Master Note of Accounting and Finance

Concept of Depreciation Most plant and equipment assets wear out or become obsolete over the years. Similarly, although land is not depreciated (because it does not wear out), improvements to land, such a paving or fences, are depreciated because these improvements wear out or become obsolete over time. The portion of assets "used up" (wear out) each year is referred to as depreciation.  Depreciation is the way to calculate the reduction in value of any fixed assets due to use, wear, tear and obsolescence. It is the method to calculate deduction in price of any fixed assets due to wear and tear that reduces the monetary value of the assets.  Nature of Depreciable Assets The depreciable assets can be found by reviewing the following characteristics of the assets listed as bellows: Ability to use more than one accounting period Having a limited useful life Use for production of goods or services Use for rent, etc.  Large investment requirement Capital Expenditure in Nature,...

Meaning of Closing Entries When an accounting period comes to end, there are various steps to clean the account and prepare for the next accounting period, these process is known as accounting cycle. After preparing the financial statement, one of the steps comes which is known as closing entries. Closing entries is prepared to make the balances of temporary accounts zero and transferring all temporary accounts into permanent accounts. Features of Closing Entries There are some features of closing entries listed as bellows: It is one step of accounting cycle It uses nominal accounts to make balance zero It leaves temporal account with a zero balance It reflects in owner's equity account  Nature of Account for Closing Entries   Temporary accounts: It is also known as nominal account or income statement accounts that includes revenues, expenses, dividends, (or withdrawals) accounts. These accounts balance do not roll over the next period after closing. The closing process acc...

Introduction The cash flow statement is the statement of cash that shows the frequency status of inflow cash and outflow cash. The statement of cash flows summarizes a company's operating, investing, and financing activities for the period. Each of these categories can result in a net inflow or a net outflow of cash.  Importance of Cash Flow Statement There are various importance of cash flow statement some of them are listed as bellows: To know the operating cash position of the business: It includes various operating activities like collection of customers, payment to suppliers, payment for operating expenses and tax expenses. To know the investing cash position of the business: It includes all the activities related to purchase and sales of fixed assets. It deals with transactions with tangibles assets. To know the financing cash position of the business: It includes all the activities related to financing such as equity financing, debt financing and its charges expenses like...

Introduction A balance sheet is a financial statement that summarizes a company's assets. liabilities and shareholders' equity at a specific period of time. In other words, It is a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time. It is one of the three fundamental financial statements (Income Statement, Balance Sheet, Cash Flow Statement). Usually, It is prepared in every quarter, six months or one year depending on company's and law's requirements. Components of Balance Sheet   Assets : Assets are the items or properties owned by person or company having value to meet various financial needs. The assets can be classified into three categories. They are Real Assets: It is also known as Fixed Assets or Non-Current Assets. Those assets which can not be converted quickly into cash. These assets are also called physical assets due to inherent physical worth. Basically, its has purchased  for long-term...

Introduction The Income Statement summarizes the results of operations of an entity for a period of time. At a minimum, all companies prepare income statements at least once a year. Monthly income statements are usually prepared for internal use by management. Income statement is also sometimes called profit and loss account. It help people to see the financial performance of the company. It is also used for comprising the financial performance with past performance, benchmark, and competitors. Components of Income Statement There are the major components of income statement listed as bellows: Sales Revenue: It includes both cash and non-cash sales by deducting sales return and discount. It can be calculated by multiplying price of the product with quantity sold. Cost of Goods Sold: It refers to direct cost of producing the goods sold by the company. It can be calculated by adding purchase of inventory and direct expenses  and subtracting ending inventory from opening inventory....

Meaning of Adjustment The transactions that do not appear in a ledger account are to be noted as adjustments. It is also known as accounting or year-ended adjustments. Adjustments are necessary for financial reporting that are made on accrual basis. The year-end adjustment typically made by journal entries (adjusting entries) that reflects in the company's financial statements. It is made before financial statements are prepared to ensure that company's financial records adhere revenue recognition and matching principle. Those financial transactions not included in the concerned ledger account are mentioned separately as adjustments after the preparation of trial balance. Features of Adjustments The following are some of the major features of adjustment that can help the accountant to identify and make adjusting entries.  It is given by named as accrual or deferred incomes or expenses It is given at the end of all the transactions It always affects the profit and loss and balan...