Every business incurs expenses at each stage of its business operations. Right from establishment of a business to its day to day operations and even winding up of a business, expenses are incurred at each stage. Measuring, recording and analyzing expenditure is essential for every business as it impacts cash flows and profitability of the … Read moreRevenue expenditures vs capital expenditures
Depreciation is the depletion in the book value of fixed assets due to wear and tear that occurs during their use. Depreciation is accounted as a charge against profit in each accounting period. This is essential to reflect the true value of fixed assets in the books. There are several methods prescribed to measure and … Read moreStraight line vs written down value (WDV) method of depreciation
Current Assets: A business asset which is likely to be consumed within a financial year or a 12 months period is referred to as current asset. Liquid Assets: An asset that can be readily or quickly sold for cash proceeds is known as a liquid asset. All assets can be sold for cash but liquid … Read moreDifference between current and liquid assets
Definitions and meanings: Accounting: The practice of keeping a systematic record of transactions of a business, summarizing them and presenting them in meaningful manner is known as accounting. The data obtained is also used for reporting purposes. Economics: Economics is a study of social sciences that is related to the production, consumption and/or distribution of … Read moreDifference between accounting and economics
Inventory accounting and management are key functions in manufacturing and trading companies. Inventory consists of everything from raw material, production consumables to work in progress and finished goods. Large manufacturing and trading companies have considerable amounts invested in their inventories and thus its accounting and management assumes an even more important role. Inventory accounting involves … Read moreFIFO vs LIFO
Fixed assets are resources that generate economic benefit for a business over a long duration, often across several accounting periods. Fixed assets are thus initially capitalized and subsequently a part of its cost is expensed out in each accounting period. This is also in line with the ‘matching concept’ in accounts which provides that expenses … Read moreDepreciation vs amortization
Operating Expenses: Those expenses which a business incurs to run its day-to-day business operations but are not related to the production process directly are known as operating expenses. These expenses can be categorized as selling, admin, marketing, advertising expenses etc. Non-operating Expenses: Such expenses that are neither related to normal course of activities of a … Read moreDifference between operating and non-operating expenses
Definitions and meanings Direct expenses Direct expenses are those expenses that are incurred directly in the manufacturing process of a certain product. These costs are directly proportional to the changes in production level of the business. Indirect expenses Indirect expenses are those expenses that cannot be associated directly with the production process of a company … Read moreDifference between direct and indirect expenses
FIFO and weighted average are referred as two methods used for valuation of inventory in a company. Inventory valuation is important because it affects many other vital figures especially those written in the financial statements of a business e.g. cost of goods sold, gross profit, the value of closing inventory mentioned in total assets etc. … Read moreDifference between FIFO and weighted average method of inventory valuation
Every business incurs liabilities during the course of its business operations. Understanding the nature and amount of liabilities are important to gauge the true financial position of any business. This article looks at meaning of and differences between two different types of liabilities based on when they arise – actual liability and contingent liability. Definitions … Read moreDifference between actual and contingent liability