Gross, as the name suggests is the entire amount received by the entity from any activity, without giving effect to deductions like expenses. Gross income means the amount by which revenue of the company supersedes cost of production. On the other hand, net is termed as the actual value left after giving effect to the deductions such as expenses. So, net income implies the actual income earned by the company after subtracting all expenses and losses. The terms gross income and net income is … [Read more...]

The meaning of profit is different to different persons, i.e. businessmen, accountant, workers, tax collectors, economist etc. For an accountant, profit means the excess of revenues over expenses, which is known as Accounting profit. At the time of computing accounting profit, only explicit costs, i.e. book costs are considered. The concept of accounting profit differs from taxable profit, in the sense that the latter is the amount which is taxable as per the provisions of the income tax act. … [Read more...]

Income Statement reflects the net profit or loss from the business activities for a particular accounting period. On the other hand, cash flow statement keeps a record of overall changes in the cash and cash equivalents of the business organization during a particular financial year. Financial Statement refers to the official record of the financial activities and the overall position of the business entity. It is the final destination of the whole process of accounting, which comprises of … [Read more...]

Retained Earnings implies a portion of companies net earnings that is set aside and not paid as a dividend, for the purpose of investing the amount in primary activities of the business or pay the debt. On the other hand, reserves can be understood as the part of profit earmarked to provide for business needs in future or to fulfill future contingencies and unexpected liability. Risk and uncertainties are inherent in business and so they set up a mechanism to protect the business, on the … [Read more...]

"Luca Pacioli" is the father of accounting, who discovered the concept of double entry system of book-keeping. As per this system, each and every business trasaction affects two sides of an account, i.e. debit, and credit. While debit indicates the destination, credit implies the source of monetary benefit. In an accounting entry, the source account of a transaction is credited, whereas the destination account is debited. Debit represents the left hand side of the account, whereas credit … [Read more...]

An activity center or responsibility center is the unit of business organization which is accounted for a specific task or activity. Cost Center and Profit Center are the two major types of the activity centers. A center for which cost is ascertained and used for the purpose of cost control is known as Cost Center, whereas a center whose performance measurement can be done only through its income earning capacity is known as Profit Center. The ascertainment of the cost center is helpful in … [Read more...]

Accounting is an art of systematically keeping the record of business events and transactions, so as to ascertain the financial position and profitability of the company at the end of financial year. It is not exactly same as finance. Technically, finance is a part of economics which is concerned with resource allocation and management. While accounting aims at providing financial information of the company to the users for the purpose of rational decision making, finance focuses on matters … [Read more...]

Accounting, refers to the process of recording, classifying and summarizing in monetary terms, the business transactions and events and interpreting the results. It is used by entities to keep a track of their financial transactions. Financial Accounting and Management accounting are the two branches of accounting. Financial accounting stresses on giving true and a fair view of the financial position of the company to various parties. On the contrary, management accounting aims at providing … [Read more...]

Cash Flow statement shows the changes in the cash position (Inflows and outflows) of a firm. It is an analytical reconciliation statement which explains the reasons for the differences between the opening and closing cash balances over a period. On the other hand, Fund Flow statement is a statement that shows the ups and downs of the financial position or the changes in working capital of the entity between the two financial years. The financial position of any company can be better … [Read more...]

In finance, the term 'insolvency' can be used in the context of both individuals and organizations. Insolvency represents that particular 'state' in which the individual or organization is not able to settle debts on time when they fall due for payment because of lack of funds or bank balance. On the other hand, Bankruptcy can be defined as a formal and legal declaration of an individual's inability to settle debts. What is Liquidation? Liquidation implies the closure or winding up of the … [Read more...]