Monday, 28 July 2014

When do you adjust the amount of prepaid expenses?

The balance in the current asset account Prepaid Expenses should be adjusted prior to issuing a company's financial statements. If the company issues financial statements for each calendar month, you will need to adjust the balance in Prepaid Expenses as of the end of each month. If your company issues only quarterly financial statements, you will need to adjust the balance at the end of each quarter.


The goal is to have the balance in Prepaid Expenses be equal to the amount of the unexpired costs as of the end of the accounting period (which is also the date appearing in the heading of the balance sheet).

Usually the adjusting entry for prepaid expenses will be a credit to Prepaid Expenses and a debit to the appropriate expense account(s). For instance, if Prepaid Expenses involve the prepayment of insurance premiums the adjusting entry will include a debit to Insurance Expense.

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Sunday, 27 July 2014

What is the proper use of the words lend and borrow?

If a company is granted a loan from its bank, the company is borrowing money from its bank, and the bank is lending money to one of its customers. In other words, the bank is the lender and the loan customer is the borrower.


 To use your friend's car, you might ask "May I borrow you car? or "Will you lend me your car?" If your friend agrees, you are borrowing your friend's car and your friend is lending his or her car. 

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Thursday, 24 July 2014

How do I record money received for an insurance claim on inventory loss?

The money received from an insurance company for a claim involving a loss on inventory stock is debited to Cash. Any other proceeds from disposing of the inventory items will also be debited to Cash.


In addition, the Inventory account is credited for the carrying cost of the inventory items, which is usually the original cost of the items. If the total of the debits to Cash is greater than the credits to Inventory, the difference is credited to a gain account, such as Gain from Inventory Damage. If the total of the debits to Cash is less than the credits to Inventory, the difference is a debit to a loss account, such as Loss from Inventory Damage.

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Hitting the Merit List of IPCC November 2012 Exam

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Tuesday, 22 July 2014

CA/CMA/CS Which Course to do?


Which Course is better? Which Course to do?

Depends .. !!

There is no such thing called the best course universally applicable to all. A lot depends on the outlook, aptitude and the candidate's objective in doing the course.

All the three courses have similarities with regard to the course syllabus. A person doing a particular course studies more or less the same subjects as the person doing any other course.The only difference being the depth of the subjects studied and the examination orientation. Chartered accountancy course has in depth study relating to financial accounting, auditing, tax aspects. Cost accounting course has in depth study relating to cost and management accounting. Company secretaryship has in depth study relating to company law. 

Which course you take up is dependent on what you are interested in and what you wish to specialise in. Depending on your ability, aptitude, career outlook, you need to choose the relevant course.Those who look at an independent career like practicing professional accounting, chartered accountancy would be better suited as the opportunities for practicing are more in that profession. 

This does not mean that there is no scope for private practice for cost accountants and company secretaries. They too have the option to carry on as practicing professionals. But the avenues available for them are far lesser compared to CA. CA, CMA/ICWA and CS in that order are to be considered if you target this.

Those who look at working in a manufacturing or producing environment may look at cost accountancy as it provides an ample opportunity to think in terms of controlling costs using accounting techniques. Even chartered accountants and company secretaries study cost and management accountancy. But the objective of the course is specialisation in CMA/ICWA and having knowledge in CA and CS.

Those who look at working in an administrative environment dealing with legal aspects may look at company secretaryship as it involves in depth aspects relating to company law and its application to companies. Even cost accountants and chartered accountants study corporate laws. But, they do not study it in as much detail and depth as a company secretary does.

You decide

Ultimately what ones interests are and what he/she prefers doing are to be decided by the candidate itself. Any one else would only be able to provide data to enable the candidate to take decisions.

Wish to do all the three courses

Best of Luck. But, don't be in a hurry. From our practical experience, we advise the student to take up CA along with CWA or CS and then after completing them taking up the third course.. This is only our view. A candidate may do only one course, any two courses or all the three courses together or one course after the other in any order.


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Sunday, 20 July 2014

What is Business Entity Concept ?

The business entity concept, also known as the economic entity principle, states that all business entities should be accounted for separately. In other words, businesses, related businesses, and the owners should be accounted for separately. Even though the tax law looks at a sole proprietorship and the owner as one entity, GAAP disagrees. The owner and the business are two separate entities and should be accounted for separately. The same goes for partnership and corporations. The partners and shareholders' activities should be kept separate from the partnership and corporate transactions because they are separate economic entities.


 The business entity concept does not always apply to a legal entity. For instance, a parent corporation and its subsidiaries can issue consolidated financial statements without contradicting the economic entity principle. A single company can also segregate business operations by department if the definition of "entity" is deemed to be within a company.

This business separation is useful for financial statement users. They can differentiate between the actual company activity and the ownership involvement. In other words, an investor can see if the business has good cash flow from it's profitable operations or because the owner keeps funding the business with owner contributions.

Examples

- Mike, a partner in Big House Realty, LLC, often uses his company credit card for personal expenses like dry cleaning and new clothes. He insists that these are business expenses because he must wear new clothes in order to show houses. Unfortunately, these are not business expenses. Clothing is a personal expense and can't be recorded in the company financial statements. This would violate the business entity concept. Instead, these transactions should be accounted for as an owner withdrawal.

- Assume Bob, a local landscaping business owner, decides to branch out and buy another existing business: a concrete company. This way his concrete company can pour footings and walkways and his landscaping business can landscape around them. Since Bob owns both companies personally, he thinks that he can combine both companies accounting records into one Quickbooks file. According to the business entity concept, both of these companies are separate entities and must be accounted for separately even though Bob is the owner of both companies. If Bob's landscaping company had bought the concrete company, both companies would have merged and could be reported together.

- Jim, an owner of a pizza shop, decides to buy a new delivery car. Since the company was low on cash, Jim decided to pay for the car himself out of his personal bank account. Jim intends to add the car to the balance sheet of the pizza shop. The economic entity principle requires Jim and his company to keep activities separated, so the car must remain a personal vehicle unless Jim contributes it to the company or the company buys it from Jim personally.

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Saturday, 19 July 2014

What is an overdraft?

An overdraft usually refers to a checking account where the amount of checks presented to the bank for payment exceeds the amount on deposit. When this occurs we say that the checking account customer has overdrawn its account. The overdraft means that the bank's records indicate a negative checking account balance.


A checking account overdraft will likely result in bank fees for either 1) returning the checks to the endorser or payee so that the account balance will not remain negative, or 2) not returning the checks and allowing the checking account balance to remain negative. If checks are returned, they are often noted as being returned for insufficient funds or not sufficient funds (NSF). The bank of the check endorser is also likely to charge its customer a fee for processing the returned checks.

Many companies write checks for more than the amount on deposit in their checking accounts but may not experience a bank overdraft. The reason is the time delay between writing checks and having them clear the checking account on which they are drawn. Taking advantage of this time delay and not having an overdraft is referred to as playing the float.

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