Per Capita Income

The per capita income indicates the changes in economic progress in terms of goods and services available per head of population.It obtained by dividing the national income by the number of people.
The concept of percapita income is an index of changes in the standard of living of people a country.The greater the percapita income the higher will be the standard of living and vice versa.However it does not indicates the real standard of living of every man.It shows merely an average income of the people.
 
                               National Income
Percapita Income =  _____________

                               Size of Population

Gross National Product (GNP)

If we add the net income from abroad to GDP, we get GNP.It refers to total market value of all final goods and services produced in a year.It is the aggregate value of the current production of goods and services flowing to the government, to consumers and business.
In short
GNP=GDP + Net Income from Abroad.

Gross Domestic Products(GDP)

This is the money value of all final goods and services produced by normal residents (Nationals residing in a country) in an accounting year in the domestic territory of a country. Thus it does not include the income from abroad. GDP per capita is often considered an indicator of a country's standard of living.
In short

GDP = private consumption + gross investment + government spending + (exports − imports)

National Income

National Income is generally defined as income of a nation in one year.It is the money value of all final goods and services produced in a country.In other words, it is the money value of the end result of all economic activities of a country.
Economic activities generate two kinds of flows-
                              -Money flows
                              -Product flows
Money flows refers to prices of factors of production such as rent, wages,interest and profit.Product flows refers to flows of consumer goods and services and productive assets

Law of Diminishing Marginal Utility

This law explains human behaviour (Consumer behaviour) in relation to consumption of commodity.As a consumer consumes more and more of a commodity, the utility (satisfying power) derived by him from the every subsequent unit goes of falling (diminishing).
It is the experience of every consumer that as he goes on consuming a particular commodity ; each successive unit gives him lesser and lesser satisfaction.In other words, the total utility goes on increasing, but at diminishing rate.

Bank Reconciliation statement (BRS)

Bank reconciliation statement is the statement which contain a complete and satisfactory explanation of the differences in balances as per the cash book and bank statement.The preparation of BRS is not part of the double entry bookkeeping system.It is just a procedure to prove the cash book balance.

It should be noted that:

(a) a BRS is to be prepared whenever a bank statement received; and

(b) It is prepared on a stated day.

Need for Bank reconciliation statement

1. It reflects the actual bank balance position

2. It helps to detect any mistake in the cash book and in the pass book

3. It prevents frauds in recording the banking transactions.

4. It explain any delay in collection of cheques 

5. It identifies valid transactions recorded by one party but not by the other.

In short BRS is the auditing tool for management.

Bad Debts/Provision

Bad debt is an amount owing from a debtor which is not expected to received.In business, debts become irrecoverable owing to various reason, namely, insolvency, willful non-payment,and like that.Though bad debt us a loss to the business, it is treated as an operating expenses of doing business, since it is inevitable to any business that extend credit to its customers.
It can be argued that the transfer of bad debts to profit and loss account should be made in the year in which the sale took place as only such treatment will conform to the matching concept.But it would be possible though difficult to reopen the earlier period's accounts but this is seldom done in practice.

Provision for bad debts
At the end of each accounting period, the firm knows that it will  suffer a loss due to bad debts in future.An accurate estimate of the apprehended bad debts losses can nevertheless be made, because the firm does not know which debtor will fail t make payment in future.Therefore, the book value of sundry debtors may not be the actual realizable value.
Towards the endeavour of ascertaining the true (or fair) trading profit,a portion of profit is set aside in a special account called 'Provision for Bad and Doubtful Debts' to adjust the loss of future bad debts which is based on approximations.But we cannot write off the accounts of doubtful debtors at once, the value of the sundry debtors cannot be reduced directly.This is so because there may still a chance of recovery (Partly or fully) of debt.
The estimate doubtful debts (Provision for Bad and Doubtful debts account) is shown as a separate figure in the balance sheet

Capital Expenditure-CAPEX

Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. This type of outlay is made by companies to maintain or increase the scope of their operations.
Theses assets or service acquired which will benefit the business more than one accounting period.

Subdivision of Ledger

Generally the following three kind of ledgers are maintained by organisations.
Debtors Ledger
It may contain the accounts of all the customers to whom goods have been sold on credit.This ledger is also called customer's ledger or sales ledger

Creditors Ledger
It may contain the accounts of all the suppliers from who goods have been purchased in credit. this ledger is also called supplier's ledger or purchase ledger.

General Ledger
It may contain all the residual accounts, mainly real and nominal accounts.This ledger is also called Nominal ledger

Sales Day Book

Sales Day Book: It is subsidiary book of account in which only transactions related to sales are recorded and not like general journal in which we record all monitory transactions. If the volume of transactions is huge then we use different subsidiary books of accounts for Sales, Purchase, Sales Returns, Purchase Returns,Bills Receivable, Bills Payable,and general journal to record all transactions.

Discount,Trade discount and Rebate

DiscountDiscount will be given for Credit customers like if you pay within one week 10%, within 15 days 5% and more than 15 days no discount.Deduction from the face amount of an invoice, made in advance of its payment.


Trade Discount
A trade discount is the amount by which a manufacturer reduces the retail price of a product when it sells to a re-seller, rather than to the end customer.The trade discount reflects the re-seller's profit margin and usually varies directly with the quantity of the item purchased.Rebate is like buy for 100/- and pay only USD 95/-.


Rebate

Return of a portion of a purchase price by a seller to a buyer, usually on purchase of a specified quantity, or value, of goods within a specified period. Unlike discount (which is deducted in advance of payment), rebate is given after the payment of full invoice amount.

Cash Book

The cash book is the subdivision of the book of original entry, recording transaction involving receipts or payment of cash.
All cash transaction first entered in the cash book and then posted to from cash book into ledger.Cash book is maintained in the form of ledger with narration.Practically, the cash book is the substitute for cash account in the ledger.

Purchase Day book

A purchase day book shows all the entries related to purchases made during a day, it is the primary book of records, at the same time purchase return entry are also recorded in this book.
On receiving the goods and invoice, the receiving department compare both with copy of purchase order placed by purchase department. If everything is found in order, the goods are sent to stores.On the basis of invoice received from the supplier, necessary record is made in purchase day book.

Depreciation

Depreciation  is  a measure of the wearing out, consumption  or other loss of value of a depreciable asset arising from use,effluxion of time or obsolescence through    technology  and market    changes.Depreciation  is  allocated  so  as  to  charge  a  fair  proportion  of  the depreciable  amount  in  each  accounting  period  during  the  expected useful  life  of  the  asset.  Depreciation  includes  amortisation  of  assets whose  useful  life  is  predetermined. (Indian Accounting standard 6).

Objectives of Providing Depreciation

1. To Find out net profit or loss for an accounting period, the expenses includes the portion of cost of fixed assets that has expired during the period. Unless depreciation is charged , the true profit of particular period cannot be ascertained.

2. Unless the depreciation is charged, the assets may be overstated in the balance sheet.Hence, the value  at which the fixed assets will be shown in the balance sheet is its original cost less the amount charged as depreciation.This value called written down value.

3. In order to replace the asset.If the depreciation not charged and profit available for distribution not reduced, it is quite likely that the whole of the profit may be withdrawn during the life of the asset.In such case, the business unit may not have sufficient funds left for replacement.

 

Trial balance

For every transaction in the double entry system, equal amounts of debit and crdit are recorded in the books of account.if all the transactions have been recorded perfectly, we can say that the total of the debit balance should be equal total of credit balances.
The account balance are used to prepare the final accounts. An attempt is first made to check the accuracy of the recording and posting of each transaction as welll as the correct balancinf of accout by means of preparing a schedule if balance of all accourns known as trial balance.
A trial balance is simply a list of the names and balances of all accounts in the ledger and cash book and listed in the order in which they appear in the ledger

Journal and Ledger

Journal
This is first book in which the transactions of a business unit are recorded.
Each records in the journal book called entry.
As the journal is the first book in which entries are recorded, a journal is also known as book of original entry.
Before journal entry is passed it is necessary to decide for each transaction, what are the accounts involved. It also necessary that the accounts to be debited or credited are identified.

Ledger
It is the principal book of accounts where similar transaction relating to particular person or thing are recorded.
The journal is used to record transaction in ledger.Now a day because of computerization the ledger account is posted as and when journal passed.

Double Entry System

Every business transaction affects two or more accounts. Under Double Entry System, equal debit and credit entries are made for every transaction. If more than two accounts affected by a transaction , the sum of debit entries must be equal to sum of the credit entries

It can be explained by simple equation :

Liabilities + Capital = Assets

Increases on the left hand side of a ledger  are called credit balance 

Increases on the right side side of a ledger are called debit balance

Similarly, Decreases on the left hand side are called debit balance and

               Decreases on the right hand side are called credit balance