Preparing of Revenue and Reduction Account

Explanation of Specific goods of Financial gain and Loss Account

1. Salaries

Salaries are paid out ?learn quickbooks to the companies of staff members and so are debited to profit and decline ac- count currently being oblique expense. If any income continues to be paid to proprietor or partners, it ought to be revealed independently mainly because it needs distinctive treatment on the time of profits tax assessment.

2. Salaries and Wages

When wages account is provided with salaries it dealt with is as indirect expense and it is taken into revenue and reduction account.

3. Lease

Rent on the workplace store showroom or godown is definitely an oblique expense and so is debited to gain & loss account. However, lease of factory is debited to trading account. When a part on the building has been sublet the rent received ought to be shown on the credit side of gain and reduction account as a separate item.

4. Rates and Taxes

These are levied by the local authorities to meet public expenditure. It becoming an indirect expenditure is demonstrated on the debit side of revenue and loss account.

5. Interest

Interest on loan, overdraft or overdue debts is payable by the firm. It can be an oblique price; so debited to earnings and loss account. Interest on loan advanced by the firm on depositor investments is an revenue of your firm and so is credited to the profit and loss account.

If business has paid out any interest on capital to its proprietor or companions it need to also be debited in the profit and loss account but individually because this item needs exclusive remedy at the time of income-tax evaluation.

6. Commission

In business sometimes agents are appointed to effect sales, who are paid commission as their remuneration. So this currently being a selling expenses is shown on the debit side of earnings and loss account. Sometimes commission is also compensated on purchases of goods, such 'as price must be debited in the trading account. Sometimes the firm can also act as an agent to the other business houses and in such cases it receives commission from them. Commission so received is proven on the credit side of financial gain and decline account.

7. Trade Expenses

They are also termed as 'sundry expenses'. Trade expenses represent expenses of such a nature for which it is not worthwhile to open separate accounts. Trade expenses are not taken to trading account.

8. Repairs

Repairs to the plant, machinery, building are oblique expenses are treated price and they are debited to profit and reduction account..

9. Traveling Expenses

Unless mentioned otherwise, traveling expenses are addressed as indirect expenses and are debited to revenue and loss account.

10. Horse & stable Expenses

Expenses incurred for the fodder of horses and wages paid for looking after stable are addressed as oblique expenses and debited to revenue and decline account.

11. Apprentice Premium

This is the amount charged from persons to whom training is imparted by the business. It is an cash flow and is credited to earnings and decline account. In case apprentice premium is charged in advance for two or three years, then the amount is distributed over number of years and each year's earnings and decline account is credited with its share of income.

12. Bad debts

It is the amount which could not be recovered by the trader on account of credit sales. It is a business loss, so is debited in the earnings and loss account.

13. Life Insurance Premium

If the premium is paid on the life policy with the proprietor in the business; it is dealt with as his drawings and it is revealed by way of deduction from the capital account. It really should not be taken to earnings and reduction account.

14. Insurance Premium

If insurance premium account appears in the trial balance, it stands to the insurance in the business. This is taken to financial gain and decline account. Insurance premium on goods purchased, factory building, factory machines are treated as direct expenditure and they are taken to trading account.

15. Money Tax

In the case of merchant income-tax paid out is dealt with as a personal price and it is demonstrated by way of deduction from capital account. Income-tax in case of companies is dealt with differently.

16. Discount allowed and Received

Discount is a reward for prompt payment. It is belief to show discount received and discount allowed individually on the credit and debit side of gain and reduction account respectively instead of showing the net balance of this account.

17. Depreciation

Depreciation is a reduction incurred on account of use of fixed assets in the business. Generally, it is charged from gain and reduction account at a fixed percentage. The students need to exercise great care as regards the rate of depreciation. If rate is without words 'per annum', then the rate will be taken irrespective with the period of accounts. This is very important when the period of accounts is less than one year. On the other hand, if the rate of depreciation is 'per annum' the depreciation should really be calculated on the assets with due consideration to the period for which the asset has long been used in business during the year. In case of additions to assets during the year, it is advisable to ignore depreciation on additions if the date of additions is not given. Same rule shall hold good for that sale of assets during the year.

18. Stock within the end appearing in the trial balance.

It is important to emphasize the rule that balance appearing in the trial balance is taken to one and only one place. It may either be trading account or revenue and decline account or balance sheet. Since stock for the end is really an asset, it will betaken to balance sheet. On the other hand, so long as there is stock in trade, account for that must be kept open and thus be taken to the assets side of balance sheet.