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Accounts Payable

Sometimes referred to as trade payables, accounts payable is an account sub-ledger that records all the amounts that a company or a person owes to suppliers but has not paid yet.

4,895 Questions

What does payment term prepaid mean?

Prepayments are amounts paid for by a business in advance of the goods or services being received later on. Any payment made in advance can be considered a prepayment. A prepayment is not dissimilar to a deposit, but generally falls under a more set time period for fulfillment of the goods or service purchased.

Will RBI asks COT code?

yes cot code is cost of transferring code that is true to transfer money from surely to transaction the money from another A/c 17491050009254

Is account payable an inflow or outflow or neither?

The recording of an account payable does not create any current effect on cash flow, so it is neither creates an inflow or outflow.

What comes after thousands?

hundreds, thousands, millions, trillions...... and so on.

What are two basic financial statements.Explain their importance to the various uses?

The two basic financial statements are the Income Statement or Profit & Loss Statement and the Balance Sheet. The Income Statement reflects the revenues and expenses for a period in time such as January 1, 20xx through the date you are working on say August 31, 20xx. These revenues and expenses give you the net income or (loss) for that particular period.

The Balance Sheet is a report of the business for a point in time, August 31, 20xx. The assets and liabilities of the business as well as the owners equity in the business make up the Balance Sheet. Assets - Liabilities = Owners Equity. The net income or (loss) from the Income Statement flows over to the Balance Sheet under the Equity section.

Business use these reports to understand the financial position of their business ans where to make changes for future years. Investors use these reports to make decisions on whether they want to invest or provide loans to the business. Accountants use these reports to prepare tax returns for both individuals and businesses depending on the type of entity the are...corporation, partnership, sole proprietorship.

What do you mean by process costing?

The production is continuous. The product is homogeneous. The process is standardized. The output of one process becomes the raw material of another process. The output of the last process is transferred to finished stock.

What does 30 days net monthly mean?

It's a payment term meaning: payment due 30 days from the end of the month in which the invoice is raised

Is Patents a credit or debit?

Debit, assuming you're BUYING a patent. Credit, if you have RECEIVED one from another company, or if you have received royalties or other income from one.

Different Kind of liabilities?

There are many forms of liabilities, they should be recognised when they are able to be reliably measured and are certain. They can be categorized into Current and Non-Current depending on the operating cycle of the business (typically anything beyond 12months is non-current). A liability is an obligation on the part of the business resulting from a past transaction that requires a future outflow of resources. Some examples include: Accounts Payable Notes Payable Bank Loan Interest Payable Salaries Payable Employee Deductions Payable Unearned Revenue A + L = OE Accounts must balance to that equation.

Is temporary overdraft a current liability?

Yes. An overdraft simply means that the bank has paid an item that was presented against your bank account and represents, essentially, a short term loan from the bank to you. Like any other short term obligation, it is a current liability.

Is goodwill credit or debit?

Goodwill is an asset to the entity .Hence, the same will always be with debit balance. Companies should not recognise goodwill, unless the same is earned through purchase of other entity

What does it mean to advance the payment due?

To put it simply, it is a way of telling you to pay them the money you owe.

What does incurable mean?

Incurable is usually used to describe a condition which cannot be be cured or fixed.

An example of a sentence containing 'incurable' would be;

"The Doctor described the patients prognosis as dire, since his cancer was incurable, ".

What is a reasonable profit margin?

what is the difference between reasonable profits and economic profits

What is an effective system for managing accounts payable and receivable and a monthly operating budget?

AnswerI use MYOB booking system. (Mind your own business.) It can be purchased online or any good computer store.

Another good accounting software system is quickbooks or Peachtree. These are the two accounting software packages that most businesses uses.

How do you prepare a balance sheet in accounting?

A basic balance sheet is formatted beginning with Assets (current first then non-current) Liabilities (Current first then long-term) and Owner (shareholders) Equity. The account amounts are taken from the General Ledger after all temporary accounts are closed at the end of the fiscal year. Temporary accounts are Expenses and Revenue accounts which are closed into income summary and then finally retained earnings (or Statement of Retained Earnings which is an O.E. account)

What is meant by clearing of cheques?

If you take a cheque to your bank to pay it in, the bank will credit your account with the amount, but you will not be able to withdraw this amount until the bank has processed the cheque internally and received the money from the bank issuing the cheque. When they have done this the money is 'really' in you account and you can take it out - the cheque has cleared.

This practice was needed (and reasonable) when cheques had to be processed between banks manually and protected the bank from the effects of bad cheques. However modern banking means that the clearing is electronic and yet the banks still keep the cleared funds for the same amount of time they always did (a week) - they use these uncleared funds themselves and it is wrong!

When confirming accounts payable emphasis should be put on what kind of accounts?

Vendors that the company has made a large number of purchases from (in terms of dollar value). The account balance does not matter.

How can it be possible for a company to have a positive cash flow from operations in the same year as it has a net loss or to have a negative cash flow in the same year that it has a net income?

Well very simply...cash is generated from sales and many other things (whether they make a profit or not). But generally, expenses that use cash are incurred at some other time. Also, frequently cash can become something else...say a company uses cash to buy a building, or inventory...it still is worth just as much as before...just the asset of cash is now an asset of some type of property. No profit or loss was made...(maybe later on sale of the property)...but cash was reduced.

For instance, "depreciation" is subtracted from net income, but doesn't actually cost you any money. To answer both questions, say a company sells 100 dollars worth of product that cost 50 dollars to make. The net cash flow is 50 dollars. Now say they had to buy a new capital machine that cost 100 dollars, their net income would still be 50 even though their cash flow was -50. This is because capital expenditures are not "expensed" immediately but are "depreciated". So the next year under the same scenario with no capital expense if you show 50 dollars of depreciation you would have no net income but positive cash flow.

Not only is depreciation a factor, but almost everything that takes place in the business. You can sell something today (increasing income) but not collect the cash until later. Thus, income is increased, but cash not until later. Similarly, you can buy something, deduct it from income, but not pay for it until later. The timing of real cash receipts and real cash disbursements is different from the timing of the transaction. It is the actual sale or purchase than can affect income, but only the actual collection or payment of cash will affect "cash flow," i.e. the flowing of cash into and out of the business.

The above does a good job of describing some of the reasons. Some others related to those to are - most business need to use accrual method of accounting, not cash method. However, even those that may use the cash method can have what you inquire about. The use or generation of cash is entirely different than the making of a profit.

For example, in one year you may expend a lot of cash to buy an investment...whether you make a profit that year or not is dependent on all the other operations of the company....(and for conceptual purposes, say all of them are already paid for). The some years later, same biz, investment Co with everything paid for, no revenues or dividends coming from the investments - they are all just "raw land" or something. Therefore, under cash method, this year they sell something. Positive cash flow. Did they make a profit? Well that all depends on if what they sold they paid more (or less) for than they sold it for!

Cash flow and profit are comparing raw apples and well cooked green beans.

To correct the original post, depreciation isn't subtracted from net income. Depreciation, along with the other expenses of doing business, is subtracted from revenues to arrive at net income.

An example of how a company could have positive cash flow from operations in the same year as it has a net loss:

  • Frank's Wholesale Felines sells 1000 pure-bred kitties to pet shops at $500 each during 2007 for revenues of $500,000. Frank paid $200 for each of the kitties to the breeders and incurred a further $100,000 in related expenses (wages, rent, kitty litter, etc).
  • To make the example simple, assume that all transactions are cash
  • Frank's business would therefore (in simplified terms!) show positive cash flow from operations of $200,000.
  • However, around Christmas time some Animal Rights Activists freed 500 kitties (worth $100,000) and torched Frank's warehouse (book value of $750,000).
  • Assuming this isn't a common occurence, it wouldn't be considered a business expense. Therefore, it wouldn't affect the cash flow from operations.
  • This would probably qualify as an 'extraordinary item' on the income statement, which is a loss that appears further down from the operations info, net of tax implications.

It might also be helpful to discuss the difference between accounting income, which is accrual based, and cash flow.

According to Canadian GAAP, revenue must be recognized (ie, presented in an income statement) when performance is achieved, measurability is reasonably assured, and collectibility is reasonably assured.

Notice that revenue is recognized when collectibility is reasonably assured - not when money is actually collected.

A simple example:

  • Alex & Co. is a new web design company. In order to attract business, customers spending more than $10,000 don't have to pay for 1 year.
  • Once the work is done, and assuming collectibility is reasonably assured (and it would have to be - otherwise they wouldn't do the deal, right?) the revenue should be recognized, even though they won't actually get paid for a year.
  • Meanwhile, Alex still has to pay his rent, his wages, etc.
  • Voila, negative cash flow, positive income (assuming revenues exceed expenses, of course)

Why is Cost accounting a subset of management accounting?

The main purpose of cost accounting is to provide management with financial information necessary to make business decisions. Cost accounting focuses mainly around cost variances, budget analysis, etc.

Financial accounting on the other hand ensures that information being reported to outside investors/users is accurate and in compliance with a given financial reporting framework.

Hope this helps...