What is the meaning of sundry and sundry debtors?

On the other hand, all transactions such as payment to a creditor, purchase returns, etc. that reduces the creditors’ balance should be debited. Accurately recording such debtors allows a company to manage its cash flow more effectively, as it can use the amounts owed to it to pay for its own expenses or investments. It also helps the company forecast future revenues and better plan its operations. Before allowing goods on credit to any person, first of all, the company checks his credibility, financial status and capacity to pay. Credit policy is made by the management of the company which takes decisions regarding credit period allowed to debtors as well as discount allowed to them for making early payments. However, still, there is a possibility that some debtors fail to pay the sum in time for which they have to pay interest for making a late payment.

• Invoice implies that the sale has taken place, but pro-forma invoice is not an invoice.
• Financial statements are primarily recorded in a journal; then transferred to a ledger; and thereafter, the final account is prepared (as shown in the illustration).
• Note − All figures given above are related to the last accounting year.
• But what portion of this profit will be reinvested as working capital will depend upon the retention policy of a firm which is, again influenced by corporate tax structure and dividend policy.
• Capital profit should be transferred to the capital reserve account, which is used to set off capital losses in future if any.
• To ensure the smooth flow of the working capital cycle, a company must keep a track of the time lag between the receipt of payment from the debtors and the payment of money to the creditors.

Creditors are mentioned as a liability in the balance sheet of an organization. This summary will disclose that he has certain assets, valuable possessions and properties which is to be used in the business. In addition certain sums of money may be owing to him by customers, while, on the other hand, he may owe various sums. The latter are his liabilities, and, taking the total of these from his assets, he is able to say what he is worth financially.

Investment Transactions

If errors relate to nominal account, it will either increase or reduce the profit and rectification will reduce excess profit or Loss. In case (ii) where difference has already been transferred to suspense account, further amount will be debited or credited to respective account and correspondingly suspense account will be debited or credited. Thus, these entries would reduce/nil the balance of suspense account. Financial accounting deals with recording and maintaining every monetary transaction of an organization. However, sometimes, a few entries might be either incorrect or used at the wrong place. In financial accounting, the process of correcting such mistakes is known as Rectification of Errors.

• (d) It enables management to compute the rate of return on total investment in current assets.
• The maximum interval between reports is one year, as it helps a businessman to take any corrective action.
• To protect the rights of investors and to enforce an orderly growth of securities market, SEBI came into existence by an Act of Parliament known as “Securities and Exchange Board of India Act, 1992”.
• Due to increasing size of market, it is quite obvious that manufacturers or whole sellers cannot approach directly to every customer around the state or nation.
• Every business organisation is required to maintain a minimum balance of cash and other current assets at all the times—irrespective of the ups and downs in the level of activity.

So, a seller at the time of selling shares normally charge value of the accrued dividends up to the date of sale, and this is called ‘CUM DIVIDEND” or “CUM INTEREST”. Sometimes, as per the will of a person, an amount received is called as legacy. It is of a non-recurring nature, therefore should be treated as a capital receipt, and hence will be appeared in the liabilities side of a Balance sheet. However, it may also be treated as an income and may be taken to income & expenditure account. The premium received on issue of shares, and the profit on sale of fixed assets are the major examples of capital profit and should not be treated as revenue profit. Capital profit should be transferred to the capital reserve account, which is used to set off capital losses in future if any.

differences between Debtor and Creditor

This is justifiable if the customer purchases in larger volumes at frequent intervals. This may not be justifiable for smaller customers, thus it is more convenient to maintain a single ledger account named ‘sundry debtors’ to record such small scale infrequent transactions. Every business organisation is required to maintain a minimum balance of cash and other current assets at all the times—irrespective of the ups and downs in the level of activity. The portion of working capital which is continuously maintained by the business at all times to carry on its minimum level of activities is called permanent working capital.

Understand the definition of accounts receivable, look at different types of accounts receivable, and examine examples. If the debentures are issued at premium or at discount, the auditor should see that the debenture premium and discount on issue of debenture are properly dealt with in the books of account. Normally, in case of subsequent years, the share capital would be the same as in the previous year meaning of sundry debtors and creditors unless the company has made any alteration or addition by fresh issue or otherwise. If he come across any change, he should see that the relevant provisions of Secs. 94, 95 and 100 to 105 of the Companies Act have been duly complied with. He should compare the expenses shown as unpaid during the current year with those of the last year and if he finds any difference, the same should be enquired into.

Receipt and Expenditure Account

During the boom period, the need for working capital will increase to meet the requirements of increased production and sales. On the other hand, in a slack period, the reduced volume of operation will require relatively lower amount of working capital. The working capital requirements of a firm are widely influenced by the nature of business. A firm should always maintain a requisite amount of working capital for smooth and efficient functioning of its operations. The total working capital requirement is determined by a wide variety of factors.

As per this principle, a revenue item should be recorded in the Trading and Profit & Loss account and a capital item should be recorded in the Balance-Sheet of respective firm. These items having been posted, the books are ready for the subsequent transactions to be entered as and when they occur. In examination tests, students may be required to prepare the opening entries and also record the subsequent transactions.

For example, the management of a woolen industry wants to carry on production evenly throughout the year rather than concentrating on its production only in the busy season. Production cycle is the time involved in manufacturing or processing a product. It starts when raw materials are put in the production process and ends with the completion of manufacturing of the product.

As a result, such transactions usually lead to the addition of a debtor & a creditor in the books of the seller and the buyer respectively. In the above case, Daniel Constructions is a creditor for Axis Housing, and the same is recorded in their books for 90,000 due to the credit purchase. Many such creditors combined together are known as “Sundry Creditors”.

Financial Accounting – Single Entry

Above entry will be a base entry to open all new books under the double entry system of accounts and all the future transactions will be booked according to the double entry system as explained earlier. Example (2) − to calculate the amount of an income related to the current year, we need to prepare a ledger account of the particular income. Further, the balancing figure of this account will represent the amount of an income for the current year.

As a result, such transactions usually lead to the addition of a debtor & a creditor in the books of the seller and buyer, respectively. At the time when payment is received from the debtor below entry is recorded. Khatabook is one such accounting app that has numerous helpful features. It is significantly useful in managing ledgers and generating business reports. Therefore, a business can be handled in a feasible manner with this app. E.g. The above purchase will be recorded as follows in the books of PQR since Company C is a sundry creditor.

Under this method of accounting, each department is treated as a separate unit and separate set of books are maintained for each unit. Financial results of each unit are combined at the end of accounting year to know the overall result of the store. Actual ascertainment of the cost is possible only after fully completion of the contract. Therefore, it is not possible to know the profit or loss on contract till it is completed. In case where extra work is of substantial amount, a separate contract account should be prepared, as explained above. Increased Cost of Working − Increased cost of working means, certain additional expenses those have to be incurred by insured person to keep the business in running condition during the indemnity period.

Royalty, based on the production or output, will strictly go to the Manufacturing or Production account. In case, where the Royalty is payable on sale basis, it will be part of the selling expenses. Small trading unit generally uses this system of accounting, where accounts of all departments are maintained together by central accounts department in the columnar books form. Under this method, sale, purchase, stock, expenses, etc. are maintained in a columnar form. Trading & Profit and Loss account and Balance sheet are prepared from the receipt and payment accounting after consideration of the adjustment entries.

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