Cash flow Statement is as important as the other two parts (Profit & Loss Account and Balance Sheet) of the accounting information furnished in the form of financial statements at the end of the financial year. It is the statement which describes the flow of cash and cash equivalents in and out the organization. The statement is helpful to the stakeholders or say interested parties, in learning about the sources and uses of the company's cash during a particular financial year, from … [Read more...]

A balance sheet, or otherwise known as a position statement. It is a statement which shows the financial position of the company on a specific date. It lists all the Ownership, i.e. assets and Owings, i.e. liabilities of the company. A profit and loss account, on the other hand, is an account that shows the revenue earned and expenses sustained by the company, during the course of business, in a financial year. These two along with the cash flow statement constitute the financial statement. … [Read more...]

Cost accounting is that branch of accounting which aims at generating information to control operations with a view to maximizing profits and efficiency of the company, that is why it is also termed control accounting. Conversely, management accounting is the type of accounting which assist management in planning and decision-making and thus known as decision accounting. The two accounting system plays a significant role, as the users are the internal management of the organization. While … [Read more...]

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 imply a part of companies net earnings that are set aside and not paid as a dividend to reinvest it in business or pay off the debt. But, reserves are that part of the profit which is earmarked to provide for business needs in future or to fulfil future contingencies and unexpected liability. Risks and uncertainities are a part of the business. As human beings, we all save some part of our income to cover our future needs and contingencies. Likewise, business enterprises … [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...]