Contingent liabilities and provisions are governed by the international accounting standards 37 (IAS 37). The main objective is to match asset and liabilities = income and expenses in a particular financial year, so that the financial statements reflect in a realistic manner.ProvisionIt is the present obligation that arises due to previous events. Provision decreases asset values. This is for bad debts and doubtful debts are commonly recorded debts.Over provision or under provision are recognised by comparing with the previous years and are charged in an income statement. Provision amount is decided on the company’s policy.The basic accounting treatment for provision ... Read More

Liability is the amount owed to a creditor. Long term and short term liabilities are the types of liabilities.Long term liabilities are expected to pay over the years or the time frame is more than a year. However, short term liabilities are expected to pay within a year.A contingent liability is the liability which may or may not occur. That means the contingent liability will depend on future events.AccountingLiability is accounted for immediately as you owe the obligation. Amount is recorded in books as accounts or notes payable.Contingent account is accounted for only when the obligation is probable and amount ... Read More

Liabilities are current obligations which arise from the previous events. Settling these obligations causes the outflow of resources by decreasing their economic benefits. In simple words, liabilities are debt owed to others (may be a company or a person).The main types of liabilities are current liabilities, non-current liabilities and contingent liabilities.Current liabilitiesThese are also called short term liabilities. These liabilities are paid before 12 months or a year. Companies will have to look at their liquidity to guarantee these debts and ensure they can be met. Examples are accounts payable, income tax payable, interest payable, accrued expenses.Non-current liabilitiesThese are also ... Read More

Contingent asset is that asset for a company, which has future economic benefit. This means that the asset may arise in future based on contingent events, which the company has no control over.Company discloses this type of asset, when an income flow is probable. Reasons for not recognizing this as an asset is its uncertain event and conservatism.Examples of contingent assets are as follows −Gain from lawsuit.Litigations.Legal disputes etc.Accounting treatment for contingent assets are governed by International accounting standard 37. These are not recognized, but disclosed, when it has inflow benefits. Asset is not considered as contingent, if the asset is ... Read More

For existence purposes, business incurs various expenditures. Some will have long term impact in profit making and some will have short term impact. To increase the business efficiency and get higher returns is the main reason by incurring expenditure.There are two types of expenditures which are capital expenditures and revenue expenditures respectively.Capital expenditureThese are expenditures incurred for long term benefits. The main purpose is to enhance the existing ones or to add a new asset. These are recorded on the asset side (balance sheet). Organizations increase operating capability by spending expenditure on land, equipment, furniture etc.Revenue expenditureThis expenditure is incurred ... Read More

Revenue expenditures are those expenditures which are incurred in normal business operations by an organization/company.In other words, revenue expenditures are the sum of expenses which are incurred in production of goods and expenses incurred in services in an accounting period. Benefits of revenue expenditure received in the same period.Revenue expenditure will not add in profits, but these are helpful in maintaining day to day operational activities and managing assets in a better way. These are also known as OPEX/revenue expenses.TypesThe types of revenue expenditures are as follows −Maintaining asset (revenue generated) − Repairs and maintenance.Revenue generating − Expenses to operate ... Read More

Let us understand what are capital receipts and revenue receipts, before learning about their differences.Capital receiptsThese are the non-recurring income received by the company and come under investing and financial activities.They are generated from issue of shares, government’s grants, insurance claims, bank loans or loans from financial institutions, issue of denatures etc. Capital receipts reduce an asset or will increase a liability.Revenue receiptsThese are recurring income received by the company. This comes under business activities and benefits are enjoyed in the current period only.These are generated from services rendered, interest and rent received, discount from creditors/suppliers, sale of scrap etc.ComparisonThe ... Read More

Let us consider different scenarios about capital and revenue and therefore, understand their categorisation respectively. Proprietor contributed the amount as his capital.Nature − Comes under capital receipt.Reason − Benefits of this contribution is for a long period of time. Amount realized by selling old furniture.Nature − Comes under capital receipt.Reasonv Purchasing furniture comes under capital expenditure; sale of furniture comes under capital receipt. Acquiring fixed assets by borrowing money from banks.Nature − Capital receipt.Reasonv Benefits enjoyed by business for a long time. Money received from a debtor who was previously written off as bad.Nature − Revenue receipt.Reason − Previously written off account treated as revenue expenditure, amount received from the ... Read More

First, let us understand about the capital payments.Capital PaymentsCapital payments are payments of capital expenditures of a company, which are made into cash.In other words, capital payments are non-recurring payments which are paid in cash and are part of the capital expenditures. These payments are made in installments or at once.Capital payments include the following −Payment which is made to purchase an asset/assets.Share capital and debentures redemption.Repayment of proprietors in long drawing.Goodwill payments etc.ExampleSuppose a company purchases a product from a vendor. Moreover, the vendor sent a team of professionals at the time of installation and invoiced the company with ... Read More

Let us understand what a sole trader and a partnership are, before learning about their differences.Sole traderAn individual who owns and runs the total business is known as sole trader. In simple words, a sole trader has to look after his/her own resources to run their business.He/she has to apply for a license before starting their business. Chance of liability is unlimited, so he/she should have a cautious approach.Motivation, secrecy, freedom of trade selection etc. are the characteristics of sole proprietorship. Main objectives are creating own opportunities, helping large business, productive use of funds etc.PartnershipIt is a legal relationship between ... Read More