts are maintained by the business entities, which are cash book and cash account. Cash Book is a subsidiary book, which records all the cash related transactions, i.e. receipts or payments. In the same way, Cash Account is an account in which cash receipts and disbursements are entered. These two differ in the fact that cash book is a subsidiary book, while … [Read more...]

In general, two types of receipts occur during the course of business. Capital Receipt is described as the money brought to the business from non-operating sources like proceeds from the sale of long-term assets and capital brought by the proprietor. These receipts do not affect the company's profit or loss. In contrast, revenue receipts are the result of the firm’s routine activities during the financial year, which include sales, commission, and interest on investment. These receipts affect … [Read more...]

The occurrence of expenditure during the course of business is very natural. These are broadly classified into two categories, i.e. capital expenditure and revenue expenditure. Capital Expenditure is the one which a company incurs to acquire an asset or improve the capacity of the asset or repay long-term liability. Conversely, revenue expenditure implies the routine expenditure, that the company incurs to undertake day-to-day operations. Introduction Basically, we use the word 'capital' for … [Read more...]

In simple terms, profit can be understood as all the income that is received by an individual. It is the lifeline of the business, as, without profit, the survival is difficult, rather impossible. In accounting, profit means surplus, i.e. the excess of total revenue over the expenses. Such a profit is known as accounting profit. On the other hand, in economics, you might have heard the term economic profit, which is nothing but the amount left over after deducting all implicit and explicit … [Read more...]

Business is carried out with an aim of earning profit. It works as an incentive to the entrepreneur, for the risk taken and resources spent, during the financial year. Profit can be broadly classified as gross profit, operating profit and net profit. Gross profit implies the amount left over from revenues after deducting the manufacturing cost. It shows the firm's efficiency in production and pricing. Conversely, operating profit alludes to the profit attained after deducing cost of … [Read more...]

Small traders and partnership firms, do not maintain their books of accounts as per double entry system. They used to keep a track of cash and credit transactions only. However, at the end of the financial year, these firms also want to know the position of business. For this purpose, statement of affairs is prepared at the beginning and at the ends of the period, so as to determine the overall change in the capital, during the financial year. Statement of affairs is often confused with … [Read more...]

In business and financial context, margin is defined as the distinction between production or acquisition of the product to the seller and its selling price. Gross Profit Margin implies a financial tool, employed to identify the financial health of the business, by depiction the amount of money left after deducting cost of production from the sales. On the contrary, net profit margin, is a financial metric determining the company's profitability, by exhibiting the percentage of revenue left … [Read more...]

Net profit can be understood as the profit arrived after working on all expenses (both cash and non-cash), interest, taxes, and losses. It is the actual profit received from business activities by the company during the accounting period. It is not exactly same as net income. Technically, net income is used to mean the actual amount remained with the firm after deducting dividend to the preference shareholders. In business parlance, both the two terms heard quite often. Many use the terms net … [Read more...]