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Accounting Ratios There are mainly 4 different types of accounting ratios to perform a financial statement analysis; Liquidity Ratios, Solvency Ratios, Activity Ratios and Profitability Ratios. A financial ratio is a mathematical expression demonstrating a relationship between two independent or related accounting figures. Such ratios are calculated on the basis of accounting information gathered from financial […]

Liquid Assets The term is usually encountered when dealing with assets which are highly liquid in nature. Liquid assets are either cash, cash equivalents or they can be converted into cash at very short notice. They are also referred to as Quick Assets. Quick assets can be calculated as [Current Assets – Inventory – Prepaid Expenses]. […]

Operating Profit Ratio Operating profit ratio establishes a relationship between operating Profit earned and net revenue generated from operations (net sales). operating profit ratio is a type of profitability ratio which is expressed as a percentage. Net sales include both Cash and Credit Sales, on the other hand, Operating Profit is the net operating profit i.e. […]

Unexpired Cost Every asset in a company is expected to fetch at least 100% returns on its cost, however, the returns obtained may not be in a single accounting period and may spread to multiple future accounting years. This is why unexpired cost exists in a business. At the time of preparing financial statements, an asset may have […]

Capitalized Expenditure or Capitalized Expense Capitalized expenditure is nothing but a revenue expenditure which is essential to acquire and function a new asset or improve an existing asset’s earning capacity. All such expenses are treated as if it were for the purchase of the fixed asset itself and are termed as a capitalized expenditure. All […]

Difference Between Ledger and Trial Balance Although ledger and trial balance are both integral parts of the same accounting cycle, there is still a considerable difference between ledger and trial balance. They both have their respective relevance and timing in the business cycle. In short, a ledger is an account wise summary of all monetary transactions, whereas a […]

Carriage Inwards Vs Carriage Outwards Carriage inwards and carriage outwards are two different types of expenses incurred by a company while buying and selling goods. They may be treated alike inside a trial balance, however, there is a clear difference between carriage inwards and carriage outwards. One is charged when the goods are being procured […]

Treatment of Carriage Outwards and Carriage Inwards in Trial Balance The trial balance is a statement of Dr. & Cr. balances which are extracted from ledger accounts after balancing them. It is prepared to prove that the total of accounts with a debit balance is equal to the total of accounts with a credit balance in […]

Journal Entry for Carriage Outwards Carriage outwards is essentially the delivery expense related to selling of goods. Usually it is an expense for the seller and is charged as a revenue expenditure with the help of a journal entry for carriage outwards. The product may or may not be for resale, the word “Outwards” shows […]

Pay Your Credit Card Bill From Another Bank Are you still old-fashioned when it comes to paying your credit card bills? Visiting the bank and waiting in queues? Well, you’re due for an upgrade and this article explains how you can pay your credit card bill from another bank using net banking. It is advisable […]

Journal Entry for Carriage Inwards Carriage inwards is the freight and carrying cost incurred by a business while acquiring a new product. Journal entry for carriage inwards depends on the item and the intent behind its usage. The product may or may not be for resale, the word “Inwards” shows that the cost is incurred while […]

Carriage Inwards and Carriage Outwards “Carriage” can be seen as freight or transportation cost, it is the carrying costs related to the purchase and sale of goods. Often the buyer is responsible for the cost of carriage inwards whereas the seller is responsible for carriage outwards. Carriage inwards and carriage outwards are essentially delivery expenses […]

Notes to Accounts Also known notes to financial statements, footnotes, notes to accounts are supporting information that is usually provided along with a company’s final accounts or financial statements. Many such notes are required to be provided by law, including details related to provisions, reserves, depreciation, investments, inventory, share capital, employee benefits, contingencies, etc. Other […]

Prepaid Expenses At times, during business operations, a payment made for an expense may belong fully or partially to the upcoming accounting period. Such a payment (partly or fully) is treated as a prepaid expense (unexpired expense) for the current period. It is treated as an adjustment in the financial statements and this article will describe the treatment […]

Overcapitalization It is a financial situation where a company has more than enough total capital as compared to the needs of its business operations. In case of overcapitalization, the total equity (owner’s capital + debt) of a company exceeds the actual worth of its assets. An overcapitalized company may often be burdened by interest payments or […]

Undercapitalization It is a financial situation where a company doesn’t have enough capital or reserves as compared to the size of its operations. Undercapitalization is often seen with new companies, it is a result of inadequate planning of funds for future growth. Even larger corporations with struggling operations and huge debts may be undercapitalized. An […]

Off-Balance Sheet (OBS) Also known as Off-Balance sheet items, Off-Balance sheet assets or liabilities, and Incognito Leverage. They are either a liability or an asset which are not shown on a company’s balance sheet as the business is not a legal owner of the respective item. Off-Balance sheet items are generally shown in the notes to […]

Net Profit Ratio Also known as Net Profit Margin ratio, it establishes a relationship between net profit earned and net revenue generated from operations (net sales). Net profit ratio is a profitability ratio which is expressed as a percentage hence it is multiplied by 100. Net sales include both Cash and Credit Sales, on the other […]

Gross Profit Ratio Also known as the Gross Profit Margin ratio, it establishes a relationship between gross profit earned and net revenue generated from operations (net sales). The gross profit ratio is a profitability ratio expressed as a percentage hence it is multiplied by 100. Net sales consider both Cash and Credit Sales, on the […]

Difference Between Journal Entry and Journal Posting Journal entry is recorded in a journal which is also known as the primary book of accounts, this is where all transactions are recorded for the first time in a progressive order. The words are often used around each other, however, there is a difference between journal entry and […]

Depreciation Vs Depletion Vs Amortization All assets with an estimated useful life eventually end up being exhausted. Different types of assets such as fixed, intangible & mineral assets are systematically reduced within their useful life. The difference between depreciation, depletion and amortization depends on the type of asset in question. Depreciation, Depletion and Amortization are three […]

Depletion It is a systematic reduction in the value of a natural resource as an asset. In accounting, depletion is mainly associated with the extraction of natural resources i.e. mineral assets. For example – extraction of coal from a mine, extraction of limestone from a quarry, unearthing oil from an oil well, etc. The cost […]

Offset Account To understand an offset account it is important to understand the meaning of the word “Offset”. It means, to show a consideration or amount that reduces or balances the effect of an opposite amount, it has an equal and opposite effect. In simpler terms, offset means a counteracting or opposite force. Example – […]

Closing Stock Goods that remain unsold at the end of an accounting period are known as closing stock. They are valued at the end of an accounting year and shown on the credit side of a trading account and the asset side of a balance sheet. Accounting and journal entry for closing stock is posted […]

Journal Entry for Income Tax Income tax is a form of tax levied by the government on the income generated by a business or person. Accounting and journal entry for income tax is done in a distinct way for different types of business establishments i.e. Sole Proprietorship, Partnership, and Private Limited Company. Private limited companies […]