Category: Commerce Notes PPT

The buying and selling of the goods and services in order to earn profit is termed as trade. The civilization exists because of this trading system, it started from a much earlier period, when the barter system was prevalent. Now, in the modern time the importance of trade has increased even more with the proportionate intensity of the consumption needed. 

On the basis of geographical distinction, trade can be of two types – Internal trade and External Trade. The trade which is transacted within the boundaries of the country is called internal trade, while trade between two or more countries is termed as external trade.

 

What is Internal Trade?

In our discussion we have covered the internal part of trading.

The other name for internal trade is domestic trade. This is the buying and selling of goods and services within the confined boundaries of the nation. Import and export do contribute to the nation’s GDP but the nation majorly contributed from the internal trade itself.   

The products being purchased from the neighboring local shop or from a central market or from departmental shops or from malls or even from door-to-door selling all come under internal trade. Custom duty or Import duty neither of these is levied on the internal trade of goods as they are for domestic consumption. Also, the purchase is to be done through the legal tender of the country. Internal Trade can be classified in – Wholesale Trade and Retail Trade.  

The products which are to be traded to a large population of buyers require channels of distribution here. Example: if a biscuit is produced in a factory in any segment of the country, here the retailers and the wholesalers come in rescue and make the biscuit reach to the customers. 

Purchase and sale of goods and services are done in large quantities by the wholesalers and the retailers buy in smaller portions from them, eventually the customers then purchase from the retailer in their required quantity. Both these retailers and the traders are very important in the internal trade market. They act as the intermediaries who perform the basic function of distribution. They act as the savior in reaching the goods to the ultimate consumers. Internal trade functions to equitably distribute the goods throughout the nation with good speed and reasonable cost.

 

Types of Internal Trade

The types of trade can be discussed in the following manner

 

Wholesale Trade

As talked about previously, wholesale trade is the buying of goods and services in larger quantities to further resale it to the other intermediate use. Wholesaling is conducted by those individuals who attempt to re-sale it to other merchants or other retailers. They sell to industrial, institutional or even the commercial users, but they do not sell in smaller quantities to any individual or institutions. Wholesalers act as a link in between the manufacturer and the retailer. 

• They enable the scope of selling the goods to the larger population, thereby helping the manufacturer to great sales. 

• The wholesalers sell the goods in their own name thereby taking the risk, they purchase in bulk and sell in smaller lots comparatively to the retailers. 

• They sell to persons, or other institutions, and other commercial users, but they do not sell to the consumers. 

• Their activities include grading the products, packing into smaller lots, storing them, transportation and promotion of the goods, collecting the market related information.

 

Retail Trade

This is a type of business enterprise that is engaged in the sale of goods and services to the ultimate customers. After buying large quantities from the wholesaler the retailer sells it to the customers in much smaller lots. The retailer represents the final stage of distribution which started from the hands of the manufacturer. 

Retailers can be described as that branch of business which distributes the products to the end users that are consumers for their personnel or non-business consumption. Retailers can sell the goods in different ways personally, via the telephone or even through vending machines. 

Example: selling ball pens can be done in stores, medicine can be sold at medicine shops, while the joke books can be sold at the stations or trains or roadway buses. The sale of cosmetic products from door-to-door at the customer’s residence. Selling vegetables by the roadside in the market. 

The products or the goods are sold to the customers and hence they fulfil the task of retailing here. Thus, irrespective of how or where the products are being sold as long it reaches the end consumers it is termed as retail trading. 

The retailer performs various functions to complete the task of retailing:

• After producing a variety of products from the wholesaler he needs to arrange the goods.

• He is required to store the goods in full proof conditions, and a proper storage area is to be maintained by him.

• He bears the risk of the business. 

• Grades the product.

• Collects market information.

• Facilitates credit facility to the buyers.

Thus, we see there is the mentioned variety of internal trading which helps in the development of the nation and increases the GDP.

 

Some Important Facts to Remember

• IATA is the International Air Transport Association. It is a trade association of world airlines. 

• IATA is responsible for publishing a list of codes that relates to different carriers and the codes are used for export paperwork. 

• SCAC is Standard Carrier Alpha Code. 

• The foreign buyer is known as FPPI which stands for Foreign Principal Party in Interest.

• Purchasing goods from a foreign country is known as Import. 

• Entrepot are the goods that are imported for the purpose of exporting. 

• The principal appoints the agents. 

• The wholesalers check the fluctuations of prices in the market and by holding the goods back during the fall of prices and releasing them during the rise of prices in the market. 

• Brokers are the agents who are responsible for bringing the buyer and the seller together. 

• Departmental stores are a universal supplier of a broader variety of products. 

• General stores are small scale fixed retailing stores. 

• Supermarkets have varieties of groceries, food items and several products under one roof. 

• Supermarkets have large scale buying and selling so the operating costs are less. 

• Supermarkets have sales that accept only cash hence there are no debts. 

• Since supermarkets follow a self service culture, the customers don’t get attention which is a major drawback of supermarkets. 

• There are various types of small retailers. 

• General stores sell a range of products to meet the day-to-day needs of customers. 

• Specialty shops specialize in selling specific kinds of products. 

• Street shops sell products that are inexpensive compared to general stores. Their supplies extend from local markets to wholesalers. 

• Second hand shops sell products that are already used at much cheaper rates. 

• Wholesalers buy products from manufacturers and sell the products in bulk to the retailers at cheaper rates. They require investment and not advertising or promotion. They are available in any city and state.

• Retailers sell the products to the customers who are the final consumer. They don’t have the option of reselling. 

• Retailers sell products in small quantities that causes more profit since the retailers buy the products from wholesalers at cheaper rates.

 

Quick Ways to Understand this Chapter

1. Make Notes 

Note-making is a wonderful habit. Students are advised to make notes while attending the classes or later while studying by themselves which will make sure that the students understand the chapter in a better way and memorize it. 

2. Read the Chapter 

After attending the classes, students should read the chapter by themselves to memorize the chapter. Internal trade is an easy chapter but also a vast one that might take time to remember the points so a thorough read is a must. 

3. Solving Questions From Textbook

Students should make sure to answer the questions from the textbook in order to test their knowledge and get an idea regarding the possible questions. After answering the questions, they should refer to the answers in order to get a clearer picture of the answers that will be helpful for the exams. The solutions to the questions in the textbook are available on ’s official website and students can download them in PDF formats for checking the answers. 

4. Solving Sample Papers

Students should solve the sample question papers to get a better understanding of the chapter and get a proper idea of the possible questions for the exams. Questions like, types of internal trade, functions of retailers are to be understood and remembered adequately so that students can answer them in a correct manner. 

5. Understanding the Revision Notes

Students should refer to the revision notes which will consist of important points related to Internal trade that will help them to brush up their knowledge before the exams. The revision notes available on for Internal trade are curated by the experts at that will certainly help the students during the exam season.

6.  Practice Mock Test

Students should appear for mock tests to check their knowledge. Mock tests are designed to test the student’s idea and check if they can answer the questions correctly and with ease. It will make sure to check if the students have any doubts and fill their gaps of knowledge. 

7. Stay in Touch with the Chapter

In order to be fluent with the chapter of Internal Trade, a student should stay in touch with the subject matter. Students can also opt for quizzes and puzzles in order to polish their knowledge from time to time. 

Organisational structure is the backbone of every company. The primary aim of every company is to increase its profit margin without wasting too many resources. Organisational structure fulfills this aspect of a firm. It brings a systematic approach to the workflow. The aim here is to streamline the activities of a company in an efficient way that eliminates chaos, and increases productivity. The concept of organisation helps businesses to segregate tasks according to the merit of the workforce, distribute the workload, and to assign or map resources accordingly. Moreover, the implementation of this structure also includes defining roles.  

Importance of Organization

Organization brings adaptability to a company. It paves the way for a smooth transition of work from one end to another and proper allocation of the workforce in a dynamic environment. Therefore, a comprehensive approach to an organizational structure can provide different pathways in front of the management to reach its goals. The importance of this structure is discussed below.

1. Clarity in the Workplace

The introduction of the concept of organisation brings clarity to a company. It promotes accountability by establishing a relationship among employees. It also establishes a chain of command. In this way, it puts in place a clear flow of instructions and information clarifying the hierarchy in a firm.

2. Focus on Specialization

Another major importance of business organisation is that it focuses on specialization. It means employees who are good at something will receive work in their area of expertise, repeatedly. A significant benefit of this method is that an employee working in a particular area for a long time attains invaluable knowledge and experience, which ultimately increases productivity. 

3. Utilisation of Resources

The introduction of organisation helps businesses to optimally utilize their resources, both financial and human. The distribution of work, and keeping track of its completion and delivery is a part of this process. It further helps in curbing the waste of valuable resources.

4. Facilitates Administration

A well-designed organizational structure defines and maintains a balance between management and employees. It increases the productivity of management and motivates employees to perform better. Moreover, this format segregates the work and defines job roles, which siphons off the delays and make individuals responsible for their work.

5. Personal Growth

The importance of organising in management further proceeds to personal development. Delegation of labour and assigning work to the people who provide the best results reflect on their performance in the long run. Such employees gather expertise in that particular work and find ways to save more time.

On the other hand, the concept of an organisation also includes training and development of resources. It helps the firm to gather a skilled workforce that will increase productivity further and generate more revenue.

Additionally, this process also saves companies from an administrative crisis as well. In any such instances, companies will have personnel ready to step up and take charge of a situation. In a nutshell, the introduction of organizational structure creates leaders for tomorrow.

6. Encourages Creativity

The delegation of work and defined job roles stimulates creativity among employees. This structural approach gives enough freedom to a workforce to find new ways to do a job more efficiently, also, improve the end result as well.

7. Brings Stability

Effective leadership, cooperation, and communication bring stability in the workplace, and the concept of an organisation focuses on that. Additionally, this leaves a positive effect on employee satisfaction that reduces employee turnover.

Steps in the Introduction of the Organization

Here are the steps that ensure the effective implementation of organizational structure in a firm.

1. Identification and Segregation

The first step of introducing organizational structure is to identify work and resources. It finds the perfect workforce for a particular job and then segregates it further. The idea here is to share and lower the burden of work, corroborating accuracy, and eliminating duplication.

2. Finding or Creating Departments

Since the identification and distribution of work are complete, the next logical step here is to find groups that can perform similar activities. This helps in easy management of work and improvement of the final product.

3. Assignment of Work

After the groups, the focus shifts to the assignment of work among employees, since the structure is already in place, everyone is aware of their duties and responsibilities. A point to note during the distribution of work is that employees must work on their preferred subjects to increase productivity and gain specialization.

4. Establishing a Chain of Command

The final process is to establish a chain of command. It streamlines the workflow further and ensures optimum utilization of resources.

The concept of organisation is not new, it has existed for centuries. The significance of this concept mentioned above further speaks on its behalf and why implementing it in a business is important to stimulate its prosperity.

is a leading e-learning platform that allows students to learn more about this concept. Additionally, the availability of online classes and doubt clearing sessions further organize the final preparation for them and help them to secure better grades. For more information on this topic, download the app now.

Almost all the major organisations that we read about in newspapers or come across on television are Joint-Stock companies. Neither proprietorships nor partnerships can challenge the dominance of a Joint-Stock Company globally. All large-scale businesses run on this model.

But what is Joint-Stock Company mean? How does the base model enable so many large enterprises to operate? Read on.

Joint-Stock Company Definition

This sort of Company is present throughout the world and is the most standard type of business venture. Even once solely-owned enterprises, like the Walt Disney Corporation or Dunlop Tyres, moved to this model once their sizes started to balloon.

When a group of persons divide the capital of a Company into transferable shares, a Joint-Stock Company is formed. The only way to join this ownership matrix is by purchasing shares.

Note that by its very definition, the ultimate aim of all shareholders, large or small, is profit.

To make it simpler, let us look at a Joint-Stock Company example. One of India’s largest companies, Tata Consultancy Services or TCS, is a Joint-Stock Company as it has numerous shareholders. All these shareholders are co-owners of TCS. 

Shareholders are eligible to vote on Company-related decisions and also to dividends, though certain shareholders are not mandatorily entitled to dividends.

Note for advanced students: Identify how many different types of shares a business entity can release on the market. Also, did you know that a business has to report to the SEBI if a party purchases more than 1% of its shares?

News: It happened very recently when the People’s Bank of China (PBoC) acquired more than 1% of HDFC’s shares.

Examples of Large Joint-Stock Companies in India

Types of a Joint-Stock Company

There are 3 Different Types of Such Entities. They are:

• Registered Company: It is the most typical type. Here, any organisation that is registered under the Companies Act of India is defined as a Joint-Stock Company. 

• Statutory Company: Any entity which is formed under a specific Act of Parliament or any other empowered executive authority is a statutory Company. Such an entity’s tasks, responsibilities, aims, and objectives are mentioned succinctly in this Act.

• Chartered Company: When the head of a state asks for a Company to be incorporated with the powers vested in him, a chartered firm is born. Such entities are commonly found in countries which have a monarchy, like the United Kingdom.

Characteristics of a Joint-Stock Company

Such a business venture has the following features:

1. Entirely Separate Legal Entity: Unlike a partnership or a proprietorship firm, a Joint-Stock Company is separate from its owners. It is a separate legal entity. No single member is liable for such a Company’s activities. Alternately, such a firm will not depend on any owner or shareholder to decide its future course of action.

This point will help you understand the difference between a partnership and a Joint-Stock Company.

2. Is Incorporated: A Joint-Stock firm has to be incorporated. If this due process is not followed, its legal status ceases to exist. Non-incorporation is not an option.

3. Perpetual Succession: Unlike a proprietorship business, which relies solely on its single owner, a Joint-Stock Company does not depend on any member. Members come and go; shares are bought and sold, dividends are earned and distributed; such a Company goes on. This point is directly borne out of its status as a separate entity.

4. Number of Members: Some laws govern how many members a Company can have. Any public limited Company must have at least 7 members – there is no upper bracket. A private limited Company needs to have at least 2 members. Likewise, a partnership firm is not allowed to have more than 10 active partners.

5. Transferable Shares: All shareholders are eligible to trade their shares to other prospective owners. You must remember these points if you are asked to explain the features of a Joint-Stock Company.

Merits of a Joint-Stock Company

Some of the crucial ones are:

1. Liability is Limited – It encourages more people to jump aboard a Joint-Stock entity. 

2. Since the Shares are Transferable – shareholders can quickly sell them at a profit. It is this ease of ownership that props up the Stock exchanges across the world. It is one of the significant features of a Joint-Stock Company. 

3. Such Companies are Run by a Board of Directors – a body constituted of some of the most qualified and educated individuals. They are the enterprises’ navigators. Every year, shareholders vote on BoD membership at an Annual General Meeting (AGM). Hence, such businesses generally do not run into losses.

Tasks: Log on to and read up on an AGM and an extraordinary AGM. Find out about companies that have, in the recent past, been forced to call for an extraordinary AGM. 

Trivia: Did you know that Credit Suisse, one of the world’s largest wealth managers and investment banks, is likely to hold an extraordinary AGM in autumn 2020?

Drawbacks of a Joint-Stock Company

The demerits include:

1. A very long gestation period since a lot of regulatory red tape has to be crossed.

2. Such firms have a complete lack of secrecy because their financial records must be provided to registrars under the Companies Act (Amended), 2013.

3. There are latent chances of conflict of interest between a firm’s shareholders, promoters and the BoD.

List of Joint-Stock Companies in India

Some Major Ones Include:

• Tata Motors Limited.

• Reliance Industries Limited, owned by Mukesh D. Ambani, is a premier example of the Joint-Stock Company in India.

• State Bank of India

• Jindal Steel & Power Ltd.

• Grasim Industries Ltd.

• Oil & Natural Gas Ltd. (ONGC)

Many a Joint-Stock Company in India are also part of the Fortune 500 list of blue-chip firms.

To learn more on different models of businesses like a partnership firm and sole proprietorship, you can look up ’s study materials. You can also download these materials in PDF format for offline reading. 

Joint Stock Company

A Joint Stock Company is a Company that’s owned by shareholders. Unlike a larger publicly-traded Company, the total capital of the Joint Stock Company is divided into shares; every member of the Company has shares in the business. Members are called shareholders. 

Features of Joint Stock Company

1. Artificial Person: Because it lacks the physical characteristics of a natural person and is constituted by law, a Joint Stock Company is an artificial person. As a result, it is a legal entity distinct from its members.

2. Separate legal Entity: Since a business is a legal entity distinct from its members, a Company has its own legal entity. It can own assets or property entered into contracts, sue or can be sued by anyone in the court of law.Its shareholders are not responsible for the Company’s actions.

3. Perpetual Existence: A firm that has been founded continues to exist as long as it meets all of the legal requirements. The death, insolvency, or retirement of its members have no bearing on the organization’s existence.

4. Limited liability of shareholders: A Joint Stock firm’s shareholders are only liable to the extent of the number of shares they own in the Company. Their liability is restricted by a guarantee or by the Stock they own.

5. Common Seal: A Joint Stock corporation cannot sign any documents because it is an artificial person, hence this common seal serves as the firm’s representation when interacting with outsiders. The firm is bound by any document bearing the common seal and signed by an officer.

6. Transferability of Shares: A Joint Stock Company’s members have the freedom to sell their shares to anyone they want.

7. Capital: By issuing its shares, a Joint Stock firm can raise a significant amount of capital.

8. Management: A democratic management system governs a Joint Stock Company, which is led by the firm’s directors, who are elected representatives of shareholders.

9. Membership:The minimum number of members required to incorporate a private limited Company is two, and the maximum number is fifty, according to the Companies Act. However, in the case of a public limited corporation, the minimum number of members is seven and there is no limit on the total number of members.

10. Formation: In most cases, a Company is created on the initiative of a group of individuals known as promoters, but it only becomes operational after all of the requirements of the Companies Act 1956 have been met.

How do you identify a specific product or service? Of course from the label printed on the good or displayed by the service we get to know the brand, what product it is, how to use it, its expiry date and other such important information. 

Imagine what if the products and services were not labelled? They would all probably look identical. Then, how would the respective brands get recognition? So, the process of labelling is now an important element of marketing. Want to know further? Let us dive straight into the discussion.  

Meaning of Labelling

Labelling can be defined as a process of display of all the information on the packaging material or on the product itself. While labelling the product a company has to follow all the guidelines and adhere to all the legal requirements like ingredients, nutritional and safety information mentioned under the Competition and Consumer Act 2010. The details mentioned in the labelling of the product help the customer in knowing a product better and help them decide whether to buy it or not. There are three types of labels.

• Brand Label: This provides necessary information about the product.

• Descriptive Label: This provides detail regarding the product usage.

• Grade Label: This part of labelling specifies the aspect and features of the product.

To recognize certain brands and products we use labelling, this is due to the specific labelling, that their logo and design is well known to us. A distinct label of a product is one of its most identifiable features in the product, and thus after viewing it the customers gain the confidence to buy the product.

Labelling is thus an important part of the branding of the product and the company uses it to fulfil their motive of mass selling. It helps the product to stand out in the market, and this identifies it as a part of a particular brand. This is an important era of high and intense competition and thus labelling serves the purpose. 

Labelling in Market

Branding is a big part while labelling is a part of it, which enables the process of product identification. This is printed information that is bonded to the product for recognition and also provides detailed information and basics about the product. Customers make the decision whether to buy it or not easily at the point of purchase seeing the labelled on the product.

Also, it should be noted that the labels must comply with the legal obligations. A company’s label should adhere to the Competition and Consumer Act 2010. According to The Food and Drug Administration (FDA), the products are to be packaged and processed, also the food items must have nutritional labelling. The Federal Trade Commission Act (FTC) states that fraud with labels and graphics is an offence and also this consists of unjust competition. The Fair Packaging and Labelling Act levies the compulsory labelling conditions and boosts independent packaging standards which grant federal companies to establish packaging regulations in certain industries and businesses.

Importance of Labelling

Labelling is significant as it pulls customers’ attention to purchase the product because of its visual appeal. This also promotes the sale of the product as this initiates the sale of the product. Labelling this is an important factor that helps in selling the product, labelling also helps in grading the products, and this provides information required by the law. 

Labelling is one of the important aspects of the marketing of a product. Labelling is very important as it helps in attracting the customer. It can be strategically combined with packaging and can be used by marketers to encourage potential buyers to purchase a particular product. Packaging is also used for relaying information to the customers. Packages and labels give detail on how to use, transport, recycle or dispose of the package or product to the customers.

Labelling serves as an identity for the product. Labelling is also a very important tool to exaggerate the product. It differentiates a certain product from others on the shelves of the supermarket.  A person can find out about the constituents of a product. This helps in spreading awareness among the customers about the item they are using as it also provides various other details about the product.

Branding Packaging and Labelling

Branding is the process of attaching meaning to a specific organisation, company, product or service by creating and shaping a brand in the consumers’ minds. This is a strategy designed by the organisations to help the people to quickly identify and experience their brand, and also give them a reason to choose their products over the competition’s or rival’s product.

Packaging is the art of enclosing or protecting the products for distribution, storing, sale, and use of the product for further use. Packaging also means the process involved in designing, evaluating, and producing the packages.

Labelling is defined as the process of affixing a descriptive word or phrase to someone or something. An example of labelling is the process of putting signs on jars that say what is inside them. 

Role of Labelling

Labelling is the only way by which a customer can know what is inside a bottle (product). Hence it must relay the correct information about the product. This becomes even more important for sectors like the Pharmaceutical industry which manufactures medicine. Labelling should also contain information about harmful chemicals present inside a product or commodity, especially if it is a product that is meant for children. The role of labelling becomes essential in the case of edible products. The label of an edible product must contain information like manufacturing date and expiry date, in some cases, details like “use before” must be mentioned on the product so that the customers do not have to suffer the consequences of using a product that has reached its expiry date. The price of a product must also be mentioned clearly on a product so that the customers may know the actual price and avoid getting conned.

What Needs to be on a Product Label?

A product label usually holds this certain key information in its label:

• The name of the product that affixes the label.

• A logo of the brand, if the product is part of a line of the brand.

• Units of measurement denote the size, quantity or weight of the specific item.

• A short description or tagline encourages the customers to buy the product. 

• The list of ingredients.

• The history is attached with the product.

• Directions for use of the product.

The label should be readable enough, the type should be legible in its own font size and colour. A font size that is readable by others should be used in the labelling. 

 

Differentiate Between Labels and Brands

A label is a piece of paper, a plastic film, or a cloth, a metal, or other material which is affixed to a container or product, on which it is written or printed the information or symbols about the particular product or item. Information is directly printed on a container or on an article that can also be considered as labelling.

A brand is the overall experience of a customer which distinguishes an organisation or product from its rivals in the eyes of the customer. Brands are used in business, marketing, and advertising. Name brands are also sometimes distinguished from generic or store brands.

Before we delve into understanding the liabilities on the balance sheet let us first understand what liability means. Liability is something that is owned by a company or a person which is usually a sum of money. The liability gets settled with time through the transferring of economic benefits. Liabilities are recorded on the balance sheet’s right-hand side, which includes accounts payable, bank loan current liabilities, bonds, deferred revenues, and accrued expenses.

Liability is thus an obligation between two parties. In the financial world, liability is defined mostly by previous business events, transactions, exchange of assets, and sales. It is anything else too that would provide an economic benefit at a later stage. Let us understand accounting assets and liabilities.

Liabilities could be current or non-current, and the balance sheet includes the list of current assets and current liabilities. This includes any future service that is owned, which could be short or a long-term bank borrowing or any previous transaction that may have created any unsettled obligation. Accounts payable and bond payable are the common kinds of liabilities, and these two would usually be seen in a company’s balance sheet as these are a part of the long-term and current operations.

Liabilities are a Part of Business

Businesses need to operate, and for this, it needs resources. The resources are not for free, and the business will need money to finance it. The owner receives finance through banks, investments, and other institutions. The company balance sheet assets and liabilities are a depiction of the financial position, which are the example of assets and liabilities and the capital of the entity at the financial year-end. The balance sheet also shows the source from where the fund is received and its application. The sum of the liabilities and the capital must be equal to the assets

Understanding the Liabilities on a Balance Sheet

Here are the liabilities on a balance sheet:

Capital

The amount that the owners of the business contribute towards the business is the capital. The owner may contribute the capital either at the start or late in the business as per the fund requirements. Any contribution that the owner makes through capital into the business counts as the liability. Capital includes the current and fixed assets as well as any kind of cash. The capital of the business can be a fixed or working capital. The working capital is the excess of the assets over the current liabilities. The fixed capital cannot be used for the day to day running of the business activities. The building, cash in the bank, bank liabilities and assets, and cash at hand all count as business capital.

Reserve and Surplus

Business is ongoing, and the entity will make profits as well as losses through the business cycle. The accumulation of profit or losses will increase or decrease the equity and capital of the owner.

Long Term or Non-Current Liabilities

These are the liabilities that need to be settled over a longer time period. The business will be able to raise long-term funds through financial institutions and loans from a bank. The repayment of the loan will be done in installments through the loan tenure. The business will raise this fund to procure any fixed assets. Any long term fund cannot be used to run the day to day operations. These long term loans are secured.

Short Term or Current Liabilities

The short-term liabilities are those that need to be redeemed shortly. This could be the trade payable, bills payable, bank overdraft, contingent liabilities in the balance sheet etc. Liability will fall under current liability if it needs to be settled in the normal operating cycle, which is within 12 months.

Facts- What Comes Under Current Liability?

Here is what comprises the list of current assets and liabilities:

• Sundry creditor which is the amount payable to the supplier of the goods.

• Advances from customers are where some clients make payments in advance for their goods.

• Outstanding expense are the expenses of those who have availed of the service, but the payment is still pending.

• Bills payment is where the supplier does not give any credit without security.

• Bank overdraft may give an overdraft facility to the business entity.

What are the Losses of Consignment?

The loss of consignment is a part of consignment accounting. Consignment is the manufacturer’s act of sending a specific number of goods to the agents for a sale. The one who sends these goods is known as a consigner. The consigner can either be the producer or manufacturer or an assigned person. When the product stocks remaining with the cosigner experiences a loss, it is known as the losses of the consignment. This loss might take place due to destruction or a condition of no-sale for a prolonged period.

There are two types of consignment, and you can get the details about both here. 

Types of Losses of Consignment

There are mainly two types of losses of the consignment. They are normal loss and abnormal loss. Here you can go through all the details about them. 

Normal Loss

A normal loss is prominent and it cannot be avoided. It occurs due to physical degradation of the product like breakage, leakage, evaporation, etc. At the time of consignment accounting, the company makes the valuation of the normal loss and deducts it from the total quality. 

However, only the quantity of normal loss is calculated by an organization but not it’s worth. Moreover, no separate journals are needed in case of calculating normal loss. The organization always takes the gross profit to contrast the amount of normal loss with it. Furthermore, the organization does not publish any journals for it. 

For Example: In the case of the consignment of 1000 kg oil, some might evaporate during the delivery. In such a situation, the amount of broken vaporised oil is considered as a normal loss. 

Here the mathematical formula you can apply is:

The total value of goods * unsold quantity of goods/amount of goods that the consumer receives. 

Abnormal Loss

Abnormal loss is another significant part of consignment accounting. All losses incurred due to the carelessness or any other drawbacks during delivery comes under abnormal cost. It can also be considered a human-made mistake. 

Moreover, the loss in products occurred due to unavoidable circumstances like a flood, fire, earthquake, or en theft comes under abnormal loss. 

Any organization remains keen to restrict abnormal losses on their consignments as it hampers the net worth of profit. This can not only lead to the degradation of production for the company. 

The organizations make a journal entry for the abnormal losses because they desire to keep records of it. When making a journal note, they make a couple of tables.  In the first table, all the data related to an abnormal loss is entered when the loss is not recoverable. 

Here are the details of the treatment measures of normal loss and abnormal loss you must know about. 

Treatment of Normal Loss

Less amount of treatment takes place for the normal loss as the companies remain aware of it when sending the consignments. In case no goods are correctly sold after sending the consignment, some organizations can follow the formula for understanding the leftover value of the stock. It is:

(The value of goods when no normal loss occurred/total units after the normal loss occurred) * Unsold units. 

Most of the organizations (if necessary) make a balance sheet to keep a detailed record of the normal loss over a consignment.

Treatment of Abnormal Loss

As mentioned earlier, the journal is made to account for the abnormal loss of the consignment; here are the details about it. 

Journal entries for the goods where insurance is absent

Profit and Loss A/C

Consignment A/C

Journal entries of the goods where insurance is present

The claim of insurance A/C

Consignment A/C

Journal entry for the compensation on goods given by the insurance company

Insurance claim A.C 

Consignment A/C

Profit and Loss A/C

Entering the data into the journal when the organization receives the claim amount from the insurance company.

Details of the insurance claim

Bank A/C

In the second procedure, the abnormal losses are counted in a separate account known as the abnormal loss account. In this case, the journal entities are made, however, the techniques are different. 

Journal entry to transfer loss 

Abnormal loss A/C

Consignment A/C

Journal entry to close –  for goods that are not insured properly

Profit and  Loss A/C

Abnormal Loss A/C

Journal entry to close –  for goods that are insured properly

Insured Claim A/C

Abnormal Loss A/C

If a loss is more than Compensation

Profit and Loss A/C 

Abnormal loss A/C

Insurance Claim A/C

If claimed received with the help of insurance company

Insurance claim

Bank A/C