1 Topic by apmuthu (edited by apmuthu 02/05/2013 01:13:23 am)

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Topic: No COGS till Year End

In Indian Accounting for many small enterprises with just one trusted accountant / owner,
1. whenever there is a purchase it goes into the purchase account,
2. but whenever there is an issue to production / consumption, it is not accounted for till the year end
3. At the year end it is determined as:

Consumption = Opening Stock + Purchases - Closing Stock

This may be an extension of the closed post for Belgian Accounting.

The words Calculated Return need to be changed to Profit (when there is profit) or Loss (when there is a loss) and needs to appear in the appropriate side of the Balance Sheet. This is imperative for such users who wish to migrate from Tally to FA.

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  • joe
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Re: No COGS till Year End

If the Calculated Return is positive, there is a Profit. If negative there is a Loss.

The reason for using this instead of Profit and Loss is that you might have a Profit in the period column and a Loss in the compare column. Right?

/Joe

  • Registered: 12/25/2007
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Re: No COGS till Year End

but whenever there is an issue to production / consumption, it is not accounted for till the year end

But this means that either the consumption/production is posted somewhere, or your ledger does not mirror your assets properly till the year end.

4 Reply by apmuthu (edited by apmuthu 02/05/2013 02:15:31 pm)

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Re: No COGS till Year End

Yes Janusz, the ledger will become correct only at the year end - after all in such businesses, most of the profit gets accumulated in stocks that appreciate in time without getting taxed - when sold, the sale price cannot be disputed since it is 'old stock' and in non-recorded condition!

The real reason, however, is that there are no clerks to enter such consumption vouchers as and when it occurs. Also, such businesses do accounting just because the Govt / Statutory bodies require it - transactions being purely on trust, interest-free credit and mostly on cash and carry basis. That is why such businesses thrive - unnecessary white collar salaries that do not contribute to the bottom line. At best the ledger folio of Suppliers and Creditors would suffice for them to manage Payables and Receivables.

Yes Joe, the Calculated return bridges both Profit and Loss and both sides of the divide, but for those coming from conventional manual accounting, especially vernacular ones (an old Indian one has audit tracking using a daybook-cum-ledger accounting that the Indian money lenders of the British Empire used to transfer the pay of British troops back home - look up a building that is 4th from Buckingham Palace - 1878), it is a tad offbeat to contend with in the short run.

Thanks for the inputs and clarifications!

What sign convention do we use in FA? The loss seems +ve in the Balance Sheet - the one I am converting from Tally.....

Is this okay:

Assets +ve
Liabilities -ve
Income +ve
Expense -ve
P & L = -ve of (Income+Expense) placed alongside Liabilities in the Balance Sheet

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  • joe
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Re: No COGS till Year End

Yes we have a converter for Income and Expense. Because this is otherwise quite confusing for non Accountants. If the Calculated Return is positive we have a Profit, otherwise we have a loss.

/Joe

  • From: Singapore, India, Chennai
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Re: No COGS till Year End

Therefore, in FA, all debits are +ve and credits are -ve - right?
Withdraw cash from bank:
Debit Cash (+ve)
Credit Bank (-ve)

Is the above okay? If so, the signs in Post 4 will all be reversed.

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  • joe
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Re: No COGS till Year End

Internally we have
Assets +vé
Liabilities -ve
Retained Earnings -ve
Income -ve
Expensies +ve
Calculated Return -ve (profit) +ve (loss)

But due to the confuseness for non Accountants we present the P&L this way:
Income +ve
Expenses -ve
Calculated Return +ve (profit) -ve (loss)

Joe

  • From: Singapore, India, Chennai
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Re: No COGS till Year End

Hence we are not following the Debit is -ve and Credit is +ve rule for all accounts like most packages do or is it only in the presentation that there exists a difference in the P&L?

Since Cash on hand will always be debit, should not the Assets be -ve and Liabilities be +ve?
The earlier post with the example of cash withdrawal from bank actually appears to support Assets being -ve and Liabilities being +ve as seen from a gl transaction record.

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  • joe
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Re: No COGS till Year End

Yes it is only when presenting the P&L report that we are converting the amounts.

When looking at the GL transactions you will see which sign (debit or credit) is used for the various accounts.

I hope we do understand each other smile

/Joe

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Re: No COGS till Year End

I hope so too!

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  • Registered: 04/18/2015
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Re: No COGS till Year End

is it possible to enable inventory periodical method instead of perpetual ???