The present work is carried out in order to deepen the accounting knowledge in the different topics to be developed within this context, among them we can find: cash, inventories, branches, sales and consignment, etc.
For this, each one of the topics is exposed in detail, as well as practical examples to visualize the management of each of the accounts and how they are affected in each situation.
I hope that the information described here fully meets the proposed objectives.
accountingCHAPTER I
LEGAL ASPECTS OF THE COMPANIES
CONSTITUTION OF COMPANIES
The Venezuelan Commercial Code recognizes the following types of commercial companies.
Partnerships in a collective or simple limited partnership are constituted by public or private document through registration in the commercial court of an extract from the company's contract and its modifications are recorded in the same way.
The extract must contain:
- The names, and address of the partners who are not simple limited partners and those of these, but have delivered their contribution. Their business name and purpose. Their duration. The amount of the securities delivered. The expression of what each partner contributes. in money or other property; and name of the partners authorized to act for the company.
The constitutive document of joint-stock companies and limited partnerships by shares must state:
- Name and address of the company The purpose of the company The amount of the subscribed capital and amount of the paid capital Name, surname and address of the partners, number and nominal value of the shares The value of the contributed assets Rules with subject to which the balance sheets must be formed and dividends calculated and distributed The advantages and rights granted to the promoters Number of individuals that will make up the board of directors, their rights and obligations, stating which of them can sign for the company. In the case of limited companies, the name, surname and address of those jointly and severally liable, the number of commissioners, the company's start date and its duration.
The constitutive document of limited liability companies must contain:
- Name, domicile and nationality of the founding partners Name of the company and its purpose The amount of the share capital Amount of the share of each partner Number of people who have to exercise the administration Number of Commissioners, if any. Rules for preparing the balance sheets and calculating dividends. Duration of the company.
In the next three sessions, we will pay attention to certain accounting problems that are typical of organizations that are presented as commercial companies, which we could start by defining them as those whose objective is the association of two or more people to operate in common. for profit. They are governed by the respective company contracts, articles of incorporation, commercial codes, civil code, etc. and they can be the following types:
- on behalf of the collective limited companies limited liability companies limited liability companies
Companies in Collective name
They are formed having as fundamental elements the personal relationships between the partners. Their obligations fully compromise the assets of each of these, because normally, all are involved in the administration of their businesses.
They are extinguished by the death or interdiction of any of the partners; Unless the contrary has been expressly provided for in the social contract. The responsibility of each of the partners is joint and several and the company name is usually the name of one or more of them.
Incorporation of a Company in Collective Name for Immediate Total Contributions in cash.
Let us consider the following example: On January 2, 1962, A. Alvarado, M. Pérez, and J. Salas, constitute a company in collective name that will operate, under the corporate name of A. Alvarado y Cía., With the purpose to trade in radio and television sets, in the city of Caracas. The partners immediately contribute Bs. 60,000, 40,000 and 20,000 in cash respectively. The opening entry to be drawn up in the Main Journal will be the following:
| 1962 | Day | Description | Should | To have |
| January | two | Antonio Alvarado, Manuel Pérez and José Salas, have formed on this date a Collective Society to dedicate themselves to the sale of radio and television, in accordance with the Social Contract granted for this purpose.
- one - Cash or Bank A. Alvarado - Capital Manuel Pérez - Capital José Salas - Capital |
120,000 |
60,000 40,000 20,000 |
Anonymous Societies
The Public Limited Company is a commercial legal person whose liability is limited to the assets contributed by the partners, without any of them being personally bound by the corporate debts. It is dedicated to trade under a different name from the name of the partners, which may be the object of the business or some other that distinguishes it from the others.
The capital of a public limited company is divided into shares: these confer on their holders certain fundamental rights, of which the most important are:
- Vote in shareholders' meetings and participate in the administration of the company Participate in the profits, that is, receive dividends when declared by the administrators Participate in the subscription of any issue of shares of the class of which they are owned, in proportion to those that each shareholder has on the date of the additional issue. Participate in the distribution of the company's assets upon dissolution.
The corresponding entry will be:
| - one -
Shareholders Social capital For the obligations contracted by the subscribers of the 500 shares of Bs. 1,000.00 C / U of par value and that represent the capital stock |
500,000 |
500,000 |
The Limited Partnership
It is one in which the social obligations are guaranteed by the unlimited and joint liability of one or more partners, called joint or commander partners, and by the limited liability to a specified sum of one or more partners, called limited partners.
Accounting for Simple Limited Partnerships
The opening entry is, almost equal to that of the companies in collective name. It should clarify whether the partner is a comanditant or limited partner.
Example: On 02/20/1961, the company Alvarado, Pérez y Cía. Limited partnership. The partners were obliged to contribute and contributed in the following way:
COMMANDING PARTNERS
- Alvarado …………………………… Bs. 60,000.00 in cash; Pérez ………………………………. Bs. 40,000.00 in cash; Rooms ………………………………… Bs. 20,000.00 in cash;
COMMANDITY PARTNERS
- Arias ………………………………… Bs. 15,000.00 in cash; Rivas ………………………………. Bs. 10,000.00 in cash;
CHAPTER II
THE CASH
Concept
It is a current asset, the one with the highest liquidity that an Organization has to cover its immediate obligations.
The items of current assets mentioned below are considered cash:
- Money of legal tender, property of the Company, that is to say, money of obligatory acceptance in the country, with the limitations that the Law imposes, according to what is specified in the Law of the Central Bank and the General Law of Banks and Other Financial Institutions. Deposits made in Banks, in the Current and Savings Accounts, in favor of the Company. Credit instruments for immediate collection: ordinary checks, cashier's checks, travelers checks, postal and telegraphic money orders and other credit instruments for immediate collection., accepted by the banks that the Company legally owns. Foreign currencies or currencies that are freely traded in the National Bank.
Asset items that, despite being made up of legal tender, are not immediately available, such as: deposits given as collateral, capital reserve coverage and / or legal reserve funds, benefits social security, bank deposits frozen due to the intervention of the financial institution or other reasons, time deposits, checks returned due to lack of funds, postal or tax stamps, advances for travel expenses or other expenses, cash vouchers or checks with advanced dates.
Internal Control of Cash
It is constituted by a series of well-established procedures, with the purpose of monitoring all the activities of the Company, which may affect the handling of cash. These procedures are intended to safeguard assets, guaranteeing the accuracy and reliability of the records by:
- Division of labor Delegation of authority Assignment of responsibilities Promotion of efficient personnel Identification of personnel with Company policies.
The general trend is to make deposits of all the money that is received, in the current bank accounts that the Company has, and make payments by checks, except for minor payments, which are paid by Petty Cash. Additionally, the cash must be insured against theft and fidelity of the employees in charge of it.
Petty Cash
It consists of a fixed fund that the Company creates according to its requirements. The establishment of said fund is done by withdrawing the agreed amount by check and is settled as follows:
| MONTH | DAY | DESCRIPTION | SHOULD | TO HAVE | |
| January | 30 | Petty Cash | 50,000 | ||
| Bco. by Vzla. | 50,000 | ||||
|
fixed fund lower payments |
The Internal Control of Petty Cash must be done, taking into account the following:
- A maximum limit must be established for payments to be made by petty cash. Those that exceed this limit must be paid by checks. This account will only be moved when it is decided to increase or decrease the fund, or for its elimination. There must be only one person responsible for the petty cash. The person responsible for the petty cash, You must not have access to the Accounting, Collections, or the Main Cash. The fund will be replenished by check payable to the person responsible for it. The fund will be charged to each of the expense accounts or costs, as specified in the vouchers paid by the Petty Cash. Printed vouchers, numbered consecutively, must be previously approved by another authorized person and specify in figures and letters, the amount paid.
Box
It is the account that records all the cash that enters and leaves the Company. It is loaded with the checks that it receives and it is paid when the deposit is made in the Bank. It is a debit or zero balance account, never a creditor. It will indicate the cash, checks or vouchers that are in the Cashier.
Example: The Company makes a cash sale to Client X for Bs. 160,000.00. An invoice identified with the no. 1234. The Client cancels the total by check from his Banco Caracas checking account. The entry in the Journal will be as follows:
| MONTH | DAY | DESCRIPTION | SHOULD | TO HAVE |
| January | 30 | BOX | 160,000 | |
| SALES | 160,000 | |||
|
Sale counted according to invoice no. 1234 |
On the same day, everything that was deposited in CAJA is deposited in a checking account that the Company maintains in the Banco de Venezuela. Assuming other cash collections for Bs. 284,000 were made. A total of Bs. 444,000 will be deposited in the Bank. The journal entry will be:
| MONTH | DAY | DESCRIPTION | SHOULD | TO HAVE | |
| January | 30 | BANKS | 444,000 | ||
| BOX | 444,000 | ||||
| Bank income. from Venezuela. Deposit No.xxxx |
The Cash Count consists of the analysis of the cash transactions, during a determined period, in order to check if all the cash received has been accounted for and therefore the Balance that this account throws up, corresponds to what is physically in Cash box, checks or vouchers. It also serves to know if internal controls are being carried out properly. This operation is carried out daily by the Cashier. The auditors or executives assigned to do so usually carry out cash counts on dates not foreseen by the Cashier.
It is common for the cash receipts to appear missing or surplus, with respect to the general ledger control account. These differences are generally recorded in an account called "Cash Differences". The shortfalls are charged as losses and the surpluses are credited as income. If these differences are not corrected, at the end of the fiscal year, the "Cash Differences" account must be canceled against the "Profit and Loss" account.
Bank Reconciliation
It consists of comparing the records of the operations with the Banks, of our books with the movements registered in the Banks, shown in the Monthly Account Statements issued by said institutions, to proceed to make the necessary corrections or adjustments in the books of the Company.. This is done since it is common that the balances of said bank account statements do not coincide with those of our books for any of the following reasons:
- Checks pending collection by their beneficiaries. Last minute deposits that the Company made and that the Bank did not record due to having closed. The books of current accounts, to prepare the month-end statements. Numerical errors or Omissions in the books of the Company External checks that the Bank charges by mistake Checks returned due to lack of funds or any other cause Charges that the Bank makes caused by interest, commissions, taxes, etc. Bonds made to the Company by the Bank, for concept of interest, charges made on their behalf or any other concept Errors or omissions by the Banks
There are different reconciliation methods:
Four Column Method.
It consists of making a four-column sheet. Two for the account in the books of the Company and two for the same account in the books of the Bank (with debits and credits). This procedure allows you to clearly see the Adjustments to be made in the Company Book. Example: After reviewing the Banco de Venezuela Monthly Account Statement and the Company's records, the following differences are found:
- Balances as of January 31, 2000: Account of the Major of the Company Bs. 1,200,000. Bank Account Statement Bs. 1,045,300 Checks 101001 and 101025 for Bs. 29,000 and 30,000 have not yet been cashed The deposit of Bs. 150,000.00 from 01-30-2000, was not paid into account The Bank returned a check, for lack of funds, for Bs. 60,000 The Bank specifies a commission charge for a returned check of Bs. 3,600 The check 101022 for Bs. 11,000 had been paid for 10,000 The check 101018 for Bs. 14,500, had been paid to the Bank for 15,400
| BOOKS | BUSINESS | BOOKS | BANK | |||
| REF | DESCRIPTION | SHOULD | TO HAVE | SHOULD | TO HAVE | |
| to) | Balances as of January 31, 2000 | 1,200,000 | 1,045,300 | |||
| b) | Ch / not collected: No. 101001 | 29,000 | ||||
| No. 101025 | 30,000 | |||||
| c) | Deposit of 01-30-00 not paid | 150,000 | ||||
| d) | Ch. Returned lack of background | 60,000 | ||||
| and) | Bank Commission for Returned Check | 3,600 | ||||
| F) | Subscriber of less, Check No. 101022 | 1,000 | ||||
| g) | Subscriber of more, Check No. 101018 | 900 | ||||
| 1,200,900 | 64,600 | 59,000 | 1,195,300 | |||
| Correct Balances | 1,136,300 | 1,136,300 | ||||
| 1,200,900 | 1,200,900 | 1,195,300 | 1,195,300 |
The Journal Adjustments can be made taking the data from the Worksheet. You can make two entries: one for charges to the Bank and another for payments, as follows:
| MONTH | DAY | DESCRIPTION | SHOULD | TO HAVE | |
| February | 3 | BANK OF VENEZUELA | 900 | ||
| ACCOUNTS X RECEIVE: X | 900 | ||||
| Adjustments to reconciliation today |
| MONTH | DAY | DESCRIPTION | SHOULD | TO HAVE | |
| February | 3 | ACCOUNTS X PAY: Y | 1,000 | ||
| ACCOUNTS X RECEIVE: Z | 60,000 | ||||
| BANKING EXPENSES | 3,600 | ||||
| BANCO VENEZUELA | 64,600 | ||||
| Adjustments to reconciliation today |
Reconciliation for Adjusted Balances.
It is a two-stage conciliation. In the first, the balance of the Bank's Account Statement is taken to the correct situation, after making corrections in the company's books, according to the operations pending registration in the Bank. In the second stage, the balances of the books of the Company are taken to their real value, noting the transactions which the Company had not registered.
The Balance of the Bank account, in the Major of the Company is adjusted as follows:
- Adding all the payments which the company knows only when it receives the Bank's Statement of Account, such as: receivables from the Company that the Bank collected and paid into account, payment for interest, errors or omissions, subtracting the charges that the Bank has done in your favor such as commissions, returned or voided checks, etc.
In the same way, adjustments are made to the account statement sent by the Bank:
- Adding up the charges that the Company had made, which do not appear in said statement, such as errors or omissions or last minute deposits, subtracting payments that do not appear such as checks pending collection, errors or omissions.
Reconciliation for Found Balances
It is a reconciliation that consists of adjusting the balance of the Bank's Account Statement, until the balance shown by the bank account in the Company's ledger, that is:
- Last-minute Deposit Charges made by the Company and Charges made by the Bank that the company has not taken into account, such as: commissions, interest, errors or omissions, are added to the bank balance.: Checks issued by the Company and not presented for collection and payments made by the bank not taken into account by the company (Interest, collections made by the bank on behalf of the company).
CHAPTER III SHORT-TERM INVESTMENTS
They represent expenditures made to obtain goods, with the intention of receiving income, services or that in any way favor the investor's image. In financial companies, the investment item will constitute the main component of their assets. In non-financial companies, that is, those dedicated to industrial, commercial or service activities, the investment category is not usually very important, except in companies that have one or more subsidiaries (affiliates) called parent or controlling companies.
Short-term investments
Also called transitory or temporary, they are those made on an eventual basis in highly secure securities that are easily convertible into cash. In the Balance Sheet, temporary investments will be included within the current or current assets group and can be considered as cash available in the short term.
Example: An investment of Bs. 9,615,384.00 has been made in a negotiable security. The nominal repayable over 60 days at Bs. 10,000,000.
Temporary Investments 9,615,384, oo
Banks 9,615,384, oo
Long-Term Investments
Investments in securities or other assets, mortgages, land, buildings, etc., made to obtain benefits, acquired with the intention not to dispose of them in a period of no less than one year or for an indefinite period, should be considered as investments to long term.
Long Term Temporary Investments
They are those carried out with the intention that in a future greater than one year it will be possible to convert them into cash or other assets, without affecting the efficiency of the company's operations. These are usually represented by bonds or shares of any company including those that we could consider as associates, mortgages, land and buildings.
Permanent investments
Investments that by their nature and intention have been made as a necessary requirement to maintain or improve the efficiency of the current or future operations of the investing entity.
CHAPTER IV
ACCOUNTS RECEIVABLE AND EFFECTS RECEIVABLE
They are made up of credits in favor of the companies, corresponding to sales, provision of services and other normal operations, including unsecured customer accounts, bills of exchange or documents receivable, customer acceptances and accumulated or unbilled amounts for which they can be issued. or not invoiced later.
In most businesses, cash sales amounts are accumulated each day in one or more cash registers and the sum is recorded by means of a journal entry at the end of the day. All these seats are the same; all have a recurring charge to:
Example:
Cash 56,000
Sales 56,000
Credit has become widespread in modern businesses, and it is almost impossible to sustain a reasonable volume of sales without granting it. The seller must finance his buyer and the debt must remain on the books until it is collected or written off as bad. Accounts receivable are included in current assets only the amounts receivable arising from business operations, which are expected to be converted into money during the operating cycle.
The origin of this item is the sale on credit of merchandise, commercial and manufacturing companies, or services in public and professional services companies, hotels and similar institutions. The customer's account is charged for the price of the goods dispatched or the services provided, and the payments received are credited. The balance represents a legitimate right of the company to receive the money expressed by it.
Credit balances that may exist in some subaccounts must be shown in current liabilities, under the heading of "Credit balances of accounts receivable". For the purposes of presentation in the balance sheet, credit balances in accounts receivable should not be deducted from their gross amount.
Example:
On 01-05-99 we made sales of merchandise on credit, invoice N 0 567 for 60 days, for Bs. 8000, or to our client RJ Asociados
Accounts Receivable 8000, oo
Sales 8000, oo
We sell merchandise for Bs. 100,000 client signs 4 (four) money orders giving an initial of Bs. 20,000, oo.
Box 20,000
Notes receivable 80,000
Sales 100,000
Client cancels the last draft of Bs. 20,000 corresponding to his account with our company.
Box 20,000
Notes receivable 20,000
CHAPTER V THE INVENTORY
Concept
Represents the existence of movable and immovable property that the company has to trade with, buying and selling them as is or processing them first before selling them, in a given economic period. They must appear in the Current Assets group.
Inventory Classes
According to the characteristics of the company, we find five types of inventories:
Inventory of merchendise:
It is made up of all those goods that belong to the company, whether commercial or commercial, which are bought and then sold without being modified. All merchandise available for Sale will be displayed in this Account. Those that have other characteristics and are subject to particular conditions must be shown in separate accounts, such as merchandise en route (those that have been bought and not yet received), merchandise given on consignment or pledged merchandise (those that are property of the company but that have been given to third parties as a guarantee of value that has already been received in cash or other goods).
Inventory of Finished Products:
They are all those goods acquired by manufacturing or industrial companies, which are transformed to be sold as manufactured products.
Inventory of Products in Manufacturing Process:
It is made up of all those goods acquired by manufacturing or industrial companies, which are in the manufacturing process. Its quantification is made by the amount of materials, labor and manufacturing expenses, applicable to the closing date.
Raw Materials Inventory:
It is made up of all the materials with which the products are made, but that have not yet received processing.
Factory Supplies Inventory:
They are the materials with which the products are made, but that cannot be quantified in an exact way (Paint, sandpaper, nails, lubricants, etc.).
Inventory Methods
There are two methods of inventory accounting, which allow us to determine the cost of the merchandise sold. These are:
Periodic inventory:
It is the one carried out at the end of the financial year and consists of the physical count of the goods and the assignment of their values. When it is done to verify the Continuous Inventory it can be practiced at any time. The execution of this inventory method is carried out in two stages: preparation and execution. The first consists of the organization of work: planning, ordering of products, training of personnel, etc. The second includes the actual counting of the articles, the registration in the inventory sheets and the valuation of the same.
Perpetual or Continuous Inventory:
It consists of keeping a record that shows the quantity and amount of inventory in stock at all times. Changes in inventory are recorded as they occur, through charges and credits in the inventory account, in this method no Purchasing account is used. When a good is sold, two accounting entries are required:
1.- For the Sale (recorded at the sale price)
2.- Due to the reduction in inventory (recorded at cost).
An illustrative example would be:
A company that deals with Televisions, the ones that buys at the largest for Bs. 70,000 each and sells them at retail for Bs. 80,000, its seat would be:
Initial inventory - 4 units …………………………………..Bs. 280,000
Purchase in the period - 10 units ………………………. Bs. 700,000
Sell in the period - 9 units:
Sale price ……………………………………….. Bs. 720,000
Cost of units sold …………….. …………. Bs. 630,000
Final Inventory - 5 units ……. ……………………… Bs. 350,000
Initial Inventory: 280,000
| NEWSPAPER | PERPETUAL | |||||||
| REF | DESCRIPTION | SHOULD | TO HAVE | SHOULD | TO HAVE | |||
| to) | Purchases | 700,000 | ||||||
| b) | Debts to pay | 700,000 | ||||||
| to) | Inventory | 700,000 | ||||||
| b) | Debts to pay | 700,000 | ||||||
| to) | Accounts Receivable | 720,000 | ||||||
| b) | Sales | 720,000 | ||||||
| to) | Accounts Receivable | 720,000 | ||||||
| b) | Sales | 720,000 | ||||||
| c) | Sales cost | 630,000 | ||||||
| d) | Inventory | 630,000 | ||||||
Adjusting voucher (ending inventory determined by physical count)
Inventory ……………………………………. Bs. 350,000
Cost of Sales ………………………….. Bs. 630,000
Inventory ……………………………………. Bs. 280,000
Purchases …………………………………….. Bs.700.000
Closing entry (Periodic Inventory)
Sales ………………………………………… Bs. 720,000
Cost of Sales …………………………… Bs. 630,000
Earnings and loses……………………. Bs. 90,000
Closing entry (Perpetual Inventory) (*)
Sales ……………………………………….. Bs. 720,000
Cost of Sales ………………………….. Bs. 630,000
Earnings and loses……………………. Bs. 90,000
PARTIAL STATEMENT OF PROFITS AND LOSSES
Sales ……………………………………… Bs.720,000
Cost of Sales ………………………… Bs. 630,000
Gross profit on sales …………. Bs. 90,000
(*) for both methods is the same entry.
In most cases where the perpetual inventory method is used, a continuous record is kept, in quantities, for each of the different types of items held for sale. A simplified model can have the following presentation:
INVENTORY CARD
| Description: Televisions | ||||||
| ---- QUANTITIES ------ ------ VALUES ------– | ||||||
| Date | Bought | Sold | Existence | Charges | Credits | Balance |
| Jan 20, 1985 | 4 | 280,000 | ||||
| 10 | 14 | 700,000 | 980,000 | |||
| 9 | 5 | 630,000 | 350,000 |
Inventory evaluation
Among the most important methods to evaluate inventories, we have:
- Lowest Market or Cost: The lowest price of stocks is taken as a basis, maintaining the accounting principle of Conservatism which does not anticipate profits and foresees possible losses. The FIFO or FIFO Method: This method is based on the first thing in is the first thing out. Its assessment is more adapted to the reality of the market, since it uses a valuation based on more recent costs. The LIFO or UEPS Method: It considers that all merchandise that enters last is the one that leaves first. Its advantage is based on the fact that the inventory maintains its stable value when there is a rise in prices. The Arithmetic Average Cost Method: The result will be given by the arithmetic mean of the unit prices of the items.The Harmonic or Weighted Average Method: This average will be calculated by weighting the prices with the units purchased, and then dividing the total amounts by the total of the units. The Moving Average Cost Method or Balance: Calculates the value of the merchandise, according to the variations produced by the inputs and outputs (purchases or sales) obtaining successive averages. The Basic Cost Method: By means of this method fixed values are attributed to the minimum inventory, this method is quite similar to the LIFO with the difference that it is applied only to the minimum inventory quantity. The Retail Price Method:It allows the estimation of inventories as often as desired. The physical inventory will be carried out, based on the sale prices marked on the items.
CHAPTER VI FIXED ASSETS
They are certain assets of a permanent nature necessary to develop the functions of a company.
The proportion of fixed assets in relation to capital is not the same in all commercial companies, while some need to use most of it in machinery, facilities, tools, etc. (industrial companies, services, etc.) others hardly need fixed assets to define their activities (distribution companies) for which reason before saying whether the fixed asset is large or small we must know the characteristics and the fundamental purpose of the company.
Tangible Goods or Materials
They represent the investment that the company has in goods with corporeal matter, such as: machinery, facilities, furniture and fixtures, land, buildings, equipment, etc.
The accounting and control of fixed assets will be treated in the following way:
- Purchase Control Depreciation Sale or Disincorporation
Purchase of Fixed Assets
When acquiring the fixed asset, you will be given an entry in our books or its cost value, according to the purchase invoice plus the disbursements made for these purchases (transportation, insurance, customs duties, etc.). In other words, we charge directly to the account that represents the acquired good all the disbursements made corresponding to your purchase.
When building a factory plant, not only will the land and materials used in its construction be valued, but all the disbursements made from the moment planning begins will be included: subsoil studies and plans, engineering permits, architectural studies, workers' expenses, etc.
Example: We buy a machine in the USA, for Bs. 50,000.00 we pay for transportation, insurance, customs and miscellaneous until the moment it is installed in our BS factory. 15,000.00. The accounting entry would be:
| Month | Day | Description | Should | To have |
| January | 10 | Machinery | 65,000 | |
| Banks | 65,000 |
Control of Fixed Assets
Each general asset account will be broken down into cards that will indicate its movement. For example: Machinery. We will control this account by opening a tab. If we have a hundred machines, we will have a hundred tokens open, one for each machine.
Example:
CONTROL OF FIXED ASSETS
| account: DELIVERY TEAM Name of the asset: TRUCK
Location: MAIN SALES WAREHOUSE Department: SALES Manufactured by FORD Bought from: IMPORTADORA NACIONAL Serial: 34.25.42 Model: 1.971 Registration number: AB-4214 Purchase invoice: 4232 Date: 01-02-71 Depreciation period: 5 years Months::::::::: Annual fee: 10,000.00 Monthly :::::::::::::: Cost of origin: Bs 60.00.00 Import costs XX Miscellaneous: :::::::::::::::: Total: 60,000.00 Total cost: 60,000.00 Salvage value: 10,000.00 Amount to depreciate : 50,000.00 |
|||||||||
| Date | Depreciation | Depreciation | Val. Cotabl. | Observe- | |||||
| Year | Month | Day | Share | Annual | Monthly | Accumulated | Upgrades | Current | tions |
| 1971
1971 |
one
12 |
two
31% |
twenty |
10,000.00 |
10,000.00 |
60,000.00
50,000.00 |
Depreciation of Fixed Assets
Taking into account the accounting principle of "Application in Time" which maintains that expenses and income should be reflected in the period to which they correspond, depreciation is a distribution procedure and is intended to distribute the loss of values of our subject assets to depreciation between the periods in which these losses are made.
All our tangible assets are susceptible to wear and tear even if they are not used, the mere action of time modifies, alters or wears out the assets of fixed assets. It can be understood that when they are used we accelerate their wear.
The operation for which we indicate in our books we will call depreciation.
We can consider depreciation for two different causes:
- Normal: They are what we carry out as a result of their functional use and time. Abnormal or Eventual: These are those that we will be required to carry out eventually, as a consequence of economic contingencies or premature obsolescence of part of our depreciable assets as a consequence of unforeseen technical or scientific advances.
Depreciation system
The most important depreciation systems are:
- Straight line system Decreasing systems Increasing system Time-of-work system Replacement or retirement systems
Below we mention only one of them:
Straight line system
It is called a straight line, because it considers that depreciation is continuous and without variations, its main basis being the calculated useful life, regardless of whether it was used a lot or a little.
Depreciation Fee = Cost residual value
Estimated useful life
The case of having no residual value would be
Predation Fee = Cost of the Good to Depreciate
Estimated useful life
Note: When obtaining the annual depreciation fee we can find out the monthly fee by dividing the first by 12.
Fixed Asset Sales or Disincorporation
When purchasing a Fixed Asset, we assign it a predetermined number of months or years of probable useful life to develop the function for which it was acquired. The company can change it or sell it before or after this time is up. When carrying out this operation, three cases can occur:
- Book Value is equal to Actual Value Book Value is greater than Actual Value Book Value is less than Actual Value.
Sales by book value
For this type of sale, the steps you must follow are the following:
- Get the Record that controls the asset we are selling. In the event that the depreciation is not up to date, calculate it from the last date, until the day of its sale. Record it in your file and in the General books (Daily and Major). Find the Book Value and compare it with the Real Value obtained in the sale and you will check whether or not there were the corresponding losses or gains for this concept. Close the Accumulated Depreciation account, corresponding to the asset we are selling. Give an output, by its Book Value, to the asset we are selling. If there is a difference between this and the Real Value, record it in the Profit or Loss Account on Sales of Fixed Assets.
Example:
We sell a truck whose characteristics are the following: Cost Bs. 60,000, Amount depreciated Bs. 40,000 and Sales value Bs. 20,000.
| Month | Day | Description | Should | To have |
| January | 6 | Accumulated depreciation distribution team
Cast crew Box Cast crew Fixed asset sale profit Or in a single seat, which would be: Accumulated depreciation distribution team Box Cast crew Fixed asset sale profit |
40,000
25,000 40,000 25,000 |
40,000 20,000.00 5,000.00 60,000.00 5,000.00 |
In this case, we can see that the asset was undervalued as a consequence of a high depreciation rate. This indicates that previous periods have suffered depreciation higher than the real losses of the depreciated asset.
This Gain on Sales of Fixed Assets, we must not consider it as a profit for the period, it will be transferred to Operating Surplus and in the event of having to pay them to the period, it must be indicated as a profit in Other Income and never as profit from normal operations.
Fixed Asset Replacements
When a Fixed Asset is sold it must be replaced by another, generally with more modern and competitive characteristics. We can deliver the old one as part of payment to acquire the new one and we will record it in the same way as explained in the cases of sale without profit, with profit and with loss, the only variable would be that instead of entering Cash (or Receivable Effect) will enter the new Fixed Assets.
Example: The truck of the previous years of Cost Bs. 60,000, Depreciation of Bs. 40,000 is admitted as a down payment, for Bs. 25,000, in the purchase of a new truck whose total cost is Bs. 100,000 and for the rest of the debt we accept drafts.
The journal entry to record the operation would be:
| Month | Day | Description | Should | To have |
| January | 8 | Accumulated depreciation of distribution equipment
Cast crew Cast crew Payable items Fixed asset sale profit |
40,000
100,000 |
60,000 75,000 5,000 |
CHAPTER VII Intangible Assets
This group will be made up of those accounts that represent intangible (immaterial) assets or legal rights. They tend to have a permanent investment character and are necessary to achieve the main objectives of the company.
The main accounts that represent this group of assets are usually: patents, trademarks, concessions, franchises or exploitation rights, goodwill, etc.
Amortization
We use this name to indicate the decrease in our right over the intangible asset (it has no matter) due to the action of time.
As is known, the right to own and exploit part of our intangible assets (patent, rights to literary works, etc.) is granted to us for a limited time, for which reason we must recover our investment within the limits of that time.
For some accounts, no explanation is needed since the nature of their content, or the title of the accounts will indicate it. Example:
Life insurance premiums - collected
Oil concessions, Etc.
Intangible Fixed Assets
Depletion and Amortization
Burnout is not an expense. It represents a transformation of the cost of this asset class. Most of the time, for the exploitation of these assets it is necessary to make disbursements for their development, which we will call "Development cost" and the "acquisition cost" can be included, before calculating the "depletion fee" that we will use. In the recovery of our investments, in which the developments carried out do not have the same probable life calculated for the assets subject to depletion, it is convenient to separate them and have a quota for the depletion of acquisition costs and another for development costs.
For the amortization of patents, concessions; the cost of the patent is divided by the number of years left until it expires and the result will indicate the amortization fee. However, it is important that we examine whether the product that we will produce or the exploitation that we carry out will have the same success during the entire life of the patent, since it frequently happens that certain articles and patents have a momentary success and then decline in their demand to appear other similar or better articles. In these cases, an in-depth study of the market and the possibilities of duration must be made to amortize the cost of the patent or the acquisition in the first years of life of the same accounting for depreciation.
There are two systems to reflect depreciation in our books which we will call:
1. Direct Method
We know that depreciation indicates the loss of value, the wear and tear of an asset. In other words, if we buy a truck that cost Bs. 60,000 and at the end of the year due to use and at the time its value is Bs. 50,000, it has suffered a decrease in it of Bs. 10,000. which will represent the annual depreciation that we will make. Let's see an example:
On 01/02/1971, we bought a truck with a total cost of Bs. 60,000. it was canceled in cash, with a check. For the purposes of calculating depreciation, the useful life of 5 years and a residual value of Bs. 10,000 are considered. The depreciation system that is decided to use will be the straight line. (Perhaps the worst for this type of property. However we are not dealing with the system for calculating the quota, what interests me is that you pay attention to the procedures for the accounting record of depreciation).
Accounting entry in the general journal at the time of purchase:
| Month | Day | Description | Should | To have |
| January | 3 | Cast crew
To Bank |
60,000 |
60,000 |
Of course, a fixed asset control card will be opened to the truck that will reflect its trajectory within the company.
Upon arrival on 12/31, the date on which the economic-accounting period ends, we will make the depreciation.
Cost value Bs. 60,000
Less salvage value Bs. 10,000
Amount to depreciate Bs. 50,000
Amount to depreciate Bs. 50,000, divide it by the number of years of life; 5 and will give us the annual depreciation Bs. 10,000.
By the direct method the entry to reflect depreciation would be. Accounting entry in the general journal at the time of purchase:
| Month | Day | Description | Should | To have |
| Dec. | 31 | Depreciation expenses Distribution team
To Bank |
10,000 |
10,000 |
The Distribution Equipment Depreciation expense account would be transferred, as we will see later, to selling expenses. Regarding the Cast Team, your account in the Major would appear as follows:
Cast Crew
| 60,000 | 10,000 | |
| Current balance (12/31) | 50,000 |
That will reflect the current "book value" of cast equipment. In other words, the team's own account reflects the loss experienced and when making the balance sheet, it will appear in fixed assets for Bs. 50,000. As the depreciation expense account for distribution equipment has been transferred to selling expenses and this in turn to profit and loss, depreciation will not appear in the balance sheet.
This method has the great defect of not reporting, in the balance sheets, on the “cost value” or accumulated depreciation on fixed assets.
You can easily understand that it is called the direct method because the depreciated account supports DIRECTLY, the depreciation and it is not reflected in any account in the general ledger. However, the depreciation can be obtained through the particular file of the truck that we will have open in the control of fixed assets. The indirect method is currently in disuse.
2. Indirect Method
By this method, the depreciations carried out do not modify the fixed asset accounts, simply a new account is opened that reflects the depreciation, without touching the account affected by the depreciation.
In the case of the truck that we have discussed above, the general journal entry would be:
| Month | Day | Description | Should | To have |
| Dec. | 31 | Depreciation expenses Distribution team
To depr. Accum. Cast crew |
10,000 |
10,000 |
Look closely, we haven't touched the cast account on this seat. We create the accumulated depreciation team cast. As in the previous case, the depreciation expense account, distributed equipment, is transferred to selling expenses. In the ledger we will have:
|
Cast crew |
Deprec. Accum.
Cast crew |
|||
| 60,000 | 10,000 | |||
In the balance sheet, the accumulated depreciation accounts, as we have already seen, will be placed in the asset, subtracting the cost value of the good that they are depreciating, in this way the balance will indicate:
- The value of the cost (or cost plus improvements) Accumulated depreciation to date The book value (book value)
Fixed asset
Cast team Bs. 60,000
Less accumulated depreciation Bs. 10,000
Book value Bs. 50,000
Depreciation Expenses
All assets subject to depreciation are carried out in the same way as we have done in the truck example. We will open an "accumulated depreciation" account for each class of fixed assets: machinery, equipment, furniture and fixtures, etc.
Now, where you should be careful, is when you say who should bear the expenses of depreciation because the depreciation of a machine will not be the same, which is considered as a production cost (manufacturing expenses that of a desk that will be a charge to administration expenses).
The following questions are asked as a guide to who bears the depreciation expenses; Who is benefiting from the wear and tear of our fixed assets subject to depreciation? What department is using it?
We will see some of the most common.
- Administration expenses: You must bear the depreciation of furniture, typewriters, calculators, office equipment, transportation equipment for administrative personnel and certain properties for administration service. Sales expenses: they will bear the depreciation of the distribution equipment destined to serve efficiently and quickly, the sales made and rolling stock destined for the company's salespeople, as well as that of certain properties destined for the exclusive use of this department. Purchasing expenses: it may happen that part of the transportation equipment owned by the company is destined, on some occasions, to the purchasing department, so in these cases, it must bear a part of the depreciation.Manufacturing Expenses: The most important are; Depreciation of machinery, dies, tools, factory buildings, factory facilities.
CHAPTER VIII
Short Term Liabilities
It is made up of debts and obligations payable by the company in the short term, that is, within an approximate period of no more than one year, from the date of the Balance Sheet. Normally they are paid with current assets.
CHAPTER IX Long-Term Liabilities
It includes obligations to be paid within a period greater than one year, approximately always from the balance sheet date.
The Liability Securities accounts represent the obligations contracted by the company, and as such are listed in the liability Examples; Mortgages to pay, bills to pay, Issue Loan, Taxes to pay. To appear in the liability they must have a Creditor balance.
CHAPTER X SUPERAVIT, DIVIDENDS, RESERVES
The corporation, when it is constituted, will begin to operate, and then its capital will increase or decrease according to the results obtained. These results will be recorded with the denomination of Earned Surplus, if a gain has occurred, or Deficit if, on the contrary, a loss occurs. The source from which the Earned Surplus comes is, consequently, the realized profit, but not distributed.
When the profits of the company are conserved, the dividends are not distributed but are increased, the capital is recorded in the Earned Surplus account. The concept of Surplus also involves all those increases in capital, due to income from cash or other assets, but which do not obey normal operations of the company, that is, they are not those of obtaining profits.
For example, when shares are sold above their nominal value (with premiums), it is credited to the Premiums / Shares subaccount or to the Paid Surplus account, which represents a Capital Surplus. In this case it is clearly seen that this party is not a profit made by society in its normal operations, therefore it is different from the earned surplus, which is why it is called capital surplus.
Capital Stock, and Net Capital of a Public Limited Company: Bearing in mind that the initiation and existence of the former is subject to the provisions of the Commercial Code; and that the second constitutes the difference between assets and liabilities or what is the same, which according to accounting principles has been called Capital.
Social capital and net capital originate from different causes and are governed by different principles, it is clear that their amounts can be different from each other in the same way; said difference originating from some of the following causes:
- That upon incorporation of the company, the shareholders have not fully paid the amount of the subscribed shares, resulting in the existence of an unpaid portion of the Capital Stock That the company, in the course of operations, has obtained profits or suffered losses that affect the Net Capital, but cannot change the amount of the capital stock without the approval of the shareholders' meeting and the observance of the requirements established in the Commercial Code.
These being the causes of discrepancy between the share capital and the net capital, the procedure to determine the latter will be, without a doubt, to reduce the share capital in the portion not paid by the shareholders, if any, and increase to the Residual obtained in the profits of the exercises, not decreed or distributed, from the beginning between the assets and the liabilities of the company, since by definition the capital is the difference that will be obtained by subtracting the second from the first (or the difference between one and another).
Surplus and Dividend Distribution
The difference between the assets and liabilities of a public limited company represents the shareholders' participation in the assets of the company, and is called net liquid or book capital. This difference is made up of capital stock and increases in net capital.
In the event that the balance of the Surplus is debtor, as a result of losses suffered in operations, it becomes a deficit; For this reason it is usual that the account of the greater of the surplus from business profits is called a surplus or deficit.
The Surplus of a public limited company is, consequently, the surplus of its assets over the sum of its Liabilities and Capital Stock.
Example:
Assets 200,000,000
Liabilities 40,000,000
Share Capital 150,000,000
Surplus 10,000,000
In the event that the balance of the Surplus is debtor, as a result of losses suffered in operations, it becomes a deficit, for this reason it is usual that the account of the greater of the surplus from business profits is called a Surplus or deficit. The surplus is the point of union of the balance sheet accounts and the profit and loss statement (with regard to the profit for the financial year), since the income statement is closed, year after year, by surplus, (or due to deficit, according to losses) and to this the profits distributed to the shareholders in the form of dividends are charged.
Surplus Classes
- Capital surplus Surplus paid Surplus donated Surplus for revaluation
Capital surplus
Increases in the net capital of a company that come from sources other than its normal profits or are not represented by the nominal value of the outstanding shares should be considered as Capital Surplus.
Surplus paid
When the shareholders of a public limited company subscribe for premium shares in accordance with which the company receives cash or other assets or the commitment to receive them, in excess of the nominal value of the shares, said excess represents a special income destined to the surplus or an investment additional by shareholders, which must be considered with all ownership part of the Capital Surplus.
Let us suppose that the Martínez SRL limited company is constituted with a share capital of 100,000 represented by 100 shares with a value of Bs. 1000 and that the shareholders subscribe and pay the shares with a premium of Bs. 5.00 each of them the seat it is:
Banks 100,500
Share capital 100,500
100 shares with a nominal value of Bs. 1000 paid at Bs. 1005
In the Paid surplus account, the following must also be recorded: The surplus resulting from operations with the company's own shares. In this case, the criterion is explained that no company should experience profits or losses that affect the result of operations in traffic with its own shares.
Surplus Donated
Sometimes, corporations receive their own shares as a donation from their shareholders, thus they can also receive land that is given free of charge by Municipal Councils, etc.
If land or other property is donated, the opinion of an appraiser is requested and on this basis it is recorded at its fair market value. As the resulting capital increase is not due to profits made by the company, it must be recorded as Capital Surplus, Donated Surplus subaccount, or directly in the latter, presented in the Balance Sheet.
Revaluation surplus
When the value of real estate and other fixed assets has increased and it is desired to record in the books the current value of the property in question, that value can be increased to correspond to that set by an impartial appraiser completely outside the the interests of society. After an asset has been used for some time, it may be evident that the acquisition cost and the market value differ, the Board of Directors of the Company may decide that the accounts reflect those modified values, that is, the market value. Example:
A lot whose original cost is Bs. 300,000 has been appraised at Bs. 400,000.
Land 100,000
Revaluation surplus 100,000
Land adjustment registration for Bs. 300,000 book value up to Bs. 400,000 market value. We assume that the land is sold for 380,000
Banks 380,000
Revaluation surplus 10,000
Land 400,000
Distribution of dividends
In the distribution of dividends there are three dates that must be kept in mind:
- The date dividends are declared The date the registered shareholders are found The date of payment to shareholders
Dividend declaration
The dividend must be decreed by resolution of the Board of Directors of the company. As long as this step is not fulfilled in the accounting books, no obligation will appear for this concept. Once the dividend has been decreed, the amount thereof will become a liability and must be shown as such on the Balance Sheet within Current Liabilities.
Legal reserves
The legal reserves respond to imperatives of the laws that oblige merchants to retain certain amounts of net profits, in order to increase the margin of guarantee that the capital represents for those who have commercial relations with them and become creditors of the business.
Article 262 of the commercial code: An annual quota of five percent, at least, will be separated from the liquid profits to form a reserve fund, until this fund reaches what is prescribed in the statutes, and may not be one percent of share capital.
This reserve fund, while the need to use it occurs, may be placed in values that can be easily realized, but never in shares or obligations of the company, or in properties for its use.
Reserve Classes
Valuation reserves
Such as reserves for depreciation and reserves for bad accounts. These reserves are generally deducted from the nominal amounts of the asset items, and the net book amounts are noted in the Book Value column on the asset side of the liquidation statement.
In some cases, a reserve may be established against two or more asset items. There is only one reserve account for losses on accounts and receivables, this reserve cannot be divided between the two asset items, it is not possible to deduct it on the asset side of the liquidation statement and it is exposed within the Reserves item in the Liabilities.
Liability Reserves
Such as Reserve for Income Tax. They must be classified within the items Senior Liabilities, Fully Guaranteed Liabilities, Partially Guaranteed Liabilities and Unsecured Liabilities. A reserve for possible additional claims in relation to the income tax of previous years, since it is expected that the tax will have to be paid, the item is classified as a debt with priority right.
Surplus Reserves
Such as Reserve for Amortization Fund. The surplus reserves are components of the shareholders' participation and must be classified with the other accounts of that class.
CHAPTER XI BRANCH ACCOUNTING
Both agencies and branches are means of projecting the sales organization in territories located at some distance from the central office; But apart from this common characteristic, the agency and the branch differ greatly in terms of organization, administration, and control.
Agency
The agency has an assortment of samples for clients to view, but does not maintain a stock to make deliveries to clients. The orders, then, are sent to the central house and it is this one that serves them.
The credits are granted by the central house; accounts receivable are kept in the books of the central house; it makes the collections.
The fixed fund for the expenses of the agency is provided by the central house which replenishes it as it is exhausted. The agency does not handle any other cash.
Branch office
The branch maintains stocks of merchandise, most of which are obtained at the head office, but part of which may have been purchased from other entities. Deliveries are made from branch stocks. The credits are granted by the branch; accounts receivable are kept on the branch books; it makes the collections.
The collections made by the branch are deposited in a local bank to be credited to it; the branch manager writes checks to pay expenses.
According to this summary, it is evident that an agency performs the same functions, more or less, as a traveler, while the branch performs most of the functions of an independent company, subject only to inspection and control of the house central.
The above summary describes the functions of the true agency and the true branch, but those of the former can be expanded.
Branch Accounts
Accounting for a branch is more complicated. It keeps a complete set of books in which it records the merchandise received from the headquarters and those acquired from other entities, sales, accounts receivable, accounts payable and expenses. The major contains an account called Central House, Current Account, to which everything that is received from the central house is credited and what is sent to it is debited. The Central House account, Current Account is, therefore, a capital account, which indicates the investment made.
The following journal entries indicate the accounts debited and credited to the head office books and the branch books:
Branch Books
| (1) Box
Central House- cc (2) cc boarding Central House-cc (3) Shopping Accounts payable (4) Box Accounts receivable Sales (5) Box Accounts receivable (6) Accounts payable Box (7) Expenses Box (8) Central House - cc Box |
500
5,000 1,000 2,000 5,000 4,200 750 1,200 4,000 |
500 5,000 1,000 7,000 4,200 750 1,200 4,000 |
(1) Branch - cc
Box (2) Branch - cc Boarding the branch (3) Box Branch - cc |
500
5,000 4,000 |
500 5,000 4,000 |
Transfers between branches. If goods are sent from one branch to another, or if any kind of asset is transferred from one to another, the branch that makes the shipment or transfer must charge Casa Central its corresponding asset account. The receiving branch must charge its affected asset account and credit Casa Central - checking account. The head office must charge the current account of the branch that receives the sent or transferred and credit the branch that made the shipment or transfer. None of the branches should keep an account with any of the others; All transfers between branches must be cleared through the current accounts kept by the head office.
Central House:
Branch A ……………………………………………………… 525
Shipments to Branch A ………………………………. 500
Box……………………………………………………………. 25
Branch A:
Shipments from the headquarters …………………………… 500
Freight ………………………………………………………… 25
Head office- checking account ………………………. 525
For shipment from Branch A to Branch B:
Branch A:
Head office - checking account ………………………… 525
Shipments ………………………………………………… 500
Freight ……………………………………………………….. 25
CHAPTER XII SALES AND CONSIGNMENTS
Definitions
A consignment is the transfer of the possession of merchandise from its owner, called the principal or consignor, to another person, called a commission agent or consignee, who becomes an agent of the owner for the purpose of selling the merchandise. The consignment is a delivery in deposit, and the relationships established between the consignor and the consignee correspond to those that are studied in commercial law as deposit and agency.
From the consignor's point of view, the consignment is a remitted consignment; from the consignee's point of view, it is a received consignment. A remitted consignment is sometimes referred to as simply a consignment or shipment, and likewise a received consignment is often referred to simply as a consignment.
Difference between sale and consignment.
The fundamental distinction between a sale and a consignment is this: in a sale, title to the goods passes from the seller to the buyer, while in a consignment the title to the unsold goods remains with the consignor or principal. This distinction must be taken into account for three reasons.
- Since a consignment is not a sale, no profit is made on the transaction, and no profit should be recognized on the books until the consignee has sold the goods. Since the consignor retains title to the goods, whatever of these that have not been liquidated must be included in the inventory of the principal or consignor when the books are closed. If the consignee becomes insolvent, the consignor can recover his merchandise, in which case he will not have to occupy a position among the others creditors in order to receive a pro rata settlement.
Reasons for the use of consignments
The consignor may make a consignment in lieu of a sale for the following reasons:
- For credit reasons. There is less risk in a consignment than in a sale, because the consignor retains ownership of the goods until the consignee sells them. Once the sale has been made, the consignee does not become a general debtor of the consignor; As an agent that is his, you have to keep the proceeds of the sale separate and then remit it to the consignor in accordance with the consignment contract. To introduce a product. When demand for an item is so poor or uncertain that retailers are reluctant to make purchases, consignment allows the owner to put the goods in public view.Remitting goods on consignment to commission agents located in different locations is a An effective way to conduct market research in other territories To control the sale price to the consumer.
From the consignee's point of view, consignments may be preferable to purchases as indicated for the following reasons:
- Due to market fluctuations. When, as in the case of agricultural products, market prices are subject to sudden, frequent and considerable fluctuations, it is too risky to buy at the prices quoted several days before the goods are received and to sell at the prices that prevail after receipt. the goods. The consignment method avoids this risk, since the consignee, acting as agent for the consignor, sells the goods at the prevailing market price and receives compensation in taking a commission. Due to the danger of immobilizing a part of the capital in unsaleable goods.The merchant may think that the demand for a commodity is too uncertain to justify his purchase, although he may be willing to receive it on consignment, paying for it only after the sale has been made. Consignee rights. The main rights of the consignee are:
- The right to have advances and expenses reimbursed. On some occasions, especially when dealing with grain brokers, it is customary for the consignee to advance funds to the consignor before the product is sold. And in almost all consignments, the consignee pays at least some expenses and the handling. The Consignee is entitled to be reimbursed for these advances and expenses, in fact. he has a lien on the merchandise for the amount of these advances and expenses and he can sell the merchandise for collection. This lien is lost when the items are sold, but then falls on the proceeds of the sale. The right to remuneration.Commission merchants usually receive a percentage of the gross amount of the sale as compensation. Merchants who sell products or merchandise on consignment must receive a commission computed on the basis of a percentage, or they can retain the amount of the sale that exceeds the figure specified by the consignor. The right to guarantee the merchandise. When making the sales, the consignee is authorized to give the usual guarantees (not the extraordinary ones) on the goods sold, and the principal is bound by such guarantees. The right to grant credit. If it is a business custom to sell on credit, and if the consignor has not prohibited the consignee, the consignee has the right to sell the items on credit. The accounts thus created are the property of the consignor, and any losses in the collection thereof will be borne by him. The consignee may, through a special agreement, guarantee the accounts; If you give such a guarantee, you are known as a credere agent and you are entitled to additional compensation for that guarantee.
Duties of the consignee. The main duties of the consignee are:
- Take care of the goods of the consignor. It is sometimes said that the consignee must take care of the consignor's goods as well as his own. Be prudent when granting credit and diligent when making collections. This is only a special stipulation in the general rule, according to which the consignee, when fulfilling his management duties, has to observe prudence and diligence. Keep the consignor's assets separate from your own. This duty can be examined under two different aspects. First, the consignor must keep the consignment goods separate from his own so that they can be identified as the consignor's property. This does not mean that there has to be a material separation, but it does mean that there must be records to indicate which goods held by the consignee are owned by the consignor. Second, if the consignee sells merchandise on credit, he has to keep his books in such a way that his own accounts receivable are distinguished from those that originate from the sale of merchandise on consignment and that belong to the consignor. Report on the sales made and make the settlements in accordance with the agreed consignment conditions. These conditions may require settlement after the entire consignment has been sold, after a specified part of it has been sold, or at specified intervals.
The consignee report is called a sales settlement and is done in a printed form similar to that shown on the next page.
| WESTON CO.
Elgin, Illinois Date __________ Sales clearance of 5 water heaters Sold at the risk of CD Jones & Co. Chicago Illinois ________________________________________________________________ Sales: 5 water heaters at $ 125.OO each $ 625.00 Charges: Freight $ 15.00 Local transport 3.00 Commission-25% of $ 6,25.00 156.25 174.25 To be settled: Enclosed check $ 450.75 Merchandise on consignment for selling Nothing |
Entries in the consignee's books. The following are the entries to be made by the Weston Company to account for the transactions related to the consignment received from CD Jones & Co. Entry for the receipt of the merchandise:
Open a consignment account received and note in memorandum form the number and class of items received, as follows:
Consignment Received - CD Jones & Co.
5 water heaters
Entry for expenses:
Consignments received - CD Jones & Co. 18.00
Cash (or expense accounts) 18.00
Freight, $ 15.00, and local transportation, $ 3.00.
Seat for sales:
Box 625.00
Consignments received - CD Jones & Co 625.00
Seat for commission:
Consignments received - CD Jones & Co. 156.25
Commissions Earned 156.25
Seat for settlement:
Consignments received - CD Jones & Co 450.75
Box 450.75
CONCLUSION.
A commercial organization is constituted as a company when two or more people agree to become co-owners of a business, with the purpose of obtaining profits through the sale of a service or a product. The only difference in the accounting records of a company and a sole proprietorship type Business organization is in the capital section. In a partnership, each partner will have an individual capital account and a retirement account. When the company is incorporated, the cash or other assets contributed to the business by each of the partners (valued at the current market price) are credited to the partner's capital account.
All profits and losses are divided between the partners, in accordance with the terms of the association contract or the verbal agreement that exists. If there is no agreement, profits and losses are divided equally. If there is an agreement for profits but not for losses, they are distributed in the same way as profits.
The financial statements of a partnership and an individually owned business are fundamentally the same, even though the distribution of net profit or loss is sometimes presented at the end of the income statement. Some accountants prepare a separate statement, in which they show all the details of the changes in the equity accounts of the partners during the accounting period; others present this information within the equity section of the balance sheet.
The net profit for the period (distributed in accordance with the association agreement) and the retirement accounts are closed against the capital accounts of each of the partners.
Cash is the first current asset account, made up of money or its equivalent, immediately available. Hence its importance within the Company, since it is the money that it has to fulfill its immediate obligations.
There are some recommended measures for the internal control of cash, among which are:
- Segregation of functions in the operations of the Bank so that whoever receives the payment does not count and whoever accounts for the payment is not the one who authorizes.Making deposits of all cash received, daily, at the Bank Making all payments by checks, except very small amounts. These can be done by Petty Cash.
Petty Cash is a small amount of cash that is kept in the box or on deposit, which is made available for smaller payments. When exhausted, it is replenished by paying to the respective accounts.
The CASH is the account where all the money that enters or leaves the Company will be recorded.
BANK is the account used to indicate all the cash that the Company has deposited in the Banking Entities, which can be made available at any time. It then reflects the operations of the Organization's Current Account.
The Cash Count consists of counting all the cash held by the teller to verify if all the cash received and to be received has been accounted for. The balances represented in Cash and Banks must correspond to the cash held by the company, in transit or in banks.
Bank Reconciliation is the process of determining and adjusting cash balances in bank accounts. It is carried out from the Account Statement issued by the Bank, identifying the differences existing with the balance that the Company maintains on its books. At present you can obtain from the banks, account cuts to reconcile the accounts. This prevents scams or other malicious manipulations. There are several methods of bank reconciliation. The most common are the four-column method: the entries for the account of the company's books (two columns) are directly compared with those of the account for the Bank's books (two columns); reconciliation for adjusted balances: the balance of the bank statement is brought to the correct situation,after the corrections for operations pending registration with the bank have been noted; and the method of balances found: the balance of the bank account statement is adjusted until it is equal to the balance that the bank account has in the Company's largest.
With short-term investments, companies receive income or services in order to promote the investor's image.
Accounts receivable originate from sales on credit, rendering of services and other normal operations.
The Inventory consists of all movable or immovable property owned by the company, with which it is trading. They include goods - which are sold as they are bought -, finished products - which have been transformed by manufacturing processes -, products in the manufacturing process, raw materials and factory supplies.
There are two methods of inventory accounting, which allow us to determine the cost of the merchandise sold. These are: the periodic Inventory which consists of the physical count of the merchandise and the assignment of its values. When it is done to verify the Continuous Inventory it can be practiced at any time; and the Perpetual or Continuous Inventory, which consists of keeping a record that shows at all times the quantity and value of the inventory in stock.
The most important methods for evaluating inventories are: Cost or Lowest Market which is based on the lowest price of stocks; FIFO or FIFO method which is based on the first thing in is the first thing out and uses a valuation based on more recent costs; LIFO or UEPS method, which contemplates that all merchandise that enters last is the one that leaves first, in this way the inventory maintains its stable value when there is a rise in prices; Method Arithmetic Average Cost of which l result will give the arithmetic average unit prices of items; Harmonic or Weighted Average Methodwhich will be calculated by weighting the prices with the purchased units, and then dividing the total amounts by the total of the units; Average Moving Cost or Balance method that calculates the value of the merchandise, according to the variations produced by the inputs and outputs (purchases or sales), obtaining successive averages; Basic Cost Method where fixed values are attributed to minimum inventories; and Retail Price Method with which the physical inventory is carried out, based on the sale prices marked on the items.
Fixed assets are those permanent assets that the company has. Tangible assets represent the investment that the company has in assets, such as: machinery, facilities, furniture, etc.
The posting and control of fixed assets is carried out as follows:
- purchasecontroldepreciation (normal and abnormal or eventual) sale or divestiture.
There are different depreciation systems:
- Straight line system Decreasing system Increasing system Time of work done system Replacement or withdrawal system
If we make Investments in improvements or repowering of our current fixed assets, we can record them as capitalizable disbursements, thus not affecting our profit and loss statement and adjusting the cost of our fixed assets, otherwise it occurs with the expenses that are made for the maintenance of the assets. fixed assets, not being capitalizable and going directly to the profit and loss statement (non-capitalizable disbursements).
As we can see, the fixed assets that are part of the productive activity of a Company must be registered and controlled in a careful and constant way since any error in their control will significantly affect the Company's accounting. From here we can see that the companies that are dedicated to the transformation of raw materials are those that register the greatest amount of assets that will generate continuous movements and constant updates; Within this line, transportation services companies can be included, which have a fleet of vehicles that will be subject to adjustments and changes in their useful life.
The company must have pending when it makes an acquisition, it must take into account the depreciation over the time that it estimates it will use it so as not to incur unnecessary inventory expenses.
In order not to fall into payment delays and not affect the regular development of this because it can create chaos and shake the stability of the company.
Every company must fully comply with the obligations contracted, it is essential that the personnel in charge are aware of these liabilities to collaborate with the good image and business relationships.
It can be said that the surplus of a company is what exceeds the assets over the sum of its liabilities and the capital stock. Therefore, it is the meeting point of the balance sheet and profit and loss accounts.
Branch Accounting. The branch and headquarters are based on the assumption that the branch maintains a set of double-itemized books. But this is not always the case. Some companies prefer that the branch submit daily to the headquarters sufficient reports of sales, collections, purchases, expenses, etc. And in this way all its operations are accounted for in the books of the head office.
On the other hand, some of the functions of the branch may be restricted. For example, although the branch may be empowered to grant its own credits. The accounts can be kept in the books of the central house. A common restriction is the one on cash. The branch manager may be required to deposit all receipts resulting from sales in a bank account opened in the name of the head office, from which only the head office will draw the funds in this case the head office provides the branch with a fund fixed cash for your expenses having a deposit in a separate bank account against which you can draw. The branch manager, replenishing this fund through checks from the headquarters.
The sale is the exchange of a good for money and it is at this moment, in which the property title passes from the seller to the buyer.
Consignment is a way of selling through a third party (consignee), where the unsold property title remains with the consignor.
There are several reasons why consignment is used:
- For credit reasons, there is less risk in a consignment than in a sale To introduce the product, when the demand for an item is so poor or uncertain The remission of goods on consignment to commission agents located in different locations To control the price of sale to the consumer.
Sometimes the buyer has the right to make returns without justifying his reasons, obtaining immediate payment in cash; in other cases they are allowed to return the goods and receive a credit on account against which their subsequent purchases can be charged.
In addition, with the development of large-scale commercial operations, the expansion of the market is more frequently carried out through the establishment of sales agencies or branches through consignments.
The consignee's report is called a sales settlement, and it is done on a printed model.
BIBLIOGRAPHY
- HIMMELBLAU, David. Research for Financial Uses. Editorial Unión Hispano Americano. Mexico. 1940, pages 170 - 171 FERNANDEZ, Cepero. Valuations and Classification of the Basic Statements. Modern Accounting II. Fourth edition. Discolar Publishing House. Cuba. 1962. Page 370.REDONDO, A. Practical Course in General and Higher Accounting. Venezuelan Accounting Center. Third edition. Venezuela pages 712. López Yustos, Pedro; Guajardo, Gerardo; Woltz M., Phebe and Richard T. Arlen Accounting. Editorial Mc-Graw –Hill.INCE General Accounting. Complementary phase.
