Revenues – Sales discuss the amount obtained from everyday activities of the commercial enterprise, like sale proceeds of goods and rendering services to the customers. Lease obtained, fee received, royalties and hobby obtained are considered as revenue, as they’re regular in nature and worried with day to day activities. It is shown in the credit aspect of the income and loss account or trading account.
Topics Covered In Class 11 Accountancy Chapter 1 Introduction to Accounting
Similarly, if Charlie Company sells goods to Alpha Company on credit, Charlie is the creditor and Alpha is the debtor. Facts to stop consumer – Accounting performs an essential role in recording, summarizing and presenting relevant and dependable statistics to its users, in the form of economic facts that enables choice making. Tax authorities – They need information approximately sales, sales, earnings and taxable profits if you want to decide the levy of various types of tax on the business. State the nature of accounting information required by long-term lenders.
It mainly comprises the chronological representation of the total assets, liabilities, and equity owned by the business entity. Determining profit earned or loss incurred – In order to determine the net result at the end of an accounting period, we need to calculate profit or loss. For this purpose trading and profit and loss accounts are prepared.
Income Tax – Income tax is defined as a direct tax that is imposed by the government on the income or profits earned by their citizens. This tax law says that every taxpayer has to file their income tax returns for every financial year, which will help to determine their total tax obligations. It is one of the major sources of revenue distinguish between debtors and creditors class 11 for governments around the world. The income tax depends on specific tax brackets that are regulated by the government of a particular country. It is based on the income that a person will make throughout a financial year.
This tax helps the government to run the country and engage in expenditure for developmental projects. It is levied on the incomes of an earning individual, a salaried individual, or a business. These earnings can come from multiple sources like wages and salaries, interest, rent, royalties, product sales, etc. It is also paid on the earnings from interest, employment, dividends, self-employment, or royalty. Factory Expenses – Factory expenses are the expenses borne by the business to produce the predetermined goods and services that are meant to be sold to their customers in the normal course of business.
Examples of a Debtor and Creditor
- Marshalling – The term marshalling means the order in which assets and liabilities are stated on the balance sheet as the balance sheet exhibits the financial position of concern even to a non-technical observer.
- Net Profit – Net profit is the excess (positive worth) that stays with the organisation subsequent to deducting all costs, taxes, and interest.
- In the normal course of business, goods are bought and sold on credit, which is not a new thing.
- For an efficient Working Capital cycle, every company maintains a time lag between the receipt from debtors and payment to creditors.
- Deducted from purchases in the trading account.
- A debit note is prepared by the buyer and reduces the payment made to the creditors.
A creditor is an individual or entity that is owed money. Typically, the creditors of a business are its suppliers, which have provided it with goods and services, and in exchange expect to be paid by an agreed-upon date. Or, the business owes money to a lender, which also expects to be repaid at a later date.
What are the types of accounting?
Gross Loss – Gross loss in accounts is shown under the trading account. A trading account is used to determine a business’s gross profit or loss that results from trading activities. Trading activities are mostly related to the buying and selling activities involved in a business. A trading account is useful for businesses that are dealing in the trading business. This account helps them to easily determine the overall gross profit or gross loss of the business. The amount thus determined is an indicator of the efficiency of the business in buying and selling.
The Impact of Debtors and Creditors on Cash Flow
Class 11th Accounts Chapter 1 Question Answer highlights the value of honesty and integrity in financial reporting. Overall, this chapter provides students with the hands-on expertise and moral values required for overcoming the difficulties of accounting in the business sector. The primary difference between a debtor and a creditor is that both terms refer to two parties involved in a lending transaction. Financial reporting differs as a result of the difference.