'IAS16'                      ''DEPRECIATION''

Property plant and equipment:-

According to IAS the property, plant and equipment as tangible assets item that are held  for the use in production or supply of goods or services for rental to other or for administration purpose and expected to be used during more than one accounting period and treated as long term or fix assets.

Depreciation:-

                                 The benefit drive from the useful life the assets is called depreciation .

                             

There are two types of depreciation

1.     fixed base/original cost/ straight line method

2.     written down method/diminishing balance method

Fixed based/original/straight line method

                                                                                            First of all I want to explain to the fixed based method in which method the depreciation is fixed and charge on the original value of an assets that's why this method is called fixed base method.

Depreciation = original cost – residual value

                                Estimated life

Original cost= 100000 residual value 10000 estimated life is 5 years. Prepare the 2 year depreciation account

We can find the depreciation;

Depreciation= 100000-10000

                                    5

Depreciation =18000

The value after year =100000-36000(18000+18000)

                                = 64000

The depreciation of both years sane that’s why this method is called fixed method

Written down method/diminishing balance method

                                                                                         The 2nd method is written down value method in which method depreciation is charged on the book value (original value - depreciation) of assets. The percentage is given in the question and this percentage is calculated at the book value of the assets .

Explanation of this picture

This picture shows that's when assets are purchased then he his performance or market value in highest position but with the passage of time or the use of assets in business the value of assets are decreased and few place where the value of the assets are increase instead of decreased this position is called appreciation of an assets. Appreciation is the process when the value of an assets is increased instead of decreased.

'Accelerated Depreciation'

This also the method of depreciation which is used in accounting and income tax purpose

''Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset''.

     ‘’Cash flow statement’’

Definition:-

                   Cash flow statement is the statement in which the information is provide about the cash inflow or outflow of the cash in giving accounting period. The receipt and payment of cash is record in which statement.

Method of cash flow:-

·       Direct method

·       Indirect method

Two method is used to prepared the cash flow statement one is direct and second one is indirect method.

Types of cash flow statement:-

·       Operating activity

·       Investing activity

·       Financing activity

Direct method:-

                             This method is used to prepared the cash flow statement.

First of all I can explain the operating activity in direct method.

the cash outflow or inflow in the business due to operational work is called operating activity the cash outflow or inflow in the business due to operational work is called operating activity. In which operating activity the cash outflow and inflow id due to cash received from customer, interest or dividend received, cash paid for purchases of merchandise and cash payment for expenses

cash received from customer:-

                                   (+) decreased in A/R

Net sales

                           (-) increased in A/R

We can find cash received from customer by this method

Interest and dividend received:-

                                              (+) decreased in interest receivable

Interest revenue                                                                                                                                                                                                                                                           (-) increased in interest receivable

 

Dividend revenue             (+) decreased in dividend receivable

                                                     (-) increased in dividend receaveable

By this method we can find the interest and dividend received.

Cash paid for purchase of merchandise:-

Step 1

                                          (+) increased in inventory

Purchase= COGS

                                            (-) decresead in inventory

                                                                                          

Step 2

                                                (+) decreased in A/P

Cash paid=purchase

                                                (-) increased in A/P

We find the cash paid for merchandise of merchandise.

Cash payment for expenses:-

                                                  After deduct depreciation and other non cash expenses we will see the expense is prepaid or accrued.

                              (+) increased in prepaid/ (+) decreased in accrued

Expenses

                            (-) decreased in prepaid /(-) increased in accrued

Financing activity

                            The cash is out flow and in flow in the business  due to financing activity like borrowing or loan from bank and equity is called financing activity.

·       Borrowing

·       Loan from bank

·       Equity

Assets	Outflow    (-)	Inflow    (+)
Liability or owner equity	Inflow   (+)	Outflow    (-)

In which financing activity we treat the transaction according to this table.

Investing activity:-

                                  The cash is inflow or outflow in the business is due to purchase or sale of marketable securities or investment and sale and purchase and sale of fixed assets this activity is called investing activity.

Assets	Outflow    (-)	Inflow    (+)
Liability or owner equity	Inflow   (+)	Outflow    (-)

In which activity we can treat the transaction according to this table

 Indirect method:-

                                This method is also used in making the cash flow statement.

Operating activity:-

                                   In which activity the cash flow is due to operational activity and method is different in which indirect method .

Operating activity:-

                                  Net profit / net loss

              (Add)      depreciation /amortization

             (Add)         loss on sale of assets

             (Less)         gain on profit

           (Add/less)   increases/decreased in A/P

          (add/less)     increased/decreased in A/R

         (add/less)     increased/decreased in inventory

         (add/less)     increased/decreased in outstanding exp

         (add/less)    increased/decreased in income receivable

     (add/less)      increased/decreased in unearned income

Assets	Outflow    (-)	Inflow    (+)
Liability or owner equity	Inflow   (+)	Outflow    (-)

Note

Investing and financing activity is same which I already explain in direct method.

                                                     ''NEW YEAR GIFT''

█

happy new to my friend and fellow.May my all friend live long and new year may bring the prosperity in your life and we got a wonderful and successful future.
ENJOY THE NEW YEAR MORNING AND WHOLE YEAR.
REGRAD,
                 FAHAD RASOOL  

INTERNAL CONTROL OVER CASH

BANK RECONCILATION STATEMENT:

“Bank reconciliation is a schedule explaining any differences between the balance shown in the bank statement and the balance shown in the depositor’s accounting records.”

Following differences could appear in both records:

DEPOSITOR’S BALANCE		BANK BALANCE
Add	Direct deposit	Add	Deposit in transit
Less	NSF(not sufficient funds) Service charges Dishonor cheque	Less	Outstanding cheque
Add/Less	Book error	Add/Less	Bank error

STEPS IN PREPARING A BANK RECONCILATION STATEMENT:

1. Compare deposits listed in bank statement with the deposits shown in the accounting records.
2. Compare checks paid by the bank with the corresponding entries in the accounting records.
3. Add to the depositor’s balance, any credit memoranda issued by bank.
4. Deduct from depositor’s balance, any debit memoranda issued by bank.
5. Make appropriate adjustment for any bank/book error.
6. Compare the adjusted balances of both statements (bank statement and depositor’s balance)
7. Prepare journal entries to record any item in the bank reconciliation not recorded in accounting record of depositor.

MERCHANDISING INVENTORIES

Two approaches are used in accounting for merchendising inventory.

1. Periodic inventory system
2. perpetual inventory system

Periodic inventory system:

In periodic inventory system no effort is made to keep up-to-date record of either the inventory or the cost of goods sold.Because these amounts are determined only periodically usually at the end of each year.

Following are the factors suggesting a periodic inventory system 

• Small companies, run by owner
• accounting records of inventories and specific product sales not needed in daily operations;such information developed primarily for use in annual income tax returns.
• inventory with many different kinds of  low-cost items.
• high volume of sales transactions and a manual accounting system.
• All merchandise stored at the sale site (for example , in the store)

Perpetual inventory system:

• large companies with professional management.
• management and employees wanting information about items in inventory and the quantities of specific products that are selling.
• items in the inventory with a high per unit cost.
• low volume of sales transactions or a computerized accounting system.
• merchandise stored at multiple locations or in warehouses separate from the sale site.

           JOURNAL ENTRIES FOR PERPETUAL AND PERIODIC INVENTORY SYSTEM

Event	Perpetual system	Periodic system
Purchase/acquiring merchandise inventory	Inventory             Account payable/cash	Inventory             Account payable/cash
Sale of inventory	1.      Account receiveable/cash                                         Sales      (at invoice price)   ____________________ 2.      cost of goods sold                          inentory         (at cost price)	Account receiveable/cash                                        Sales
Closing entries	Cost of goods sold                        Inventory   (shrinkage amount)	Cost of goods sold               purchase               Inventory(opening balance)  _________________ Inventory         Cost of goods sold

 

                                                      ''DEPRECIATION''     


The gradually decrease in the value of an assets is called depreciation.


There are two types of depreciation

1. fixed base method/ original cost method
2. written down method

First of all i want to explain to the fixed based method in which method the depreciation is fixed and charge on the original value of an assets that's why this method  is called fixed base method

The 2nd  method is written down value method in which method depreciation is charged on the book value (original value - depreciation) of an assets.

Explanation of this picture

This picture shows that's when assets are purchased then he his performance or market value in highest position but with the passage of time or the use of assets in business the value of assets are decreased and few place where the value of the assets are increase instead of decreased this position is called appreciation of an assets.Appreciation is the process when the value of an assets is increased instead of decreased.

  

'Accelerated Depreciation'

This also the method of depreciation which is used in accounting and income tax purpose

 ''Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset''.

                                                  ''ACCOUNTING EQUATION''
Accounting equation may be defined as '' a device by which the financial position of a business can be checked at a glance''
The fundamental accounting equation for each transaction, the debit is equal to the credit.

Assets=There are the things of value possessed by a trader, such as building,furniture.stock and good is called assets.

Liability=These are debts due by a business to its proprietor and others.Liability also defined as the claims of the business of the outsiders against the assets of the liability.

Owner's equity= The amount of cash and goods which the proprietor of the business invest in it is know as his capital and owner's equity.

ASSETS = LIABILITY+OWNER'S EQUITY

                               I can explain accounting equation with the help of example.

• Started business with cash rs. 50000
• purchased merchandise on credit rs.5000
• payment made against a/p rs 4900 in full settlement of rs 5000
• sold merchandise on credit rs.4000 costing rs 3500
• received cash rs 3950 in full settlement of rs 4000.  

                                 ASSETS                                   =                                        EQUITY                           
  CASH      +       MERCHANT    +        A/R                             A/P           +         CAPITAL 
1  50000              ..................              ............           =          .............                   50000
2 ..........             (+) 5000                        ...........         =     (+)  5000                     ............
3(-) 4900                ..............                                       =           -5000                 (+)    100      
4 .........                -3500                       4000                =            ............             (+) 500  
5(+) 3950                                         (-)  4000               =                                     (-) 50
                                                                                                                                               
TOTAL
49050          +       1500                       ..........                  =          ............               50550        

               50550                                                                                  50550              


In this example the two point where company face the profit and loss when company face profit then profit add in owner equity and when company face the loss then loss subtract from owner equity.At the end of all the transaction the debit and credit side are equal.