Trading account |
|||
Particulars |
Amount ($) |
Particulars |
Amount ($) |
To opening stock |
10000 |
By sales 100000 |
|
To purchases 40000 |
Less: Sales return (5000) |
95000 |
|
Less: purchase return (2000) |
38000 |
By closing stock |
6000 |
To wages |
9000 |
||
To other direct expenses |
12000 |
||
To gross profit |
32000 |
||
101000 |
101000 |
Subsidiary books are books that record transactions that are similar in a systematic way. In huge companies, it is complex to maintain the record of all forms of transactions in the journal daybook so that is why the journal daybook is categorized into several sorts of sub-books that are called subsidiary books (Kumar & Sharma, 2015). Using the subsidiary books enables for more accurate recording of transactions and can offer supplementary information that may act as useful in decision making.
All these books are significant as they offer a detailed record of the transactions of the company. This form of information can be applied to make informed decisions regarding where to allocate resources and in what way to manage funds. In addition, subsidiary books can aid management in identifying problems and keeping track of progress over time. Each of these books has its purpose and can offer distinct information to decision-makers.
Specimen of purchase book and sales book
Purchase book |
|||||||||
Date |
Particulars |
Inward invoice no. |
L.F. |
Amount |
|||||
Sales book |
|||||||||
Date |
Particulars |
Outward Invoice no. |
L.F. |
Amount |
|||||
The liquidity of the business firm is measured by its capability to pay off its short-term debts as and when they become due. Liquidity ratios help in determining if the firm can use its liquid or current possessions to cover the current accountabilities (Lalithchandra, 2021). There are majorly 4 liquidity ratios that are used, namely current ratio, cash ratio and quick ratio. These ratios recognize how rapidly the company can convert its possessions and use them to fulfil the charges that come. The greater the ratio, the simpler the capability to clear the arrears and circumvent evasion on the payments. It is a very significant criterion that creditors check prior to offering any short-term advances to the firm. The corporation that is not able to clear the dues results in leading an impact on the creditworthiness and also adversely impacts the credit rating of the corporation.
Marginal costing is regarded as the total cost computed by aggregating the variable cost and prime cost. Therefore, it includes all the costs except fixed costs. Marginal costing is not a costing method identical to job costing or process costing (Drury, 2018). It is a different technique and is used for the motive of managerial decision-making. It can be used for computing the profitability of different product lines or cost centres.
Marginal costing has below listed features –
The contribution margin depicts the part of the sales revenue of the product that is not used by variable costs and so makes a contribution to covering the fixed costs of the corporation (Guerreiro & Amaral, 2018). It is the variance between sale price and marginal charge, and it is used to improve the fixed expenses first. Any surplus of contribution over static prices would be proceeds. The notion of contribution aids in determining the break-even point, effectiveness of items, departments, etc. to choose the product mix for maximizing profits, and to fix the selling rates under distinct conditions like export sales, trade depression, price discrimination, etc. The contribution margin acts as the grounds for break-even examination used in overall cost and sales price scheduling for items (Cooper, 2017). It helps in distinguishing fixed cost and profit basics arriving from sales of products and can be applied for defining the selling price range of an item, profit extent that can be assumed from sales and structure sales charges paid to the members of the sales team, commissions agents and distributors.
Variance analysis is regarded as the method of evaluating the difference between forecasted budgets and actual numbers. It is more of a quantitative method that aids in maintaining effective control over the entire business. It can aid corporations in managing projects, productions or operational expenses by supervising the planned versus actual costs (Akeem, 2017). Establishing an effective analysis can assist firms in maintaining and improving operations. For instance, the corporation may forecast the number of sales for subsequent year and associate its forecasted amount to the definite sum of sales revenue it acquires.
Akeem, L. B. (2017). Effect of cost control and cost reduction techniques in organizational performance. International business and management, 14(3), 19-26.
Blocher, E. J., Stout, D. E., Juras, P. E., & Smith, S. (2019). Cost Management (A Strategic Emphasis) 8e. McGraw-Hill Education.
Cooper, R. (2017). Target costing and value engineering. Routledge.
Dar, S. Q., & Dar, A. A. (2017). The working capital and its ratios: A qualitative study. International Journal of Statistics and Actuarial Science, 1(1), 24-30.
De Loecker, J., Goldberg, P. K., Khandelwal, A. K., & Pavcnik, N. (2016). Prices, markups, and trade reform. Econometrica, 84(2), 445-510.
Drury, C. (2018). Cost and management accounting. Belmont, CA, USA: Cengage Learning.
Guerreiro, R., & Amaral, J. V. (2018). Cost-based price and value-based price: are they conflicting approaches? Journal of Business & Industrial Marketing.
Husna, A., & Satria, I. (2019). Effects of return on asset, debt to asset ratio, current ratio, firm size, and dividend payout ratio on firm value. International Journal of Economics and Financial Issues, 9(5), 50-54.
Kumar, R., & Sharma, V. (2015). Auditing: Principles and practice. PHI Learning Pvt. Ltd.
Lalithchandra, B. N. (2021). Liquidity ratio: an important financial metric. Turkish Journal of Computer and Mathematics Education (TURCOMAT), 12(2), 1113-1114.
Lev, B. (2018). The deteriorating usefulness of financial report information and how to reverse it. Accounting and Business Research, 48(5), 465-493.
Osadcha, O. O., Akimova, A. O., Hbur, Z. V., & Кrylova, I. I. (2018). Implementation of accounting processes as an alternative method for organizing accounting. Financial and credit activity problems of theory and practice, 4(27), 193-200.
Pazarçeviren, S. Y., & Celayir, D. (2021). Direct labour cost volume variance in success measurement and an application. Sakarya Üniversitesi İşletme Enstitüsü Dergisi, 4(1), 1-5.
Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2022). Financial accounting theory and analysis: text and cases. John Wiley & Sons.
Schwartz, J. T., Flynn, D. T., & Karahan, G. (2018). Merchant Account Books, Credit Sales, and Financial Development. Accounting and Finance Research, 7(3), 154-154.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2019). Financial accounting. John Wiley & Sons.
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