TRADE CREDIT, ACCRUED EXPENSES AND DEFERRED INCOME
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Transcript of TRADE CREDIT, ACCRUED EXPENSES AND DEFERRED INCOME
TRADE CREDIT, ACCRUED EXPENSES AND DEFERRED INCOME
TOPICS TO BE COVERED:-TRADE CREDIT:-DEFINATION
INTODUCTION
ADVANTAGES
DISADVANTAGES
ACCRUED EXPENSES:-INTODUCTION
EXAMPLE
DEFERRED INCOME:-INRODUCTION
EXAMPLE
DIFFERENCE B/W ACCRUED EXPENSES AND DEFERRED INCOME
“A supplier sends goods to the buyer on credit which the buyer accepts, and thus, in effect, agrees to pay the amount due as per sales terms in the invoice.”
DEFINATION
INTRODUCTION
Arises out of transfer of goods,
It is unsecured,
Granted for periods ranging from 15 days to 3 months,
Buying firm receives supplies without paying immediately
INTRODUCTION
Reflects the buyer’s power to purchase now and pay later,
Indicates the seller’s faith in the buyer,
No securities required for getting trade credit.
ADVANTAGES
Easy availability,
No formalities involved,
Convenient method of raising short term finance,
DISADVANTAGESPrices charged for credit
sales are usually higher,
Supplier has to bear a loss of
bad debts,
Requires a large working capital to supply goods on credit.
ACCRUED EXPENSES
ACCRUED EXPENSES
Accrued expenses are expenses incurred but not paid yet.Interest free source of finance.The accrued expenses account is a short-term liability.
Accrued wages
and salaries
Accrued taxes
EXAMPLES OF ACCRUED EXPENSES
Deferred income
• Any income that is received before it is earned.
• Rent paid in advance is an example of deferred income that is received during one accounting period but earned in later accounting period.
DIFFERENCE B/W ACCRUED EXPENSES AND
DEFERRED INCOME
Deferred Expenses are expenses paid in advance but not yet incurred
Accrued Expenses are expenses
already incurred but still unpaid
Deferred expenses are in fact an asset because it stands as a prepaid expenses.
Accrued Expenses are in fact a liability because it
stands as unpaid expenses.