Category: Commerce Notes PPT

Sales are a crucial aspect when it comes to businesses or organizations. The sales can range from dozens to thousands per day depending on the size of the business or the organization. Hence, it makes sense for maintaining a separate Sales Book and a Sales Return Book.

Sales are a very significant part of all organizations. To understand the concept of Sales in detail let’s have a look at Sales Book and Sales Return Book.

Sales Book:  A Sales Book is a Subsidiary Book and hence; Sales Book does not contain a Trade Discount and other details given in the invoice. 

Sales Return Book: Sometimes goods sold might be defective or of low quality, hence; the customer may return them.  In such cases, goods that are sold and are returned by the customer or buyer are given goods recorded in the Sales Return Book

What Are Sales Books?

The Sales Book is regarded as the subsidiary book which is also called a book of original entry. The Sales Book or the sales day book consists of the records of the all-credit sales of goods or products. On the other hand, a cash book contains the records of the all-cash sales of the goods.

 

The entries of the Sales Book are made using the net amount of the invoice. Hence, the Sales Book does not have a trade discount. The other such details are found in the invoice.

 

Each month the total in the Sales Book is noted on the credit side of the sales a/c, which is the ledger a/c. However, the individual accounts of the consumers are posted daily. Furthermore, if the volume of the transaction entries is too huge, the entries in the sales a/c are posted even weekly or fortnightly. 

 

The seller also prepares the invoices in either two or more copies. This invoice consists of the details of the terms of the payments, sales, etc. The Performa of the Sales Book is shown below:

 

 

What Are Sales Return Books?

It often happens that the goods that are sold tend to be defective or of lower quality and therefore, the customer would return them. Hence, the Sales Return Book is used to record the goods sold which are returned by the customers. However, the sales returns book is used to record only the goods which were earlier sold on a credit basis.

 

A credit note is made to prepare each return of the goods and is prepared in duplicate. The credit note consists of the name of the customer, the details of the goods that they have returned, and the reason for the return. Every credit note has a date and is numbered serially. The credit note is regarded as the source document for the entries in the Sales Return Book.

 

The customer who bought the goods can also prepare a debit note. This is made when the goods are sent back to the seller and hence, is sent to him. The Performa of the Sales Return Book is as follows:

 

Solved Example

Example:

Record the transactions as follows in the books of M/s. Z and Co. Also, the ledger determines the ledger accounts.

 

Solution:

In the books of M/s. Z and Co. the entries given below will look like this.

Sales Return Book

 

The entries, when recorded in the books of the individual traders will look as given below.

MNC Ltd. A/c

 

D Ltd. A/c   

 

X Ltd. A/c      

 

Sales Return A/c 

There are certain prerequisites for starting up a Business. The first and foremost step is drafting a proper Business plan which includes both the long run as well as the short-run expenses. Calculating your cost beforehand helps you figure out your profit and the number of units that are to be produced. The short-run average cost determines the cost of fixed and variable short-run factors which in turn helps in estimating the average production.  It includes variable cost, marginal cost, fixed cost and total cost. The factors which have to be bought every time you want to increase the production quantity are variable costs as they vary with the number of goods produced. On the other hand, there are certain requirements for the production process like land, labour etc, which are to be maintained compulsory irrespective of the profit and loss. It not only gives you an idea about the total cost of production but also helps in working out the average cost of manufacturing a single unit. All these costs can also be graphically depicted on the short-run average cost curve. 

 

Let us now understand every aspect of the short-run average cost definition one by one through this blog. 

 

Short-Run Average Cost Vs Long-Run Average Cost:

In the production process, the manufacturer has to buy many goods like raw materials, pay wages to the labour and salaries to the employees, rent to the landowner etc, all these costs are incurred to produce a good. So, an estimate is made before starting the production process on the cost that would incur in the production process. If the estimate is done for a short period that does not consider the change in the number of goods, it is called short-run average cost. We can derive it by dividing the entire cost by the total number of goods that we want to produce. If the same estimate is calculated for long term production, then it is a long-run average cost.

 

Types of Costs For Production

Before discussing the average cost curve in the short-run, we must know about the various types of costs that are needed to be considered before starting production. 

1. Fixed Cost 

It comprises all those costs that do not change with the amount of produce. For example, if you are planning to set up a pizza manufacturing unit, the cost of the land and equipment (like an oven) will not be affected even if you were to increase the production, i.e. it will remain ‘fixed’. 

2. Variable Cost 

It includes those expenses that are bound to change with the number of products manufactured. Labour, raw materials, electricity, etc. are all examples of variable costs. 

 

3. Total Cost  

It is obtained by adding the fixed cost and the variable cost.

 

4. Marginal Cost 

It refers to the cost of production that would be required to manufacture one additional unit of a product. It is calculated using the following formula-

 

[MC = frac{triangle{TC}}{triangle{Q}}]

 

Here, the numerator represents the change in the total cost, and the denominator denotes the change in output. It will be further discussed in the short-run average cost curve.

 

Calculation of Short-Run Average Total Cost

Let us now have a look at the various short-run average cost functions. 

1. Short-run average variable cost – It is the variable cost of production per unit product. The formula for short-run average variable cost can be written as – 

AVC = TVC / Q

Where AVC is the average variable cost and TVC is the total variable cost.

2. Short-run average fixed cost – It is defined as the fixed cost for production per unit of output. It is calculated as – 

AFC = TFC / Q

Where AFC is the average fixed cost and TFC is the total fixed cost.

3. Short-run average total cost – It refers to the total cost of production per unit product. The formula for the short-run average total cost is as follows- 

ATC = TC / Q

Where ATC is the average total cost, TC is the total cost. 

The short-run average total cost can also be calculated as the sum of short-run average variable cost and average fixed cost.

ATC = AVC + AFC

All these functions are important for plotting the cost curves in the short-run. 

 

The Short-Run Average Cost Curve

After having talked about the short-run average cost definition and a thorough understanding of its components, we will now discuss the average cost curve in the short-run. 

 

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On the X-axis is the cost of production (in rupees) and on the Y-axis is the quantity of output. 

 

The graph of the average fixed cost goes on decreasing because it is a fixed number and as we keep dividing it by the increasing number of products, it keeps getting smaller. The marginal cost curve goes down and up because of the law of diminishing marginal returns. It goes down at first due to the additional output produced by the workers as they specialize, but eventually, it starts rising because the resources become limited after a certain period. 

 

The short-run average total cost curve and the short-run average variable cost curve also go down first, intersect the curve of marginal cost at their minimum, and then goon rising to form a U-shape. This graph could also be used to calculate total costs by finding out the area under a particular curve. 

 

Did You Know?

In 1998, Alan Blinder, former vice president of the American Economics Association, conducted a survey in which 200 US firms were shown different cost curves and asked to specify which one of those curves represented the US economy the best. He found that about 88.4% of firms reported cost curves with constant or marginal cost. 

The staffing process helps to select the right person with appropriate skills, qualifications and experience to recruit them to different positions and jobs in an organisation. Staffing means the process of filling and keeping various roles in an organisation filled. In management, it means the process of recruiting the right person at the right place to increase the efficiency of the organisation. An enterprise with an efficient workforce cannot function properly, so staffing helps an enterprise to acquire a workforce. It includes taking up different people to perform various functions in different departments. It is an important process to run an organization or a business. This is the first and major step in human resource management. Refer to the official website of or download the app for an elaborate and easy explanation.

Steps in Staffing Process

Staffing is a complicated process, and it involves various steps, It starts with workforce planning, and ends with the proper recruitment of the employees. It also checks the performance of the employees effectively. For successful staffing in an organisation, a manager has to perform various steps of staffing that are as follows:

1. Planning the Manpower Requirements: The very first steps of staffing are to evaluate the manpower requirement of an organisation to match the job and positions available in the organisation. It also helps in determining the skills and qualifications required for a specific job in the organisation.

2. Recruitment of Employees: Once the requirement is evaluated, the next step involves the searching of prospective persons that are eligible for the job and inviting applicants to apply for the positions. In this process, the employer advertises about the openings in the organisation through various media, which makes it easy for the applicants to get to know about the job vacancy and the required skills.

3. Selection of Employees: The selection process helps in screening the employees and identifying the deserving candidate who will be suitable for a specified job. Therefore, it can be said that the main objective of selection is to identify the right employee for the right job.

4. Orientation and Placement: Once the right candidates are selected, the organization makes the employees familiar with the working units and working environments through various orientation programs. Then, the placement is done by putting the right candidate at the right place which helps in the proper functioning of the organisation.

5. Training and Development: Once the placement is done, the next step involves the training and development of employees. Training is an integral part of the staffing process, and it helps the employees to develop their skills and knowledge.

6. Remuneration to Employees: It is the compensation given to the employees in monetary terms in exchange for the work they do for the organization. It is given according to work done by the employees.

7. Performance Evaluation: It is an assessment done to evaluate the attitude, behavior, and performance of an employee. These steps of staffing also help in determining the success of the whole recruitment process. It gives the management a clear picture of the success rate of the entire recruitment procedure. This step includes elements like appraisal, promotion, and transfer. The performance of the employee is assessed comparatively to the other employees and also to his own previous performance. Based on these criteria, the employee gets a hike on his pay or a promotion. Sometimes, employees are transferred to another location of the same company and are generally attached with a level up in his position or given certain benefits. 

8. Promotion of Employees: Promotion in simple words means the shifting of an employee to a higher post demanding a more significant responsibility. It not only makes the employee responsible but also keeps him motivated to do his work efficiently. With the promotion, the monetary benefits that the employee receives are also increased, which makes him more efficient to complete the work on time.

9. Transfer of Employees: As promotion is shifting of the employee to a higher post, transfer refers to the shifting of employees to a different unit or department being in the same position, This is done to develop new skills and knowledge of the employee.

Staffing Process Flow Chart

Staffing is a complicated process, so before starting with the staffing process, the manager has to prepare a flowchart to make the whole process easier and effective. He/She should plan and act according to the staffing process flowchart to make the process a success. The flowchart saves a lot of time and makes it easy to complete the selection and recruitment process.

Benefits of Staffing Process

Every organization needs to have efficient and competent employees to achieve its goals and objectives. The staffing function helps in acquiring such employees for an organization. It not only acquires the employees but also helps in their training and development. The most important feature of methods of staffing in management is that it allows the timely recruitment of the right person in the right place for the efficient working of the organization.

• It helps in knowing the organizational requirements and achieving them by recruiting the exact person to do the job.

• It helps in recruiting the correct ones, so it helps in improving the quality of human resources, when these people are trained properly, they can function more efficiently. On a whole, it improves the productivity of the organization. 

• When the employees are trained according to the job requirement, they can work efficiently, this will improve their morale and give them job satisfaction

• Training the staff about how to behave with superiors, subordinates, and colleagues helps in building a harmonious working environment at the workplace

When it comes to the topic of calculating the depreciation value of an asset of a business in a competitive industry, there are numerous methods that are frequently used in order to conduct the calculation. Straight Line method is one such method. 

The straight line method of depreciation is an especially helpful and effective method of calculating the depreciable value of any particular asset with regards to its acquiring cost and potential salvage value. Therefore, this is a crucial method that is often incorporated among firms worldwide. 

Straight Line Method of Depreciation 

The process of straight line depreciation involves the cost of acquisition of an asset as well as its potential future salvage value in years to come, as has been stated above. So, in order to expand on the topic of the depreciation method of Straight Line, these two aspects shall be understood first. 

Since the straight line depreciation formula involves the cost of an asset, the asset that is being positioned in the market which can potentially yield a profit to its company will inevitably face a depreciation in its value in the market, with few rare exceptions. Therefore, the potential salvage value, i.e., the value of the asset in terms of its monetary value in the market in the future is utilized in this method to narrow down the depreciation value of the asset in the market with respect to the years of consideration.  

Therefore, in order to further this discussion about this particular method of straight line depreciation, the formula that has been established in relation to this method has hereby been stated. 

Straight Line Method of Depreciation Formula 

As stated above, the straight line method is dependent entirely on an asset’s acquisition cost (the cost of the asset with which the asset has been purchased or sold in the market), and the salvage value which is the value at which the asset is presently or expectedly being sold or purchased in the market. 

Therefore, the straight line method formula has been penned in accordance with the contributing factors of the method. The formula is hence derived by the difference between the salvage value of the asset in the market and the initial cost of acquisition of the asset. The resulted difference is the depreciation value of the asset. 

The straight line depreciation equation is:

Depreciation Expense = [frac{text{Cost of Fixed Asset – Salvage Value}}{text{Useful Life }}]

Straight Line Projection 

Since a large part of the method of calculating the depreciating value of an asset in a market involves the projection of the annual depreciation formula of the asset’s value, it is imperative to understand the method of Straight line forecasting. 

Straight Line projection or forecasting refers to the practice of gaining a thorough understanding of a business’ future potential revenue growth. The estimation that is required for this method is in alliance with the linear method of depreciation. 

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We can understand taxation as the route via which the government or the taxing authority imposes or levies taxes on all its citizens, businesses, and other entities. The system of taxation has been a mainstay of civilization since times. In simple terms, we can say that taxation is a financial obligation among the citizens of a country.

The term taxation applies charges to all types of involuntary levies, ranging from income tax to corporate tax to capital gains and estate taxes. The revenue that results from taxation is known as tax. Now that we have talked about the fundamentals of taxation, let us try and answer the question – what is taxation?

Taxation – An Overview

Taxation is a system wherein the government or any other authority mandates that citizens pay a fee. Taxes are involuntary, and as opposed to different types of payments, taxes don’t provide any direct services in return. Governments can levy taxes on physical assets, land, estates, and so forth. The concept of taxation is different from other types of payment as it does not entail consent and direct services in return. The government mandates taxation vis-à-vis explicit or implicit threat of force. Lastly, taxation is distinct from racket or extortion because legal authorities and not private actors impose it. Now that we have answered the question – what is taxation – let us dovetail into the canons of taxation. 

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Canons of Taxation

Pioneering economist Adam Smith put forth four basic rules and principles of fair tax policy in his famous book- The Wealth of Nations. We can understand the four maxims or dictums as the canons of taxation. 

1. Equity – Equity as a canon of taxation implies that the taxes people, institutions, or organizations have to play should be proportional to their income. As such, the higher a person’s income, the more will be the tax they have to pay, and vice versa.

2. Certainty – It refers to the idea that taxes should be clear and transparent. The notion behind ‘certainty’ is that every taxpayer should know or should have the tools to quickly find out how much tax they have to pay when they have to pay and how they have to pay their taxes. The importance of certainty is that it equips taxpayers to consider their taxes while formulating their budget. Lastly, transparency also enhances public acceptance and trust.

3. Convenience – It implies that both the timing as well as a mode of paying the tax should be convenient for taxpayers. As such, governments and other authorities should design the taxation accounting ecosystem so that people can effortlessly make their payments.

4. Economy – The last canon of taxation refers to the notion that the cost of collecting taxes should be minimized. The reasoning is that the money collected from taxes should be used for the welfare and benefit of the taxpayers. In other words, the government should ensure that the collection of taxes requires the least possible expenditure.

Purpose of Taxation

The primordial purpose of taxation is to ensure that the incumbent government can finance the various expenses incurred in running or governing the nation. Thus, taxes are levied to accumulate funds and consequently drive the many state-sponsored types of machinery. Hence, taxation galvanizes the development of a country and its citizens by promoting socio-economic growth, social security nets, and so on. Another purpose of taxing citizens and other entities is to reduce the consumption of unwanted goods. The government uses taxation as an instrument to reduce the consumption or proliferation of wanted items like alcohol, tobacco, and so on. Likewise, the government can also use taxes to protect local industries and manufacturers and enhance their profitability and development. Thus, we can answer the question – what is taxation and its purpose. 

In conclusion, taxation is an indispensable part of modern civilizations. They are a crucial way to determine public life. In India, both the state and the central governments have veritable importance in determining the taxes.

A shutdown point is defined as the level of operations at which a particular company experiences no benefit for continuing the operations and thus, they decide to shut down, even though temporarily. While in some cases the organizations once they reach this no profit and no loss zone decide to close their organization permanently. Here the common only earns the revenue to cover up their variable cost. That means the company’s marginal revenue is equal to the variable cost that is to be covered. In this case, the company’s marginal or the minimum profit have turned negative. 

What is the Shutdown Point in Economics?

This is a point at which a businessman thinks that there is no benefit for continuing their business operations. Thus, they finally decide to shut down the business if temporarily or maybe permanently, this point is determined as the shut-down point. This situation could crop up for the output and the price or where the business earns only the revenue, merely bearing to cover the total variable cost.  This shutdown point occurs at a time when the marginal profit of the business reaches a negative scale.

At the shutdown point, there is no economic benefit to continue the production, if there is an additional loss either a rise in variable costs or a decrease in the revenue, the cost of operations might cross the revenue. In this situation, shutting the business down will only be the better choice rather than continuing it. 

What is the Shutdown Point of a Firm?

A firm may earn losses if they continue to operate, so why cannot the firm avoid losses by only shutting down and not producing their goods or services at all. The answer is that shutting down can reduce variable costs to zero, but in the short run, the business is already committed to paying its fixed costs. As a result, if the firm produces a nil quantity, it would still make losses as it would still need to pay for its fixed costs. Therefore, when a firm is experiencing shortage or losses, it must answer a question: should it continue producing, or should it completely shut down?

How the Shutdown Point Works

At the shutdown point, there will be no economic benefit to continue their production. If there is an additional loss, either through a rise in the variable costs or a fall in the total revenue earned, the cost of operating will gradually outweigh the revenue.

At that point in time, shutting down the operations is more practical than continuing its business. If the reverse occurs, then continuing production would be more practical. If a company produces revenues that are greater or equal to the variable cost then it can use the additional revenues to pay down the fixed costs, assuming that the fixed cost like the lease contracts or other lengthy obligations, will be incurred when the firm shuts down. When a company can earn a positive contribution margin, this should remain in operation despite the marginal loss.

Types of Shutdown Points

The length of a shutdown can be temporary or permanent, this depends on the nature of the economic conditions which is leading to the shutdown. For the non-seasonal goods, in an economic recession, this may reduce the demand from the consumers, after forcing a temporary shutdown (partially or totally) until the economy recovers from this.

Yet at other times, the demand dries up completely for the changing consumer preferences, also for the technological upgrade. For example, nobody produces the cathode-ray tube (CRT) televisions or computer monitors any longer, and thus this would be a losing prospect to open a factory such as these days to produce the same.

Other businesses also may experience the fluctuations or produce some goods year-round, while others are merely produced seasonally. For example, the Cadbury chocolate bars are produced year-round, while the Cadbury Cream Eggs are considered as a seasonal product. The main operations will be focused on the chocolate bars, which may remain operational year-round, while the cream egg operations will have to go through periods of a shutdown during the off-season as well.