In business parlance, Gross Income refers to the income arising after deducting direct expenses from sales. Whereas, Net Income implies the income left over after subtracting all the indirect expenses. From the taxation point of view, Gross Income is the income earned from various sources by an individual or enterprise. Technically, it is the gross total income or GTI. On the other hand, Net Income is the total income after deducting all the allowable expenses and set off and carry forward of … [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. He discovered the concept of a double-entry system of book-keeping. As per this system, each business transaction affects two sides of an account, i.e. debit, and credit. While debit indicates the destination, credit implies the source of monetary benefit. As per the Double Entry System: For each debit or credit entry, there is always a corresponding and equal credit or debit entry. The debit and credit entries are made in the ledger accounts to … [Read more...]

A centre for which cost is ascertained and used to control cost is Cost Center. Whereas a centre whose performance we can measure through its income earning capacity is Profit Center. We divide the organization into various sub-units for the purpose of costing. That is the collection and utilization of cost data in an optimum manner. These sub-units are the smallest area of responsibility or segment of activity. Such sub-units are nothing but cost centres. In the simplest sense, those … [Read more...]

Accounting is the art of keeping the record of business events and transactions in a systematic manner. It helps in determining the financial position and profitability of the company at the end of the financial year. It is not exactly the same as finance. Technically, finance is a part of economics that is concerned with resource allocation and management of funds. While accounting is a sub-domain of finance. The two differ in the sense that accounting is all about recording the flow of … [Read more...]

Financial Accounting is the original form of accounting that deals with recording business transactions and summarizing the data into reports, which are presented to the users so that financial decisions can be made rationally. On the other hand, management accounting is a new field of accounting that studies managerial aspects. It deals with the provision of financial data to the company's management so that they can make rational economic decisions. Financial accounting emphasizes on giving … [Read more...]

The Cash Flow Statement shows the changes in the cash position (Inflows and outflows) of a firm. It is an analytical reconciliation statement that explains the reasons for the differences between the opening and closing cash balances over a period. On the other hand, the 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. While a cash flow statement is concerned with the flow … [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...]