Net Sales

Net sales:
Definition:
Exchange of commodity (products) by money is called Sales.
How it can get?

A business can get sales by 2 ways.
1. By personally selling
2. By brokers
1. When the employee or owner of the company sells product that is called personal
academy. They use many medium to sell their products.
2. Company uses any agent to sell their products.
How sales effect the business?

Without sales business is nothing. They are unwilling to pay their expense. Sales have direct
effect on his business. Sales show the companies profits. They attract investor to invest their
surplus.
How sales will beneficial for business?

With the help of sales business meets its day to day liabilities. By increase in sales will directly
increase in profit of the business. Without sales business is unwilling to survive.
Cost of sale:
This amount includes the cost of the materials used in creating the good along with the direct
labor costs used to produce the good.
How we get it?

We get of cost sold by beginning inventory + purchases ending inventory that is equal to the
cost gold sold.
Example:
. An inventory count at the beginning of November shows that she has $800 worth of inventory
on hand. Over the month, she purchases another $2,400 worth of books. Her inventory count at
the end of November shows that she has $600 of inventory on hand.
Beginning Inventory
+ Purchases
Ending Inventory
= Cost of Goods Sold
800
+ 2400
600
= 2600
This method to calculate COGS is called equation method.
Gross profit:
Gross profit is a company's total revenue (equivalent to total sales) minus the cost of goods sold.
Or
Gross Loss:
Business expense is greater than sales of business. This situation is called gross loss.
Effect on Business:
It is consider as one of the most important factor of the business. it indicates the efficiency of the
business.
Distribution Costs:
Cost incurred to deliver product from production unit to end consumer.
Effect of distribution cost on business?

Without distribution cost goods produce by a business is unwilling to reach its end consumers. It
includes selling and advertisement expense.
Administrative expenses:
The expenses that an organization incurs not directly tied to a specific function such as
manufacturing, production or sales. These expenses are related to the organization as a whole as
opposed to an individual department.
Effect of Administrative expenses on business:

Administrative expense plays an important role in calculating the profits of the business. When
these expenses are higher are more than operations. It will directly affect the business profits.
When they are higher the profits of the business is showing less.
Other Expenses:
Expenses associated
with
the
main
activity
of
the
business
are
referred
to
as
operating expenses. Expenses associated with a peripheral activity are non-operating or other
expenses. For example, a retailer's interest expense is a non-operating expense.
Effect of other expense on business:

These are day to day expense which occurs at not regular routine. This is directly affects the
profits of the business.
Profit from operations:

This Profit is earned by the normal core activities of the business.
This is calculated by deducting daily expense from gross profit of the business.
Finance Cost:
Finance cost or cost of finance is also called interest amount and other charges involved in the
borrowing of money to build or purchase assets.
Interest and other costs that an entity incurs in connection with the borrowing of funds
Effect on business:
When business has to pay heavy of interest on borrowing business profit will gone in decrease.
The amount of interest on lending is change with the passage of time.
Profit before taxation

When business deduct its all indirect expense and interest amount from revenue. It mean
business has pay it expense expect tax.
It
measures that looks at a company's profits before the company has to pay corporate
income tax by deducting all expenses from revenue including interest expenses and operating
expenses except for income tax.
Taxation:
The amount which pays by a business on his earning is TAX.
After Tax profit is important for the investors because it tells the investor financial position of
business or in other words company earnings ratio out of its revenue
Effect of taxation on business:

Governments use taxation to encourage or discourage certain economic decisions. Higher the
income of the business higher the tax they have to pay.
Net Profit:
It is the total comprehensive income of the business, income minus cost of goods sold, operating
expense and tax paid on earning. We will get net profits.
Deferred tax:
Deferred Tax liability occurs when there is difference between the company's accounting
and tax carrying values.
Balance sheet:
Assets:
Anything owned by person for business use, and have ability to meet its long term obligations
and commitments.
How businesses create its Assets?

Business creates its assets by some ways.
By taking on lease
By total investment
By taking loan from Banks other financial instruments.
How it is beneficial for business?
With help of assets businesses are willing to pay its long term obligations. Any
investor who is going to invest in your business first see your assets potential to meets
it commitments.
Assets add value to business. It helps you to secure your finance, when you have need
of it.
Also it helps you to reduce risk.
Non-current Assets:
It refers to the long term asset of the business. it affect shown in balance sheet more than one
year.
A noncurrent asset is an asset that is not likely to turn to unrestricted cash within one year of
the balance sheet.
Fixed Assets (land, plant and equipment):

Which are purchased for long term use in business that is not converted in cash quickly such as
land, building, plant etc.
Beneficial for business:
These long term assets show the ability of business to meet its commitments. When investors
going to invest in business, they first check his asset willingness to respond, it generate long term
benefit for business
Long-term investment:
Long term investment account on the asset side of balance sheet, represents the company
investment on shares, bonds real estate and cash that it intends to hold for more than a year.
Beneficial for business:

Business utilizes its surplus (extra cash) on purchasing these securities. With the passage of time
business gain specific return on this. Or any distress situation business sell these or pledge these
security and take loan.
Long-term loans and advances:

It provides business long term advantage. It provides a business working capital that is used
create assets or purchase inventory for the business.
Why it is assets sides?

These are long terms long which are given to the employees of the organization. They display on
asset side of balance sheet because of they recover in near future.
Many time organizations avoid giving this loan to his employees, because they use this surplus in
purchasing of short term securities because these are much beneficial for the business.
On the other hand advances are not considered as the loan. These are paid for special purpose or
for any special type of service for the business.
Long-term deposits:
Invest your money somewhere that is safe and secure, without the need to constantly worry about
the return of interest is high. Normally these deposits are in fixed accounts.
Affect:
This is shown in Asset side of the balance sheet because these are the long term reserve of the
business. Business will draw this specific amount of money at a specific time.
Current Assets:
Which are easily converted into cash. E.g. Cash, Stock account receivable. These are much liquid
easily converted into cash.
Effect of current asset:

If business has available extra cash for short period of time, the corporation purchases these
securities. It is very complicated for a business to maintain its current assets. They directly affect
the business cash flow.
Stores, spares and loose tools:

These are the spare parts of the machinery and other assets. Business has to record these in
current asset because they utilized at daily basses.
Stock-in-trade:
The equipment or material that is necessary in trade a business.

Refers to all the purchases of finished goods that the company buys towards
conducting its business
Effect on business:
When the business stock is high it is both good and bad condition for business. if the stock price
of the business is high that is good for the business will earn much profit and if the price of the
shares gone decrease the business may have to suffer loss.
On the other hand falling in the prices of shares and bonds will attract the investor to invest in
the business.
Trade debts:
Trade debts represent the amount due which paid by a customers on purchasing of goods and
services.
Effect of Trade debts on business:

If the trade debts are in increase amount the business have many chances of bad debts. Somehow
it is difficult for the business to recover the amount.
Short-term deposits and prepayments

A prepayment is the settlement of a debt or installment payment before its official due date. A
prepayment can either be made for the entire balance of a liability or for an upcoming payment
that is paid in advance of the date for which they have paid their obligation.
Effect:
When company pre pays its obligation it is consider as the asset of the business. it has low risky.
Guarantee to pay money back if that is that is not occurring.
Other receivables:
These receivable refer to the other than account receivable, they may be their trade debts or nontrade receivable.
Cash and Bank Balance:

All currency notes, and other funds which are liquid in nature and have been deposit in financial
institution. Cash at bank is considered as highly liquid it is report at balance sheet with cash.
Effect on business:
It is not good for a business to keep extra cash. Because day by day the value of money is reduce.
They have to invest at any specific place by purchasing security and gain on them.
Total Asset:
Total asset is the combination of all current asset and non-current assets.
EQUITY AND LIABILITIES

Share capital and reserves:
Reserves are any part of stockholder equity that is retained by a business, that is not distributed
to the owner of the company.
Unappropriated profit:
That is part of shareholder equity that is also known as earned surplus. It is not allocate to the
board of director or specific person of the company.
Effect on business:
It is good for business to retain this on his profits. These are again invested into the business or
keep for any unexpected situation.
Non-current liabilities:
When business borrows money more then one accounting period, it is refer to non-current
liability of the business.
Deferred taxation:
It is an account which is temporary in nature shows the difference between in accounting Tax and
carrying value, the anticipated and enacted income tax rate, and estimated taxes payable for the
current year.
Retirement benefits:
Retirement benefits are the obligation by a business to maintain it for their employees at old age.
Effect of this amount is more than one year. This obligation is due after his retirement.
If spouses get Social Security retirement benefits before they reach full retirement age, we
reduce the benefit. The amount we reduce the benefit depends on when the person reaches
full retirement age.
Current liabilities:
Amount due to be paid to the creditors with in twelve months.
Trade and other payables:

Trade payable is the amount charged by the supplier of the company due to delivering goods or
providing service.
Effect of trade debt:

Business have to pay these debt with in short period of time. Because these transactions occurs at
daily bases. With the help of this credit rating of the company is seen.
Taxation;
Tax is the current liability of business which is paid within one accounting year. Tax is amount
which charged by the govt on the profits of the company.
Effect:
If business create this provision at low amount, than the business have arrange amount with in
short time.

Net Sales

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Net Sales

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Net sales:

How it can get?

How sales effect the business?

How sales will beneficial for business?

How we get it?

= Cost of Goods Sold

This method to calculate COGS is called equation method.

Effect of distribution cost on business?

Effect of Administrative expenses on business:

Effect of other expense on business:

Profit from operations:

Profit before taxation

Effect of taxation on business:

How businesses create its Assets?

How it is beneficial for business?

Fixed Assets (land, plant and equipment):

Beneficial for business:

Beneficial for business:

Long-term loans and advances:

Why it is assets sides?

Effect of current asset:

Stores, spares and loose tools:

The equipment or material that is necessary in trade a business.

Effect of Trade debts on business:

Short-term deposits and prepayments

Cash and Bank Balance:

EQUITY AND LIABILITIES

Trade and other payables:

Effect of trade debt:

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