What are the advantages and disadvantages of proprietary firms? Advantages of proprietary firms:ġ. And these are charged to profit and loss account.Įxample: Development expenditure, Advertisement etc. This expenditure is on recurring nature.Įxample: Purchase of raw material, selling and distribution expenses, Salaries, wages etc.ĭeferred Revenue Expenditure is a revenue expenditure which has been incurred during an accounting year but the benefit of which may be extended to a number of years. The benefits of this expenditure are for short period and are not forwarded to the next year. It included all the expenses which are incurred during day to day running of business. This expenditure does not increase the earning capacity of the business but maintains the existing earning capacity of the business. Revenue Expenditure is the expenditure incurred in one accounting year and the benefits from which is also enjoyed in the same period only. Benefits from such expenditure are spread over several accounting years.Įxample: Interest on capital paid, Expenditure on purchase or installation of an asset, brokerage and commission paid. These costs are recorded in accounts namely Plant, Property, Equipment. What are the different types of expenditures considered for the purpose of accounting? For the accounting purpose expenditures are classified in three types:Ĭapital Expenditure is an amount incurred for acquiring the long term assets such as land, building, equipments which are continually used for the purpose of earning revenue. All the company forms of organization are legally required to follow Mercantile or Accrual System of Accounting. This system of accounting is considered to be ideal but it may result into unrealized profits which might reflect in the books of the accounts on which the organization have to pay taxes too. Mercantile or Accrual System of Accounting: In this system, expenses and incomes are considered during that period to which they pertain. But this system is considered to be defective in nature as it does not show the actual profits earned and the current state of affairs of the organization.Ģ. This system is used by the organizations which are established for non profit purpose. In this system of accounting, expenses are considered only when they are paid and incomes are considered when they are actually received.
This system assumes that there are no credit transactions. Cash System of Accounting: This system records only cash receipts and payments. What are the various systems of Accounting? Explain them.
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