Zoom Meetings - Topics covered so far
Differences between Receipts & Payments
Account and Income & Expenditure Account
(1996 – 10 Marks)
|
SN |
Basis |
Receipts & Payments A/c |
Income & Expenditure A/c |
|
1 |
Nature |
It is a Statement (emerged from Cash Book summary), not an account
emerged out of Double Entry system. |
It is an Account emerged out of Double Entry system |
|
2 |
Similar to |
Cash Book / Cash Account |
Profit & Loss Account |
|
3 |
Basis |
Cash Basis |
Mercantile / Accrual |
|
4 |
Period |
Previous years, Current year & Next year |
Current year only |
|
5 |
Outstanding / Prepaid Expenses
& Incomes |
Not considered |
Considered |
|
6 |
Accounts |
All Three accounts such as, Personal Account, Real Account &
Nominal Account |
Nominal Account only |
|
7 |
Revenue & Capital |
Revenue and Capital transactions |
Revenue transactions nly |
|
8 |
Transactions |
Cash transactions only |
Cash & Non Cash transactions |
|
9 |
Starts with & Ends with |
Opening balance and Closing Balance of Cash on Hand & Cash at
Bank |
There is no Opening balance and Closing Balance |
|
10 |
Debit side |
Receipts |
Expenditure |
|
11 |
Credit side |
Payments |
Income |
|
12 |
Difference between two sides represents |
Closing balance of Cash at Hand and Cash in Bank ( Debit balance or
Overdraft balance) |
Surplus or Deficit |
|
13 |
Accompanied by |
Nothing |
Balance Sheet |
Fixed Cost & its importance in BEP
·
Meaning: A
cost does not change with an increase or decrease in the Goods produced.
·
In General, companies can have two types of
costs, i.e., Fixed Costs and Variable Costs.
·
Also called as Indirect cost or Overhead costs.
·
Examples:
Lease Rentals, Salaries, Insurance, Taxes, Interest expense,
Depreciation etc.
·
All Sunk costs are Fixed Costs. But, all fixed costs are not sunk costs..
·
Sunk cost: Money that has already been spent and
which cannot be recovered. Examples are
Machinery Cost, Lease expense, etc.
·
A fixed cost per unit is always variable; Whereas
Variable cost per unit is always fixed.
·
Segregation of Total Costs into fixed Costs and
Variable costs helps the Management to decide the scale of Production and
Breakeven analysis.
·
Example: A company Produces Pens. Their fixed costs are Rs. 10000 and Variable
costs are Rs. 10 per Pen. Find the Total
cost for 100 Pens and 200 Pens.
100 Units
|
Costs |
No of Pens |
Rate per Unit |
Total |
|
Fixed |
100 |
100 |
10000 |
|
Variable Costs |
100 |
10 |
1000 |
|
Total costs |
100 |
110 |
11000 |
|
Selling Price |
100 |
120 |
12000 |
|
Profit |
100 |
10 |
1000 |
200 Units:
|
Costs |
No of Pens |
Rate per Unit |
|
|
Fixed |
200 |
50 |
10000 |
|
Variable Costs |
200 |
10 |
2000 |
|
Total |
200 |
60 |
12000 |
|
Selling price |
200 |
120 |
24000 |
|
Profit |
200 |
60 |
12000 |
·
From the above, the Fixed Cost per Unit is
changed from Rs. 100 to Rs.50 when Production was increased from 100 units to
200 Units. Whereas, Variable cost is
remain fixed though production was increased from 100 units to 200 units.
So, when change in the Production:
·
Fixed cost per unit is variable (though Total Fixed cost is fixed)
·
Variable cost per unit is fixed.
(though Total Variable cost is variable)
·
The segregation of Total costs into Fixed Costs
and Variable costs helps the firms to analyze the breakeven analysis. (Where
there is no profit, no loss) and increase their profit capacity.
BEP –Break Even Point = Fixed Costs / Sales Price per Unit –
Variable Cost per unit
·
In above example 100 units production level, BEP
is 10000/120 – 10 = 91 Units.
·
That means at the point of 91 units, there is no
profit or no loss.
At 91 units
|
Costs |
No of Pens |
Rate per Unit |
|
|
Fixed |
91 |
109.90 |
10000 |
|
Variable Costs |
91 |
10 |
910 |
|
Total |
91 |
119.90 |
10911 |
|
Selling price |
91 |
120 |
10920 |
|
Profit |
91 |
0.10 |
9 |
Profit Rs.9 is almost negligible. Hence at the production of 91 units, there is
no profit, and there is no loss. So
Break Even Point (BEP) is 91 units
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