Category: Commerce Notes PPT

Presently, ‘Namaste’ is a form of Indian custom that has gained fame worldwide under COVID-19. Like every citizen, not just the Indian Prime Minister joins hands to greet, but many other nations’ prime ministers follow the same greeting style. Custom is the habit, pattern, and behaviour universally accepted and followed in any social system. Therefore, most of the laws defined are based on traditions followed for ages. Everyone abides by the law; hence it maintains the balance and brings peace and harmony.

In the current scenarios, law or rules formed in any institution like court are derived from different sources. Hence sources of law are classified into two categories.

• Principal Sources of Law

• Secondary Sources of Law

In this article, we will get into details of sources of law.

Principal Sources of Law- Customs

As per the ancient literature, it is found primitive people ran life wholly based on customs. It was when everything was underdeveloped; lack of resources led to life in specific style by everyone again and again. Thus, a particular activity became a custom. Customs have played a significant role in the development of Hindu Law. Legal entities like the Court and Parliament consider the importance of custom as a source of law in India.

Custom as a source of law is further categorized – 

Without Sanctions- these are the customs that are not compulsory, however, bound to follow due to social obligations. Custom without sanction example, the nearness of the general public beliefs 

With Sanctions- These are the customs imposed by the governing body. Thus, these are the obligatory customs. Sanctioned customs could be either Legal Customs or Conventional Customs.

• Legal Customs- There are legal customs with sanctions that act like a strict rule to be followed by everyone. If anybody does not abide by the legal customs, they will be liable to be punished. Custom in jurisprudence is recognized by the various legal entities like the court. There are legal sanctioned customs that apply to a particular specific geography. Henceforth, a custom that becomes part of place culture, is called Local customs. We have communities who continuously move from one place to another carrier such local customs along with them.  There are general customs which are not specific to a particular local geography. Every citizen of the country follows customs applicable to the whole nation and is called General Customs.

• Conventional Customs – Any agreement in which two involved parties mutually promise and are aware of its notion becomes a conventional custom. The reasonable conventional custom cannot modify any other general rule of the area. Based on the geography, conventional custom are also narrowed down into general and local conventional customs

You must be thinking, at what point a custom becomes a law. Let’s answer your query; there are particular prerequisites for a custom to become valid and further convert into law. Let’s see the prerequisites

Essentials of Valid Custom

There are few requisites laid down for the recognition of valid custom. All the customs are not approved in judicial understanding.

• Antiquity- a custom that is ancient or immemorial could be considered as a valid custom.

• Certainty- A clear definition of custom is compulsory so that the idea behind is not vague

• Reasonable- A custom must be rational to support fundamental justice, equality, and good conscience. 

• Mandatory Adherence- A custom is considered valid if all the people follow it without observing any interruptions since ancient times.

• Conformity with Law and public morality- A custom should not be against any law of the country. Law can make any of its customs prohibited, which means it will no longer be a valid custom.

• Unanimous view- A valid custom is universally accepted. Each person of the nation should receive the custom, then only it will be considered accurate.

• Peace and harmony- Everyone should enjoy following a valid custom. It should always bring peace. Then the only custom is considered valid.

• Consistency- There should be consistency and uniformity between the customs. Any two customs that contradict viewpoints should not be considered valid customs.

Fun Facts 

• Do you know requisites for binding any valid custom was laid down by Alle, Blackstone, Carter, Littleton?

• Do you know customs without sanctions backed by public pressure are also termed as positive morality?

An organisation prepares several financial statements and documents which can be analysed to comprehend the financial status of a company. Profit and loss account and balance sheet are the same kinds of documents any organisation prepares to understand profit or loss earned by the company in a financial year. 

Let us look at what these two terms mean and how these are different from one another. 

What is a Balance Sheet?

A balance sheet can be alternatively known as a position statement. It can give the financial status of an organisation at any given point in time. It includes a list of all assets, liabilities, and equity so that one can quickly determine the amount of working capital available for use by the company. 

Before delving further, it is essential to learn these terms, which are an integral part of a balance sheet.

Asset – These can be any resources owned by an organisation which can be liquefied for value in terms of money. Assets can be tangible or intangible and can be used in the production cycle or can be liquefied to accumulate funds for the organisation. 

These are valuable items which a company possesses like cash equivalents, machinery, furniture, patents, property, plant, equipment, etc. 

Liability – By liability, we mean a company has financial debts, loans or obligations to be paid to other entities. An organisation might have several liabilities during its operational period due to several unplanned circumstances or to overcome any financial requirement at that moment. Therefore, loans, mortgages, accounts payable, accrued expenses, etc. are all part of liability. 

Equity – Equities can be defined as the difference between total assets to total liabilities. In case the liability is more than the value of the asset, then there is no equity. 

Therefore, assets can be represented as the sum of liabilities and equity.

A balance sheet is broadly divided into two sections, assets and liabilities. Both the sections contain several sub-sections under them. For instance, assets are grouped as investments, current assets, fixed assets, etc. These two columns are assessed, and the value of contributor’s equity is calculated. 

It helps determine the financial status of an organisation at any given point. If the value of assets is more than the cost of liabilities, then it has enough working capital to carry the day to day business operations else not. 

What is Profit and Loss Account?

A profit and loss account prepared for a company includes all the expenses and revenue generated detailed in a sheet. All the costs a company bears in an accounting year are mentioned in the expenses section. Likewise, the sheet also includes another column which consists of the revenues generated from various business operations. 

Finally, the amount of loss or gain is calculated by evaluating the expenses and revenues. If the value of revenue exceeds the total cost of expenses column, then the company is likely to earn profit, otherwise it is categorised as loss. It is to note that profit and loss accounts are created for an accounting year. 

Further, students need to learn the difference between profit and loss account and balance sheet so that they can understand why and when they are used in a business. 

Profit and Loss Account Vs Balance Sheet 

• A balance sheet determines if or not a company is financially stable or secure to carry various business operations. This is determined by listing the total value of assets, liquidity, and equity.

• A profit and loss statement doesn’t depict the financial condition of an organisation but its economic production status. It is an estimation of a company’s total expenses and revenues to calculate the accrued profit or loss. 

• While the balance sheet is a sheet mentioning the assets and liabilities, profit and loss evaluation is concerned with an account. 

• Difference between balance sheet and profit and loss account is that a balance sheet can help determine financial status of the organisation on a particular date and the P&L account is to determine the profit or loss endured by them in a fiscal period. 

• A balance sheet is prepared on the last day of a financial year while the profit and loss account is maintained for the whole accounting period. 

• Value of assets, liabilities, and equity are mentioned in the balance sheet and profit and loss account of a company consisting of expenses and revenues to determine the financial standing. 

Subsequently, students will be able to improve their understanding of the balance sheet and profit and loss account of any company by going through these notes and examples. In case they are seeking more comprehensive study notes, can help them in this venture with quality study material. 

Decision-making is the most fundamental function of management professionals. Every manager has to take decisions related to his or her field of work. Therefore, this is an all-pervasive function of basic management. There are various methods for the process of decision-making. The Quantitative Technique of decision-making helps in making these methods more convenient and efficient.  

Almost every function of a typical manager will require him or her to make decisions on a routine basis. These decisions mostly depend on the nature as well as the scope of his or her work. Also, it depends on the authority and the powers of the manager.

A decision is a judgment of a course of actions that are always aiming to achieve a specific result. For every task a person wants to achieve, decision forms the foundation of it.

The manager often chooses the best option from a range of alternatives for every task that he or she has to complete within a given time. Every decision has many consequences. Therefore, choosing the right decision is very important. 

It can be said that the entire decision-making involves selecting a course of action from various alternatives. This is a very curial function that all the managers have to carry out routinely.

What are the Quantitative Techniques of Decision Making?

While making a decision there are several Techniques that a manager of a company or an organization can employ. The quantitative Techniques help the manager to take decisions objectively and in an efficient way. Such Techniques rely on a scientific and statistical approach to make a good decision. The six important quantitative Techniques of decision making are as follows. 

1. Linear Programming

This Technique helps in maximizing an object that is under limited resources. The main objective can be either optimization of a utility or minimizing of a disutility. In simple words, one can say that it helps in utilizing a resource or a constraint to its maximum potential. 

  

Usually, all managers use this Technique only under conditions that involve certainty. Therefore, this might not be very useful to the manager when circumstances are uncertain or unpredictable. 

2. Probability Decision Theory 

Probability decision theory is a Technique that lies in the case, where the probability of an outcome can only be predicted. In simple words, one cannot always predict the exact outcome of any course of action. 

The managers use this approach to determine the probabilities of an outcome using the available information, firstly. The managers can also rely on their subjective judgment for this purpose. Next, they use this data of probabilities to make their decisions. They often use the decision tree or the pay-of matrices for this purpose. 

3. The Game Theory

Often, the managers use certain quantitative Techniques only while making decisions pertaining to their business rivals. The game theory approach is one such kind of Technique. 

This Technique stimulates the rivalries or conflicts between businesses as a game. The main aim of the managers of a company under this Technique is to find ways of gaining at the expense of their rivals. In order to do this, they can use two people or 3 people or even ‘n’ number of people games. 

4. Queuing Theory

Each and every business often suffers waiting for periods or queues pertaining to their personnel, equipment, resources, or services. For example, sometimes a manufacturing company may gather a stock of unsold goods due to irregular demands. This theory aims to solve such types of problems. 

The main aim of this theory is to minimize such waiting periods and also reduce the investments in such expenses. For example, the departmental stores often have to find a balance between the unsold stock and the purchasing of fresh goods. The managers in such examples can employ the queuing theory to minimize their expenses. 

5. Stimulation

The stimulation Technique observes several outcomes under hypothetical or artificial settings. The managers try to understand how their decisions will work out under diverse circumstances.

Then they finalize accordingly on the decision that is likely to be the most beneficial to them. Understanding the outcomes under such stimulated environments instead of natural settings reduces the risk drastically.

6. Network Techniques

All the complex activities often require concentrated efforts by the personnel in order to avoid the waste of time, energy, and also money. This Technique basically aims to solve by creating strong network structures for the work.

7. Mathematical Programming

Other than calculus, several other techniques can be used to solve decision-making issues. Mathematical programming is one such technique that can be used when several factors affect the choice of strategies. For example, if the aim is to reduce the total cost, no constraint can affect our choice of strategies. If there are constraints, they might limit the funds which can be spent on the inventory, the space for inventory set up, or the highest number of orders that can be placed by the buyer or purchasing department.

In this case, it can become an issue in constrained minimization. However, mathematical programming can be a solution for it.

The constraints form an environment where decision-makers can minimize or maximize the goals to be achieved.

Constraint minimization and maximization is the best feature of mathematical programming. It is one of the most suitable frameworks for analyzing business problems.

8. Cost Analysis or Break-Even Analysis

All managers want to make profits. The objective of cost analysis or break-even analysis is to determine the break-even points or the optimum levels on which the profits are maximum. In decision-making, managers must pay attention to profit-making opportunities of alternative courses of action. This requires that the cost of these alternatives must be assessed properly. A significant cost analysis is made between fixed and variable costs.

A cost can be classified as fixed or variable in terms of the frequency of changes occurring in them at a particular period. However, in the long run, all costs are variable.

Fixed costs are those which remain constant irrespective of the production or sales. For instance, a manager’s salary will not change irrespective of the goods produced or sold out. On-road tax on a vehicle doesn’t change with its annual mileage covered. Whereas, variable costs change with time. It highly depends on factors like the number of goods produced, sales in the financial year, or any similar factor. Some of its examples include sales commission concerning sales occurred, petrol prices in relation with distance traveled, labour wages based on hours worked, etc.

From a decision-making point of view, it is significant to know whether the cost will vary or not as a result of the decision.

The total cost can be determined by adding the variable cost to the fixed cost of various levels of activity (for example, the number of items produced).

9. Cost-Benefit Analysis

It is a mathematical Technique for quantitative decision-making. This Technique is used to calculate the economic costs and the social advantages linked with a particular course of action. In this Technique, efforts are made to calculate the costs and benefits, not only for those that can be expressed in rupees but also the less effectively calculated outcomes of the decision.

Usually, this technique is used for making decisions on public projects in which social benefits, social costs, and actual out of the pocket costs are considered. Here, the cost analysis is associated with the economy of the entire society besides considering the benefits of individuals or a particular group. The goal of this analysis is to get maximum profits for society. 

There are two most crucial quantitative Techniques under this approach. These include the Critical Path Method and the Programme Evaluation and the Review Technique. These techniques are effective because they segregate the work efficiently under the networks. They also drastically reduce time and money. 

Characteristics of Quantitative Techniques

• The quality of the solution can be improved by quantitative Techniques but it is not necessary that the solution is perfect. These Techniques help in finding the solution to the problem.

• The quantitative Techniques are related to the optimization theory. One can find the best solution to the given situation.

• Models are used in quantitative Techniques. By doing mathematical analysis and experiments, a good decision can be made.

• To perform quantitative Techniques, a group of people having different skills is required so that they can estimate the pros and cons of the solution to the problem. Executives must show a willingness to participate in the decision-making.

• The complexity of the situation gets reduced when managers use quantitative Techniques to find an easy solution. They can even innovate solutions to the most complicated and costly functions.

For a prolonged time, cancelling the old Bill and drawing up a fresh Bill is called the Renewal of Bill. Drawee is requested to pay interest for the extended duration, which can be charged in cash or added to the sum of the new Bill.

Bill of Exchange implies a Bill drawn up by a person directing another person to pay another person the amount of money mentioned. For instance, X orders Y to pay 50,000 for 90 days after the date, and Y accepts this order by signing his name, then it will be an Exchange Bill.

Characteristics of Bill of Exchange

• A Bill of Exchange in writing is necessary to have in a Bill.

• To make a payment, it must include a confirmation order and not just the request

• No condition should be present in the order

Types of Bill of Exchange

• Demand Bill- When it is submitted, this Bill is payable. The Bill does not have a set payment date but once presented, the Bill needs to be cleared.

• Accommodation Bill- A Bill is regarded as an accommodation Bill that is supported, drawn, approved without any condition.

Renewal of Bill of Exchange

The extension of the Bill of Exchange is an act of revocation of the old Bill before its maturity for an extended period in return for a new Bill, including interest. At the request of the drawee, it is done by the drawer. The drawee may often not be able to pay the balance of the Bill on the due date. He will ask the drawer to cancel the old Bill and for an extended period to draw up a fresh Bill. In some cases, the acceptor of the Bill will find it difficult to repay the balance of the Bill on the due date. 

Therefore, in such a case, the acceptor may order the holder of the Bill to replace the old one with a new one, which would then allow the acceptor of the Bill to repay with some time extension. If such a proposal is agreed by the holder of the Bill, the old Bill is cancelled and the new Bill is drawn, which is then authorized by the drawee. This process of cancellation of the old Bill and its replacement with the new Bill is also called the Renewal of the Exchange Bill.

Learning Objective of Renewal of Bill of Exchange

If the original Bill is cancelled and a fresh Bill is drawn on the acceptor side, one should make journal entries in the drawer and acceptor books; so that it becomes easy for future redressal of payments. If the receiver of a Bill finds himself unable to pay the Bill on the due date, he will ask the drawer of the Bill to cancel the original Bill before it is due and draw on it a new Bill for an extended period. This is called renewing a Bill of Exchange. The acceptor has to pay interest for the extension of time. Therefore, the current Bill not only contains the cost of the original Bill, but also interest, etc.

Advantages of Renewal of Bill of Exchange

Bills of Exchange: The Basics

The following are the basic components of a Bill of Exchange:

• A written Bill of Exchange is required.

• The vendor who creates the Bill is known as the “Drawer,” and the individual on whom the Bill is drawn is known as the “Drawee.

• A Bill of Exchange must carry a specific amount and must only be in terms of money, not commodities or services.

• The payment order should be unconditional.

A Bill of Exchange’s Dishonour

Dishonour of a Bill of Exchange occurs when the acceptor of a Bill of Exchange fails to pay the Bill on the due date of maturity or refuses to pay. A payee may obtain a certificate from a Notary Officer appointed by the government for this purpose as proof of Bill Dishonour. In this case, the notary charges a fee known as “Noting Charges.”

Parties to a Bill of Exchange

Drawer- A debtor or borrower is referred to as a drawer. The individual who promises to pay a debt to someone else.

Drawee- Is a creditor or a lender. The individual whose name is on the Bill.

Payee-  The individual to whom money is to be paid or the person who is to be paid.

Students can download the Rights of Unpaid Seller Against Buyer – Introduction, Unpaid Seller, Buyer Against the Seller PDF from the website. Anyone can download the Rights of Unpaid Seller Against Buyer – Introduction, Unpaid Seller, Buyer Against the Seller PDF for free from the website easily. Students should study the topic well to get good marks in their exams. They can make use of the Rights of Unpaid Seller Against Buyer – Introduction, Unpaid Seller, Buyer Against the Seller PDF to study the topic as well as for revisions. 

The place where we can find buyers and sellers is nothing but the market. To make the selling of goods ethical and fair practices, a new act called the sales of goods act came into force on 1st July of 1930. The sales of goods act consist of all the contracts and agreements between the sellers. Also, it specifies the phenomenon of reciprocal promises. But the reciprocal promises were first initiated in the Indian contract act 1872 itself.

 

Generally, the seller has to provide goods to his customer, and this buyer needs to pay the exact amount for which he received the goods. If it is done normally, there is no need for the laws. So if any malpractices or mistakes may take place, the act specified certain rights of the unpaid seller against the buyer. We will see those rights in detail.

 

Unpaid Seller

 If a seller, who is unable to get the payment even after delivering the goods and also if the seller fails to receive either money or instrumental benefit in return of his goods due to misleading of the buyer is known as an unpaid seller. So to make proper Justice to the unpaid seller, the sales of goods act provided two kinds of Rights. They are-

Rights of the Seller against the Buyer

• Suit for Price: It is the first and foremost right of an unpaid seller against the buyer. It is used whenever the seller has delivered all his goals to the buyer, and the buyer refuses to pay the amount then he can make use of his right and file a case against the buyer by suing for price. The sales of goods act clearly to explain that the seller has to receive the payment from the buyer after delivering the goods.

• Suit for Damages: This right is beneficial to the seller when the buyer refuses to take the goods, and it causes certain damage to the goods then the seller can file against the buyer for the damage of goods because of his non-acceptance. For instance, food products, dairy products will get damaged if the buyer refuses to take them, once the order has been placed.

• Suit for Interest: Generally, the buyer and seller will make a contract or agreement to provide goods at one particular time, and the payment will be made after being sure. Of time with interest rate. This contract is made with the acceptance of both parties. But if the buyer refuses to pay interest or less rate of interest during the time of payment, then the seller has a right to sue for the interest for goods that he has delivered earlier.

• Rejection of Contract: If the buyer refuses to continue the contract or if he rejects the contract in the middle itself without any prior notice and genuine reason, the seller has the right to sue for the contradiction of the contract before the due date. It is also available in the Indian contract act due to the name of anticipatory breach of contract. Breach of contract means quitting either of the parties from the contract without any reason or any information.

Significance of the Rights of Buyers and Sellers

These are the various rights of an unpaid seller again as to the buyer. Besides these rights, the sales of goods act also specify certain remedies of the buyer against the seller. Because every time there is an equal chance of misleading the contract by both sellers as well as buyers. So to protect the buyer also, the ACT provides specific remedies of the buyer against the seller. Let’s try to understand those remedies in detail.

 

Remedies of the Buyer Against the Seller

• Sue for Damage: The buyer also has the option to sue for damage or can sue for non-delivered goods in the specified time by the seller. Because without goods, the buyer fails to perform his required activity at that time.

• Performance-Based Suit: If the seller refuses to deliver the goods or he may breach the contract before the due date, then the buyer can take help from the court to file a case against the seller.

• Suit for Warranty: If the seller promises to provide the goods with a specific warranty and fails to do it or refuses to do it while delivering the goods, then the buyer can sue for the warranty as well as can reduce the amount to be paid for the goods.

• Repudiation of Contract: It is common for both the seller as well as the buyer. Similar to the seller, the buyer also can have an equal chance to file against the seller if he refuses to continue the contract or he breaches the contract in the middle or before the due date.

• Sue for the Interest: The buyer has the right to claim for the interest for damaged goods or for the delay in delivering the goods against the seller.

Hence we can understand the rights of an unpaid seller against the buyer and also the remedies of the buyer against the seller.

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