What is prepaid expense?

Prepaid expense are future expenses that have been paid in advance and its benefits are yet to be received . A prepaid expenses arises when the amount is paid in advance for the goods or services to be received in future. Hence prepaid expenses are treated as an asset of the organisation and  its value written down as expense or charged to profit and loss account; after getting its benefits either monthly or yearly. Certain expenses like insurance premium,rent rates

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Outstanding Expense & Journal entries

The outstanding expenses are those expense which are due but not paid. In order to know the exact business result such expenses are accounted in the period as it occurred. The amount shown against an expense item in the trail balance represents the amount actually paid, and if any amount remains unpaid on account of an expense correctly attributable to the given period,such unpaid or outstanding expenses should be adjusted in the accounts before the final accounts could be correctly drawn

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Interest on Capital

Interest allowed on the proprietor’s, partners capital is some times treated as a business expense.If the amount of capital were invested outside the business it would have earned a normal rate of interest.Therefore allowance is sometimes made for this interest  before the actual net profit of the business is ascertained. For example,before charging interest on capital a business earned for one year a net profit of 4000 and the capital at the beginning of the year was 10000.If the trader

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Bad debts and its accounting treatment

Many business offer credit facility to its customers in order to overcome the competition and increase its sale and there by revenue. Giving credit to its customers often leads to a negative result such as non payment of dues from customers.After lot of efforts to collect the outstanding amount from customers business will get to know that some debts are irrecoverable. The failure to collect amounts due from trade debtors result in an expense that is known as bad debts.When it

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What is accrual? How it is accounted?

Accruals are the earnings of Income and incurred expenses which are not accounted in our books of accounts so far.Accruals are those expenses and earning which are recorded through adjusting entries in the books even if payment is made or received at the time accounting. A few examples can understand you the accruals better. Why Accrual Accounting? Accrual Accounting Helps to understand the accurate position of a company’s current financial situation as it record the expenses and Income which are become due.In other words it

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Direct Expense and examples

Direct Expenses are expense which are directly involved in the production process in case of manufacturing or selling process in case of a trading business. While calculating cost of the goods sold or cost of production it is necessary to include all expenses directly attributable to putting the goods in a saleable condition.For Instance,When Goods are purchased the carriage inward on such purchases is sometimes payable by the buyer.He may also be required to pay freight,duty,clearing charges,dock dues,on imported goods.All these

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