Sometimes, acceptor of a bill finds himself unable to meet his acceptance on the due date. So he may approach the drawer of the bill before the maturity date arrives, to cancel the old bill and draw a new bill with extended date. The acceptor in this case will of course have to pay interest for the extended period.

When a bill of exchange is dishonored, the holder can get such fact noted on the bill by a notary public. The advantages of noting is that the evidence of dishonored is secured. The noting is done by recording the fact of dishonored, the date of dishonor, the reason of dishonor, if any. For doing all this the notary public charges his fees which is called noting charges.

In case the bill is renewed the interest will not be charged on the noting charges which will be treated
separately and will not be clubbed with the amount of the bill.

Here Total amount of the R’s acceptance = 1,000
Amount paid = 500
Amount of the renewed bill = Rs. 500
Later on, R became insolvent and 40% of the amount could be recovered from his estate.
Amount recovered = 40% of 500 = Rs. 200
Bad debts = 500 – 200 = Rs. 300.

The provision for doubtful debts is identical to the allowance for doubtful accounts. The provision is the estimated amount of bad debt that will arise from accounts receivable that have been issued but not yet collected. The provision is used under accrual basis accounting, so that an expense is recognized for probable bad debts. Trade receivables will appear in balance sheet at Rs. 22,500 (25,000 × .9).

A Bank reconciliation is a process that explains the difference between the bank balance shown in an organisation’s bank statement, as supplied by the bank, and the corresponding amount shown in the organization’s own accounting records at a particular point in time.

Such differences may occur, for example, because a cheque or a list of cheques issued by the organization has not been presented to the bank, a banking transaction, such as a credit received, or a charge made by the bank, has not yet been recorded in the organisation’s books, or either the bank or the organization itself has made an error.

Owner’s capital refers to the sum of the business resources owned by the business owners. It is calculated
through the subtraction of assets from liabilities. When a business pays all its debts, the amount remaining
belongs to the business owner and it is the one that is referred to as Owners Capital or Owners Equity.

Formulas of Closing Capital

Closing capital = Opening capital + profit OR
Opening capital + profit + additional capital – drawings OR
Closing assets – closing liabilities
Thus profit/(loss) = closing capital – opening capital – additional capital + drawings
Or profit/(loss) = 12,750 – 20,000 – 2,000 + 250 × 12 = (6,250).

Gross profit is a company’s revenue minus its cost of goods sold. Gross profit is a company’s residual profit after selling a product or service and deducting the cost associated with its production and sale.

Cost of goods sold is the direct costs attributable to the production or purchase of the goods sold by a company. It excludes indirect expenses such as distribution costs and sales force cost.

Cost of goods sold = opening inventory + purchases less purchase return + direct expenses – closing inventory = 16,500 + 46,850 – 110 + 2,500 + 850 – 18,210 = 48,380
And gross profit = sales less sales return – cost of goods sold = 63,500 – 450 – 48,380 = 14,670.

Net profit is calculated by subtracting a company’s total expenses from total revenue, thus showing what the company has earned (or lost) in a given period of time (usually one year). also called net income or net earnings.

Here net profit = gross profit – General expenses – Discount allowed – Rent paid – Electric charges – Salaries = 14,670 – 800 – 200 – 3,710 – 190 – 1,110 = Rs. 8,660

Cost price of goods = 40,000
Let sale price = x(say)
Thus sale price – profit = x – 20% of x = 40,000
Or 0.8x = 40,000
X = 40,000/0.8 = Rs. 50,000.
Commission = 5% of 50,000 = Rs. 2500.

Cost price is also known as cp. It is the original price of any item. The cost is the total outlay required to
produce a product or carry out a service. Cost price is used in establishing profitability in the following
way:
Profit /cost price when expressesd as a percentage produces rate of profit on cost.
Here trader sells goods at a profit of 25% on sale.
So let sale price = x (say)
Thus cost price = x – 25% of x
Or 34,200 = 0.75x
Or x = 34,200/0.75 = Rs. 45,600
And profit = 25% of 45,600 = Rs. 11,400
Thus Rate of profit on cost will be = 11,400/34,200 × 100 = 33(¹/₃) %

Cost price is also known as cp. It is the original price of any item. The cost is the total outlay required to produce a product or carry out a service.
Here x sells goods at cost plus 60%. Total sales were of Rs. 16,000.
Let cost price = x (say)
The selling price = cost price + 60% of cost price
Thus 16000 = x + 60% of x
Or 1.6x = 16,000
Or cost price = x = 16,000/1.6 = Rs. 10,000