Category: Commerce Notes PPT

Economic elements that influence business and consumer behaviour are referred to as the economic environment. The economy of a country has an impact on investment decisions. There are several factors, both internal as well as external  that affect the economy.

 

Elements of Economic Environment

Several external factors have a significant influence on a country’s economy. These factors play a huge role in deciding consumer behaviour and financial flow of a country, thereby affecting its economic activities. All these elements together constitute the economic environment definition.

 

These elements of economic environment are as follows –

Gross Domestic Product is the total value of all products and services produced in a country. Therefore, the growth of GDP signifies that the economy of a country is stable and improving. It also means that people have more disposable income that, in turn, leads to increased demand for products and services.

 

It evaluates the financial worth of final goods and services—those that are purchased by the end user—produced in a country over a specific time period (say a year). It includes all of the output generated within the country. GDP  also includes non-market production, for example, education services which are provided by the government itself.The GDP growth rate measures the economic reports and amount of a country ’s economic growth (or contraction). Faster growth in the gross domestic product (GDP) expands the overall size of the economy and strengthens fiscal conditions.

A high level of unemployment in a country means that such an economy is not using its resources to its full potential. At the same time, it would negatively impact individual disposable income that will result in lower demand. It affects the commercial aspect of an economy significantly. This phenomenon is markedly noticed in the existing economic environment in India.

 

The individuals not only lose income but also face other hurdles financially as well as mentally. Government expenses extend further than the provision of benefits to the loss of worker output, which  eventually reduces the gross domestic product (GDP) which in turn leads to economic issues and then poverty. It will lead to lower GDP growth and fall in tax revenue for the government.

When the overall prices of goods and services increase in a given period, it is known as inflation. It happens when even though the prices of goods and services are rising the general income level of consumers stays the same. Therefore, individuals have less money at their disposal. Small businesses and cottage industries are also affected as prices of raw goods and labour increase, resulting in smaller profit margins.

 

The propensity for the price level to rise over time is referred to as inflation. Inflation boosts prices and has the potential to reduce the purchasing power of consumers. People buy more than they need to avoid paying higher costs tomorrow, which drives up demand for products and services. Suppliers are unable to keep up. Worse still, neither can salaries. As a result, most individuals are unable to afford common products and services. Inflation reduces the value of pensions and savings.

Government policies also play a huge role in influencing the economy of a country. Government policy can have a major influence on the economic environment. This can include fiscal or monetary policy. An example of monetary policy is a reduction in interest rates on bank loans which encourages consumers’ demand for loans. An example of fiscal policy would be when the government decides to reduce income tax.  Both of these policies attempt to gradually increase individual disposable income and encourage consumers to spend more, thus boosting commercial activities.

It can influence interest rate, taxation and a rise, which tends to increase the borrowing cost. Consumers will spend less if the interest is higher but if the interest rate is lower it might attract investments. In general, a government’s active role in responding to the economic circumstances of a country is for the purpose of preserving important stakeholders’ economic interests. 

The banks are considered to be one of the most crucial aspects of the Indian economy. As a consequence, any reforms in this sector will have a huge impact on the economy.

 

The banking sector plays a vital role in the betterment of the economy. By boosting the quality of financial services and increasing money accessible, banking sector openness may directly improve growth.

India has a mixed economy where both the private and public sector plays a significant role. While the public sector plays a valuable role in carrying out plans and reforms, developing infrastructure and building a strong industrial base, the private sector is responsible for generating employment opportunities. About 80% of the population is working in either organised or unorganised private sectors.

 

The public sector promotes economic development at a rapid pace by filling gaps in the industrial structure. It reduces the disparities in the distribution of income and wealth by bridging the gap between the rich and the poor. Agriculture and other activities like dairying, poultry come under the private sector. It plays an important role in managing the entire agricultural sector.

Briefly, Balance of Trade (BOT) is the difference between the money value of a country’s imports and exports of material goods only whereas Balance of Payment (BOP) is the difference between a country’s receipts and payments in foreign exchange. When the exports are greater than the imports, it leads to a favourable trade balance. It means there is a high demand for its goods offshores, and that increases the demand for its currency.  On another hand, when the outflow is greater than the inflow, there is a current account deficit.

 

BOT records only merchandise and doesn’t record transactions of a capital nature. BOP records transactions relating to both goods and services. BOP is a true indicator of the economic performance of an economy. 

The consumer is confident about his purchasing habits or decisions when they know they have income stability, and income is stable when the overall economy of a country is. It also affects the markets. For instance, if manufacturers and retail stores detect weak consumer confidence, they have to manage their inventory and cut back on production. Therefore, the economy will experience a slow down and ultimately, recession. A stable and growing economy usually boosts a consumer’s confidence.

 

The confidence of consumers impacts their economic decision and hence is a key indicator for the overall shape of an economy.

 

Role of Economic Policies

The basic purpose of economic policy is to help their country thrive economically through determining tax rates, money supply, government budgets, and interest rates, among other things.

 

Apart from the components of the economic environment, economic policies introduced by the government can also have an impact on markets. The components of economic policies are mentioned below.

 

Liberalisation

Liberalization is a broad phrase that refers to any process in which a government removes limitations on some individual person activities. It occurs when something which used to be banned is no longer banned. In simple language, you can say that Govt. eliminates regulation on private firms and trade.

 

Earlier it was restricted by the government for the production of goods and there is various permission that has to be taken from Govt. Due to this, there was a strong influence of the government in business.

 

This refers to when a state lifts the restrictions imposed on private business ventures so as to enable them to continue their operations without any hindrance and to facilitate economic growth. For instance, in 1991, the government of India removed some previously enforced restrictions on Indian companies. This includes –

• Removing almost all licenses except for a few

• Freedom in setting the price of products and services

• Reducing tax rates

• Relaxation on import and export of goods

• Allowing foreign investment in India

Some features of liberalisation in India are:

• Abolition of the existing License Raj in the country.  

• Reduction of interest rates and tariffs. 

• Removing the state sector’s monopoly from several aspects of our economy.

 

 Privatisation

In general, privatisation involves transfer of all national economies from the public to the private sector. Privatization can take multiple forms, one of which is the ‘partial or total denationalisation of assets.’ Disinvestment of government’s equity in PSU’s and the opening up of hitherto closed areas to private participation is the meaning that economics generally specifies.

 

The privatization of government assets and functions are seen to generate savings for taxpayers by increasing efficiency, improving incentives, and reducing waste. 

This refers to when industries in the private sector are given more roles and the participation of the public sector decreases. Toward this, the Indian government took several steps like – 

• Migrating public sector organisations to the private sector

• Setting up a board to manage those public sector enterprises that are not performing well

• Selling off government-owned stakes to private organisations

Recently, The Centre had proposed to privatise the Indian Overseas Bank (IOB) and the Central Bank of India.

 

A recent example of privatisation would be when the Indian government opted to privatise Bharat Petroleum Corporation Limited in November 2019.

 

Globalisation

Globalisation refers to something that encompasses or connects the entire world rather than being limited to a single country.

 

We exist in a world that is now constantly linked. Our everyday lives are strewn with the imprints of other cultures, communities, and economies. The smartphone we use may be made in China, the clothing we wear could be made in Bangladesh, and the fast-food places we frequent could be from a little state in the United States.. It determines how quickly globalisation rates can move by allowing countries to expand their links for mutual benefit with other countries.

 

This refers to when the economy of a particular nation integrates with the world or global economy. This is done via increased trade with other countries, the use of technology, foreign direct investments, etc. The Indian economy was globalised in 1991 when it faced a severe economic crisis.

 

Impact of LPG Policies in India

The above economic policies were adopted by our government when India went through a major financial crisis in the year 1991. These policies impacted the business environment of our country in several ways. These include – 

• Indian companies faced increasing competition from foreign businesses.

• They had to adopt new technology into their business to keep up.

• Indian industries became more market-oriented, which means that they started manufacturing products based on customer demands.

• Companies focused on developing the skills of their employees. 

To learn more about this topic and others, you can refer to ’s solutions and study materials which are available on the website.

What is the Direction?

Directing is a significant part of every organisation. It refers to the process of instructing, guiding, and overseeing people’s work. It helps people work effectively and efficiently towards the achievement of the organisational goals and objectives. The direction does not include a single activity but is a group of multiple functions. It provides supervision, communication, leadership and motivation. Management involves overseeing subordinates at work and supervising them. 

Communication refers to the process of exchanging ideas and information to create understanding. Motivation means inspiring people to work with confidence. Leadership refers to guiding and influencing people to do in the desired direction.

What is Leadership?

Leadership refers to the process of motivating and inspiring people to work. It is essential for the realisation of an organisation’s goals. It includes influencing people to work for the achievement of a plan or objective. It involves creating an inspiring vision for the future. 

Leadership plays a vital role in direction. A good leadership integrates the interests of an organisation with the personal goals of its workers. A leader influences the behaviour of the workers in various ways. He is responsible for setting a clear vision, motivating the employees and building their morale.

Characteristics of a Good Leader

Leadership is an essential element of management. A person must possess the qualities of a leader for the smooth functioning of the business. A good leader unites the best qualities of his workers and concentrates them for the achievement of organisational goals. The following are the 10 characteristics of a good leader:

Communication

Communication is the most critical tool for success in an organisation. The characteristics of a good leader include effective communication. A leader is responsible for transmitting a variety of information to his workers. Good communication skills can help a leader in developing a better understanding among the employees.

Honesty and Integrity

A leader is successful when he sticks to core beliefs, values and ethics. Integrity is doing the right thing, which is important for the success of an organisation. True leadership demands being fair and honest every time irrespective of the situation.

Gratitude 

Gratitude helps in increasing self-esteem and reducing depression and anxiety. Giving thanks at work can help in motivating the employees to work hard. A person is more willing to work under an appreciative leader than a thankless boss.

Influence

Influencing refers to the ability of convincing people through emotional and logical appeals. An effective leader must influence and inspire people with authenticity and transparency. Influence is different from manipulation, and it requires trust-building and emotional intelligence. 

Respect

Every employee wants to be treated with respect. A leader must respect all his workers to ease tension and conflicts. This helps in building trust and improving the effectiveness of the employees. To gain respect, a leader must value his employees and communicate more with them.

Creative and Innovative

Creativity and innovation are equally important characteristics of leadership. In the modern, fast-paced world, constant innovation and creative ideas are essential for a business to succeed. A leader must think out of the box. He should have the potential to turn his goal and innovative ideas into reality.

Courage

Leadership involves a vast amount of courage. A good leader must be able to voice his new ideas and provide feedback to reports. He must be able to flag concerns for someone with a higher authority. A leader must never avoid conflicts or problems but face them with courage.

Learning Agility

Learning agility refers to the ability to know what to do in a new situation. It is essential for the success of an organisation. It involves learning from the experiences and applying those lessons in the next unfamiliar situations. The traits of a good leader include learning and having strong learning agility.

Self Awareness

A leader needs to understand himself first to lead others. A person who knows his own strengths and weaknesses can increase his efficiency and become an excellent leader.

Vision and Purpose

A good leader is known for his vision and purpose. He develops a vision and inspires his followers to work towards the goal. Sharing his vision helps his followers see the bigger picture and motivates them to work harder. Having a clear vision is among the most important qualities of a great leader. 

Several traits theories of leadership are essential for leaders to abide and follow. This article includes all the crucial attributes of a leader. Leaders are the pillar of any organisation, and the qualities of an effective leader help the business prosper.

What is Equity? Market Value, Book Value

In simplest terms, equity meaning involves ownership in an organisation. As corporations issue shares in the secondary market to raise capital, investors provide the required finance through those shares.

As a result, they gain ownership in a company proportionate to the number of shares they have invested in. 

However, equity refers to the monetary compensation that shareholders will receive in case an organisation decides to liquidate its assets. Therefore, equity is primarily the difference between total assets and total liabilities of a company.

In addition, equity also indicates the financial performance and health of a company. It is an important marker that investors use before investing their capital in any corporation. 

What is the Definition of Equity? 

Equity definition is mainly the value of an asset that an investor invests in after all its associated debts are cleared. Therefore, one can relate equity to ownership of the asset that an investor acquires through buying shares of a corporation. Besides, it is a marker of the stake of an individual in an organisation’s assets. 

The simplified formula that denotes equity definition accounting of a company is – 

Shareholders’ equity = Total assets of a company – Total liabilities of a company. 

For example, let’s consider that a company XYZ issues shares in the stock market. Through the equity balance sheet of XYZ, it is clear to investors that it has a total asset of Rs.200. On the other hand, investors have the knowledge that the total liability of XYZ is Rs.125. Therefore, equity of XYZ is Rs.75.

As a result, the shareholders of XYZ have claims to Rs.75, which is the value of that company. 

What Does Brand Equity Mean? 

Brand equity definition is essentially an improvement upon the original definition of equity and contains several factors. Companies usually rely on consumer perception and the value of their commodities to determine equity. 

Therefore, students who want us to define brand equity should know that it is the value that a company generates. For instance, let’s get back to the example of company XYZ. Consider that it produces a very popular product that is easily recognisable and distinguishable among its competitor products. 

As a result, the additional value that XYZ generated from the premium product is the brand equity meaning. Therefore, consumers are likely to buy quality products at a higher price than from different companies. The excess value that XYZ creates typically refers to brand equity. 

However, there are several types of equity that students should keep in mind to understand the nature of equity investment. 

What are the Types of Equity? 

As we now know, equity is primarily the difference between the total assets and total liabilities of a business organisation. Therefore, it is mainly the figure that remains from the subtraction of current/non-current assets and current/non-current liabilities. 

Moreover, equity can be classified into the types as stated below – 

• Book Value – The book value of equity mainly refers to the accounting perception of equity. This typically relates to the figure that accountants of a firm derive from balance sheet calculations. Therefore, book value deals with equity that is reflected on an organisation’s financial statement. 

First of all, book value considers current and non-current assets and liabilities. For instance, a company’s assets are cash, inventory, prepaid expenses, and fixed assets. Additionally, it also includes accounts receivable, intellectual property, and intangible assets. Besides, book value also takes into account the current and non-current liabilities. These mainly involve credit, short-term and long-term debt, and other fixed financial obligations. 

For example, let’s assume that Big Bazaar has a shareholders’ equity of Rs.1,000. On top of that, this company has issued 100 shares in the securities market. Therefore, the book value of equity for Big Bazaar is Rs.10. 

• Market Value – Contrarily, the market value of equity implies the financial aspect of equity in the share market. However, market value of equities differs from book value as the former indicates the present value of equity in the market.

Besides, Market value is heavily influenced by the level of competition and information related to a company’s range of products. Typically, the method to calculate market value of equity involves the multiplication of trading price and number of shares. 

Therefore,

Market Value of Equity = latest share price X outstanding shares in the market. 

Let’s consider that Google has 5,000 outstanding shares in the market. An investor Ms. Seema finds that the market price of Google shares is Rs.100. Therefore the market value of equity is Rs.100 X 5,000 = Rs.5,00,000. 

Moreover, market value of equity deals with the financial information currently available to investors. Book value of equity typically deals with financial information from a specific period of time in the past. 

Therefore, both book value and market value of shares reflect the financial condition of a company. On the basis of this information, an investor decides the risk factor of investment in a particular company. As a result, these values send signals to investors as to whether it is financially safe to invest in an organisation. 

However, if you want a detailed discussion on ‘What is Equity?’, check our collection of curated study materials today. You can also install ’s app to take your learning with you.

Warranty is a contractual term which is concerned with the quality, longevity, condition, performance, and character of a particular good. It is offered and validated after a sales transaction. Warranties of various kinds are recognised under the law.

Warranty types can be grouped into two broad groups. They are:

• Implied Warranty

• Express Warranty

Both express and implied warranties are extremely crucial to settle a contract of sale between the purchaser and the seller.

Express Warranty

A seller provides a guarantee of quality and reliability in the form of an express warranty. As per express warranties, if a product fails to meet the mentioned claims, the manufacturer or seller will be liable to fix or replace it without charging any additional cost.

Warranties which are incorporated in a contract at the mutual will and knowledge of both the parties (the seller/manufacturer and the buyer) are known as express warranties. This sort of warranty is commonly seen on product packaging or warranty cards.

An express warranty can be created by any statement, promise, description of goods, or sample which must conform to the guarantee claimed by a seller while selling any product.

Implied Warranties

An implied warranty is a warranty which arises automatically from a sale or its circumstances. In such cases, implied conditions automatically apply under law. It exists without needing to be expressed or written. Such warranties are referred to when a buyer observes a dispute in the goods and claims his rights to damage. Section 14 and 16 of the Sale of Goods Act (1930) discloses implied warranty definition.

In sale transactions, implied warranties can be of two kinds. They are as follows-

1. Implied Warranty of Fitness for a Specific Purpose.

2. Implied Warranty of Merchantability.

Implied warranty of fitness for a particular purpose guarantees that a product will serve the specific purpose for which a buyer purchased it. Here, the buyer relies on the judgement of a seller and lets him or her select the best product to meet specific purposes.

On the other hand, an implied warranty of merchantability means it will meet the purpose for which it was designed or manufactured in the first place. This warranty automatically forms a part of every sale until a seller or the merchant modifies it otherwise. Implied warranty for merchantability meaning is that when a product guarantees the following:

• Perfectly Eligible for trade.

• Boasts Uniform Quality and Quantity.

• Conforms to its Claims.

• Fits the Ordinary or the Specific Purpose for which it is being sold.

• Properly Packaged and Labelled.

Other sorts of Implied Warranties are detailed below:

1. Warranty as to Undisturbed Possession

This guarantees a buyer that once he buys a certain product, he cannot be deprived of it. He has the right to enjoy its sole possession after making the necessary payment to the seller. In case he faces any disturbance related to the possession of that good, he can file a complaint against the seller for offending the warranty claims.

For example, a customer buys a car from a person and repairs it for use. However, it is later discovered that the car was actually stolen or fraudulently acquired by that seller. In such a case, that seller will have to bear the cost of damage done to both the parties as well as pay the repair charges.

2. Warning against the Dangerous Nature of a Good

If a certain product is naturally dangerous, implied warranties automatically arise where the buyer has the right to be informed about the risk. A seller is bound to let the buyer know of the danger a product is liable to cause. If a seller intentionally or unintentionally does not warn the buyer of the risk, he will later be responsible in case of any damage caused to that buyer.

3. Warranty for the absence of Third-party Charges

Implied warranties against encumbrances or third-party charges are mandatory on the sale of certain products. This warranty frees a buyer from having to face added costs from any third-party individual or entity. He is not liable to pay any amount which he has not been briefed about during the contract of sale.

The most crucial function of financial accounting is to ascertain the financial position of the business and the profitability of the business. The trading and profit and loss account show the net profit and net loss of the business, while the balance sheet shows the financial position of the business. 

 

Finalization of the accounts means the preparation of the profitability statement and the positional statement of the business. Hence, accounts that are required to be prepared are as follows:

• Trading Account

• Profit and Loss Account

• Balance Sheet

 

These accounts are needed to be prepared according to the rules of financial accounting.

 

Introduction to Accounts

Finalization of accounts signifies that the books of accounts are checked and reconciled and are correct, perfect, and exact.

 

The books of account are normally closed at the end of the year. However, it’s best to test and reconcile accounts on an everyday basis, like monthly or quarterly.

 

The trade account, profit and loss account, and record are all included within the term “final accounts.”

 

The Indian Businesses Act, 2013, Sections 209 to 220, handle legal provisions referring to the assembly and presentation of ultimate accounts by companies. Companies must prepare final accounts in Section 210, while the shape and contents of the record and profit and loss account are addressed in Section 211.

 

Trading Account

The outcomes of the purchasing and selling of products are shown in a very trading account. This sheet aims to point out the gap between the damage and therefore the cost price. The trading account is ready to demonstrate the business’s trading performance like gross profit margin earned or gross loss endured. It keeps track of a company’s direct expenses.

 

Opening stock, purchase returns, and direct expenses also are things that appear on the accounting. Sales returns and shutting stock are the things that appear on the accounting system. profit is the difference between the credit and debit sides, and contrariwise.

 

Profit and Loss Account

This account is formed to work out a company’s net profit/loss and expenses over the course of a financial year. It keeps track of a company’s indirect costs, like rent, salaries, and advertising. Expenses and losses, additionally as revenue and gains, that have occurred in businesses apart from the assembly of products and services, are included in profit and loss a/c.

 

Earnings arising within the ordinary course of business, like commissions, discounts, and other incomes, like interest, dividends, and so on, appear on the method of accounting. profits are the difference between the credit and debit sides, and the other way around.

 

Balance Account

The record shows a company’s financial situation at a given point in time. A company’s financial situation is set by adding up its assets and liabilities on a particular date. The difference between assets and liabilities shows the capital invested within the business and reflects a company’s financial stability.

 

It is now called the company’s statement of the monetary situation.

 

Manufacturing Account

This report must be prepared by manufacturing firms, that is, those that convert raw materials into finished commodities. It determines the value of ultimate goods that are produced or made.

 

It comprises the value of raw materials consumed also because of the costs of obtaining them, like GST, duty, carriage and freight inwards, landing fees, and insurance fees, among other things.

 

With the end of the year approaching, you’ll be trying to find assistance in finalizing your accounts and submitting them to your CA for an audit.

 

How to Finalize an Account

STEP 1: Make a recording

• Check for transactions that haven’t yet been entered into Reach Accountant Software. 

• If you have got any unpunched bills or invoices, confirm they’re entered into the software.

STEP 2: Reconcile your finances

• Print and reconcile the Bank Book with the bank statements.

• Prepare an announcement of Bank Reconciliation.

• Reconcile cash balances and check funds, Imprest, and open claims.

• Make a physical stock check using the Physical Stock Report (Compilation Stock Report).

• Reconcile the sales figures with any VAT, Service Tax, or Excise Returns you will have previously filed.

STEP 3: Make any necessary adjustments before closing the books.

• Pass journal entries to correct missing stock after you’ve completed the reconciliation.

• Add in any missing bank and cash transactions.

• Bad debts should be corrected or written off.

• Depreciation entries should be passed.

• To shift current earnings to retained earnings a/c, make a journal entry. This enables you to start the New Year with a fresh profit counter.

STEP 4: Compile the ultimate Accounts

• Print the Daybook, Ledgers, balance, Profit and Loss Account, and Balance Sheets after you’ve finished the previous procedures.

• Extracting them into excel or pdf and saving them to your Google Drive or Dropbox may be a better idea.

• Accounts are frozen by visiting Settings>>Freeze entries.

STEP 5: Submit your financial statements for audit

• You can easily let your auditor access your account by creating a user account.

• To make his job easier, an auditor can use audit tools and pass adjustment entries.

STEP 6: In-Reach Accountant, create a replacement fiscal year.

• Create a replacement of twelve months in Reach if possible.

• If your accounts are closed, ensure you select to automatically carry over your balances.

• Creating a brand new year without importing the opening balances if the finalization isn’t yet complete for the year.

Concept of Finalization of Accounts

In the balance sheet, these are the main issues: 

1. Schedule III Rounding Off Format 

2. Reconciliation of the number of shares in the company

3. Period of reporting

4. Placement in a private setting

5. Long-Term/Short-Term borrowings

Formats for Reporting

1. Clean Report: Based on audit processes procedures and depending on management representations, we report that disclosures are in compliance with the Company Company’s books of account and as submitted to us by Management.

2. The Company Fails to Make Required Disclosures: The Company has failed to make required disclosures in its financial statements about its holdings and dealings with a Specified Bank.

3. Profitability Statement – This is a statement that covers an entire accounting period. It summarizes the results of company activity over that period. Any company’s actions will involve purchasing, manufacturing, and selling.

4. Trading Account: A trading account is formed by a merchandising company that buys and sells goods over a period of time. The goal is to determine the gross profit or loss, which is a key measure of corporate efficiency.

The Debit Side of the Trading Account Will Show the Following Items:

1. Opening Stock: In the context of a business, the opening stock refers to the finished goods only. Trial Balance should be used to determine the amount of opening stock.

2. Purchases: The total amount of money spent over the course of the year. Cash is also used to make purchases. As a buy on credit Purchase deductions, like purchase returns, are possible.

3. Direct Expenses: these are all the costs incurred from the time the goods are purchased until they are in excellent working order. This comprises inbound freight, salaries, and other costs.

4. Gross Profit: If the credit side of the trading account is more than the debit side, gross profit is generated.

The Following Items will Display in the Trading Account’s Credit Side:

1. Sales Revenue: Sales revenue refers to the revenue generated by the primary company activity or operations.

2. Closing Stocks: In the event of a trading business, only finished products will constitute closing stocks. Stocks are valued at cost or net realizable value, whichever is lower, according to the conservative convention.

3. Gross Loss: A gross loss occurs when the debit side of a trading account is bigger than the credit side.

4. Other Incomes: The company will earn money from sources other than its principal operation. These are completely unintentional. It will include items like interest, dividends, and so on. The result of one P & L A/c component is transferred to the next component, and the net result is transferred to the balance sheet as an increase in owners’ equity. The gains are the property of the business owners.

Infirm organizations with widely distributed ownership, the profit figure is reported separately in the balance sheet.

Liabilities

1. Capital: This refers to the initial investment made by the business’s owner or owners.

This donation could be made at the commencement of the business or later on to meet the needs for finances for expansion, diversification, and other purposes. Owners and businesses are separate entities under the business entity idea, hence any capital investment by owners is a liability.

2. Reserves and Surplus: The company is a going concern, which means it will continue to make a profit or loss year after year. The accumulation of these profit or loss figures (known as surpluses) will continue to increase or decrease the equity of the owners. Profits and losses from non-corporate forms of enterprise are added to the capital A/c.

3. Bills Payable: It is fairly uncommon for suppliers to refuse to provide clean credit. They provide items in exchange for a promissory note, which must be signed as a promise to pay later or on a specific date. These are referred to as payable bills or payable notes.

4. Bank Overdrafts: Banks may provide funds such as overdrafts, which allow businesses to write checks up to a particular maximum. These checks will be honoured by the bank, and the money will be recovered from the firm. This is a temporary commitment.

B. Assets

All debit balances in personal and real accounts are referred to as assets in accounting.

Fixed assets and current assets are the two types of assets.

1. Fixed Assets: These are the assets or facilities that the company owns for a longer period of time. The primary goal of these resources is to use them for future revenues rather than to buy and sell them. The benefits of using these assets are spread out over a long period of time.

Some fixed assets are tangible, such as buildings, machinery, vehicles, computers, and so on, while others are intangible, such as patents, trademarks, and goodwill. Depreciation is the term used to describe the wear and tear on fixed assets. Fixed assets appear on the balance sheet.

2. Investments: These are money that is temporarily invested outside of the business. When a company has excess money that isn’t needed right away, it’s a good idea to invest it outside of the company, such as in mutual funds or fixed deposits. The goal is to make a respectable return on this money rather than letting it sit idle. These are assets that are listed on the balance sheet individually. There are two types of investments: current investments and non-current investments. Investments that are barred from being sold or disposed of beyond the present term are known as on-current investments.

3. Cash on Hand: This is the amount of cash held by the company on the balance sheet date. This money could be kept in a variety of offices, places, or areas where the business is conducted. Cash is physically counted and compared to the book balance at all locations. If there are any discrepancies, they are corrected.

4. Cash at the Bank: Bank transactions are extremely common. Funds maintained as bank balances are also classified as current assets because they will be used to pay suppliers. The bank balance in the books of accounts is always reconciled with the bank statement balance, the reasons for discrepancies are discovered, and the relevant entries are passed.

Finalization Accounts in Tally

In tally, different procedures are involved in the finalization of accounts. The steps are as follows:

1. Go to Tally > Audit and Compliance > Audit Journals > F7: Audit Journal.

2. Select the ledger and then specify the required amount in dr. field and then press enter.

3. Select the ledger required for Cr, field and then press enter.

4. Specify any narration if required, and press enter.

5. Press Y or enter to accept the transaction. 

6. The voucher is required to be selected.

7. Press enter to provide audit details for the selected voucher.

8. Click the enter for display voucher or press Alt+Enter to view the voucher.

9. Click next on CTRL Enter: Alt Voucher or press CTRL Enter to Alter the Voucher. 

10.  Press CTRL to final audit.

One of the simplest types of organization structure is a line organization. It is also known as the hierarchical form of organization. As the word ‘Line’ indicates, it is a flow of authority from top to bottom resembling the line of command in a combat unit. Under this type of organization structure, the power is completely vested in one person who is known as a departmental head and these departmental heads are accountable to their superior, the general manager.

In this approach, the authorities, who are the general manager or the CEO, set the goals and directives for the employees or workers below them (in the hierarchy) to fulfil them. 

Characteristics of Line Organization

1. The operation under this structure is very simple.

2. It has a direct vertical relation.

3. An employee gets direct instruction from his or her head.

4. The management head has full authority to manage and control the operations of the department.

5. Every employee takes decisions based on the level of authority delegated to him by his immediate superior.

Merits of Line Organization

1. Simplest: The understanding of the flow of authority and its operation is simple.

2. Unity in Command: Scalar chain of command flows from top to bottom and the superior-subordinate is maintained very well in this type of structure.

3. Fixed Responsibility: Under this structure, the line manager has fixed responsibility along with fixed power and authority to make decisions and delegate tasks.

4. Better Discipline: Since the control is unified to one person, better discipline is ensured.

5. Prompt Decision: The superiors can take quick and prompt decisions since the responsibility is fixed and unity of command is clear.

6. Flexibility: The top-most authority and bottom line authority has better coordination that leads to flexibility in decision making. This, in turn, gives job satisfaction to the line managers.

Demerits of Line Organization

1. Over Reliability: The decisions are implemented from the top line executives to the bottom which leads to over-relying of decisions on the line managers.

2. Lacking Specialization: Since the tasks are delegated from the superiors which suffer the lack of specialization and expert advice.

3. Miscommunication: The authority flows from top to bottom and even the communication takes the same route. There is no communication from bottom to top, so suggestions, feedback, complaints, etc. do not reach the top executives.

4. Lack of Coordination: The degree of effective coordination is lacking as the decisions are taken by the top officials which might not always be right but the same are carried out and implemented without any scope of correction. 

5. Misuse of Authority: Since the authority is vested only on one individual for a group of people, the decisions can be biased and the power can be taken advantage of. Sometimes, work is delegated based on nepotism and sycophancy, the result will certainly be wrong and these arbitrary actions may finally ruin the whole organization.

6. Scarce Talent: The top executive needs to be skilled, knowledgeable and suitable enough in taking decisions with regard to all aspects like manpower, finance, operation, etc. and finding this kind of personnel is very difficult.

Types of Line Organization

1. Pure Line Organization

2. Departmental Organization

Pure Line Organization

Under this structure, at any given level of work, the type of work performed is almost the same by all the employees. Here an individual controls a group of employees. In the same way, many groups are formed and are placed under one individual who is the senior who takes charge and control of all.

Departmental Organization

Under this structure, different departmental heads are under the top executive or CEO. When a business is established, it is not carried off as a whole but is divided and disintegrated into many departments and sectors for the work to be carried out smoothly. Each department comes under an individual who becomes in charge of a particular department. This particular individual is known as the departmental manager. The departmental manager is the person who becomes the face of his particular department and is responsible for the work to be carried out in a particular department. 

The departmental manager is answerable to his seniors who are the general managers. In a department also, many sub-departments are made for the convenience of the work. Each department also has a sales department as its sub-departments. This can further be branched into the branch department, online sales department, export department, counter sales department, etc. 

Suitability

Line organization is still prevalent in many enterprises, especially which are small scale.

Line organization is suitable:

1. Where the work is involved in a routine manner.  

2. Where the automatic machines are employed.

Scope of Line Organization

• The idea of line organization can be followed in small scale businesses

• In places where the manpower and subordinates are less

• In companies that use automatic machinery, the requirement for skills reduces. 

• In places where the problem of labour can be rectified easily.