Discount:
An allowance or concession allowed or received on the sale or purchase activities of the business. It can be of two types i.e. Cash Discount and Trade Discount
Cash Discount:
When Discount is given or received for spot payment, then it is Cash Discount. It is generally given by creditor to his debtors for immediate payment. It is shown in the book of accounts.
Trade Discount:
When discount or concessions allowed by trader for bulk purchases, then it is known as trade discount. Generally it is allowed by a manufacturer to a wholesaler or by wholesaler to a retailer.
It is deducted from invoice or printed price or catalogue price. It is not shown in the book of accounts.
Solvent:
When a person is in position to pay his all liabilities then he is known as Solvent person. In other words, When person's assets are more than his liabilities, he is known as solvent.
In such case, Assets > Liabilities.
Insolvent:
An allowance or concession allowed or received on the sale or purchase activities of the business. It can be of two types i.e. Cash Discount and Trade Discount
Cash Discount:
When Discount is given or received for spot payment, then it is Cash Discount. It is generally given by creditor to his debtors for immediate payment. It is shown in the book of accounts.
Trade Discount:
When discount or concessions allowed by trader for bulk purchases, then it is known as trade discount. Generally it is allowed by a manufacturer to a wholesaler or by wholesaler to a retailer.
It is deducted from invoice or printed price or catalogue price. It is not shown in the book of accounts.
Solvent:
When a person is in position to pay his all liabilities then he is known as Solvent person. In other words, When person's assets are more than his liabilities, he is known as solvent.
In such case, Assets > Liabilities.
Insolvent:
When a person is not in position to pay his all liabilities then he is known as Insolvent person. In other words, When person's liabilities are more than his assets, he is known as Insolvent.
In such case, Liabilities > Assets.
Contingent liabilities:
These are liabilities which may arise on happening or non-happening of a specific event in future. So these liabilities are not shown in the liabilities side of balance sheet until they arise.
For e.g. I am producer of body lotion product, one of our customer gets infected by skin allergy by using our product. He filed suit in Consumer Forum against our company claiming compensation amount Rs. 50000 for her skin treatment. Now Liability of Rs. 50000 depends on decision or order of Consumer Forum. until Forum will not pass an order, it is our Contingent Liability.
Bad Debts:
Bad debts is the amount due from customer which is irrecoverable from him.
Events of Bad debts:
1. Sudden death of customer.
2. Customer declared insolvent by court.etc
Accounting year:
Accounting year means period of twelve months. It can be 1st January to 31st December or 1st April to 31st March next year.
Financial Year:
Financial year means period of twelve months starting/commencing from 1st April and ending on 31st March next year.
For e.g. Current Financial year is 1st April, 2013 to 31st March, 2014.
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