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Journal Entry for Money Received from the Debtor

Introduction

In your business, a debtor is a person or another business that owes money to your firm. For example, let’s say you have a small grocery shop. When someone comes into your shop and buys something but chooses to pay later, they become your debtor. They owe you money for the items they purchased.

The amount of time for debtors to pay the money varies from business to business; however, as a general rule, they have between 30 and 90 days to do so. Whenever debtors pay back their bills, it is recorded with the help of a journal entry for money received from the debtor.

Such payment might be made by the party in various ways, like cash, cheque, electronic transfer, bank drafts, etc.

 

Received Money from Debtor Journal Entry

Upon a general assumption that the money received from the debtors is via electronic transfer, the following journal entry will be passed,

Bank A/C Debit
 To Debtor’s A/C Credit

Modern Rules

  • Dr. the increase in ‘Assets’ as money comes into the business.
  • Cr. the decrease in ‘Debtors’ as receivables are reduced.

Golden Rules

  • ‘Bank’ is a Personal A/c; therefore, Dr. the receiver.
  • ‘Debtor’ is a Personal A/c; therefore, Cr. the giver.

Note: The “Cash A/c” will be debited instead of the “Bank A/c” if the money is received in cash. It is also possible to credit the “Accounts Receivable A/c” instead of the “Debtor’s A/c”.

Related Topic – Debtor Vs Creditors

 

Example

XYZ Ltd. received 80,000 from John through electronic transfer as payment for goods sold to him a month ago. Pass necessary journal entry for money received from the Debtor (XYZ Ltd.)

Journal entry for receiving money from John

Bank A/C 80,000
 To John’s A/c 80,000

Bank A/c is debited due to an increase in assets, and John’s (debtor) A/c is credited due to a decrease in receivables.

 

Effect on Accounting Equation

Assume a firm’s opening balance is [Assets at 50,000, Capital at 50,000, and Liabilities at zero]. As a result of recording journal entry for money received from the debtor, the accounting equation will be impacted as follows:

Assets = Liabilities + Capital
Opening Balance 50,000 0 50,000
Bank A/c 80,000 0 50,000
John’s A/c (Debtor) (80,000) 0 50,000
Total 50,000 0 50,000

Related Topic – Debtor’s Turnover Ratio

 

Effect on Financial Statements

Upon receiving money from debtors,

  • There would be no effect on the income statement. It represents the collection of revenue that was already recorded when the sales were made. The affected accounts are both assets.
  • The balance sheet will show a decrease in debtors and an increase in bank balance. There would be no change in the total assets.
  • The cash received from debtors is also recorded as an inflow in the operating activities section of the cash flow statement. As a result, the company’s core operations generate more cash, increasing cash flow from operating activities.

Effect of journal entry for money received from the debtor on the Balance sheet :Balance sheet showing effect of money received from debtors

Related Topic – Difference between Debt and Liability

 

Discounts & Allowances

Both discounts & allowances are a reduction in the selling price of goods or services.

Discounts are offered to customers as a percentage or fixed amount of reduction from the regular selling price. It may motivate the customer to make an early payment or buy large quantities. It is an expense for the business and is therefore debited to the Income statement.

  • Cash Discounts are given to customers for paying their invoices early. It is a reduction in the invoice amount if the customer pays within a specified period, often within a certain number of days.
  • Trade Discounts are given to customers for buying large quantities. It is a reduction in the listed price of a product or service, typically represented as a percentage.

Allowances are usually granted to customers to adjust for issues or defects with the goods or services they have purchased. Also, when a business sells goods that are of lower quality or do not meet the expected standards, it may provide allowances to the buyers as a form of compensation or adjustment.

Suppose the customer gets a damaged product; the seller may offer an allowance to make up for it. Allowances can also be given for returns and complaints. The adjusted selling price is calculated by subtracting allowances from revenue.

 

>Read Quiz on Discount and Rebates

>Read Provision for Discount on Debtors



 

Zero Balance Accounts Explained: How to Open One Online

Technology has made managing finances quicker and easier, from instant transfers to tap-and-go payments. One popular innovation is zero balance savings accounts – a financial solution that provides flexibility and simplicity.

A zero-balance savings account is a bank account with no minimum monthly balance requirement. Unlike regular savings accounts that require maintaining a certain balance, a zero balance account allows you to keep your balance at zero or whatever amount works for you. You’re not tied to any minimums.

Whether you want to start saving or need a reliable emergency fund, a zero-balance savings account offers numerous benefits. Let us begin a digital banking journey that gives you power over your money without all the hassle of maintaining a minimum balance! This guide will walk you through opening a zero-balance account online, step by step.

 

Why Should You Consider Opening a Zero Balance Account?

There are many reasons to open a zero-balance account online.

Convenience: Opening a zero-balance savings account online is incredibly convenient. You can open one using your phone or your laptop. It can save you time and help avoid hassle.

Secure Access: With a zero-balance account, you can deposit or withdraw funds whenever necessary. This flexibility ensures your money is always accessible when you need it.

Interest Earned: Even though it’s a zero-balance account, you can still make interest on the money you keep there.

Emergency Fund: A zero-balance account can serve as an emergency fund. You’ll have funds for unexpected expenses or emergencies by keeping a certain amount in the account.

Modern Features: Zero-balance accounts often have up-to-date features that enhance your banking. These include mobile apps, online banking, and 24/7 customer support!

Overall, opening a zero balance account online provides simplicity, flexibility and accessibility that can benefit your finances. Additionally, another financial tool you might be interested in is a lifetime free credit card!

 

Opening a Zero-Balance Savings Account Online – Steps On Opening An Account

Now that you get the benefits of a zero-balance savings account, here are the quick and easy steps to open one online:

Step 1: Go to the bank’s official website

Visit the bank’s website or app on your phone or laptop. Go to the website page, where it shows you can open a new savings account. Click on it and enter your mobile number to get started with the process online. The bank will then send an SMS or call to verify it’s you applying for the account. This confirms only you can access the account.

 

Step 2: Gather the required documents

To open a zero-balance savings account online, you must provide some personal info and documents. The typical documents include:

  • Aadhaar Card: If you have it, you won’t require any other identity or address proof.
  • Address Proof: You will need a driver’s license or a passport to prove your address.
  • Form 16 (if needed): If you don’t have a PAN card, you can provide Form 16 from your employer to show TDS was deducted from your salary.
  • Passport Photos: Have two recent passport-sized photos ready for the application process.

 

Ensure these are ready to upload photos or scan/send copies as required during the online account opening process.

 

Step 3: Do the Video KYC verification

Many banks let you complete the process online for KYC (Know Your Customer) checks. During this step, allow the bank access to your phone’s camera, microphone and location. Then, a video call with a bank representative will confirm your identity.

During the video call:

  • Follow the representative’s instructions.
  • Show your valid ID and address proof to the camera.
  • The representative may ask you a few questions to confirm your application for the account.

The video KYC verification ensures the bank knows who they’re opening an account for in an easy and convenient online process.

 

Step 4: Login and start using your account

Once you complete the video KYC check, the bank will give you a customer ID and account number. Use those login details to access your new zero-balance savings account through the bank’s website or app.

From there, you can:

  • Transfer funds into your account
  • Make deposits
  • Withdraw money
  • Check your balance
  • Benefit from your newly created account!

You now have full access to manage your account and take advantage of the flexibility, simplicity and control a zero-balance savings account provides.

 

In conclusion, zero-balance savings accounts and lifetime free credit cards are useful financial tools that simplify your banking experience. Opening a zero balance account online provides convenience, security and flexibility, while a free credit card offers cost savings and potential rewards. Take advantage of these modern options to gain more control over your finances now!

If you also want to know, “What is a debit card?” It’s a card that allows you to access the money in your savings account to make purchases. You can access it right from your main bank account! You can consider getting a debit card, your zero balance savings account, and a free credit card to enjoy the full range of possible financial benefits. With these three tools – a zero balance account, free credit card and debit card – you’ll have a complete financial system that works only for you!

 

FAQs

What is a lifetime free credit card?

A lifetime free credit card is a credit card with no annual fee. Yet you still get all the benefits and features of a regular credit card. The “free for life” part means big savings long-term.

What is a debit card?

Did you know that a debit card connects to your bank account? It’s a convenient way to access your funds without carrying cash around. It lets you make purchases, withdraw cash from ATMs and make online payments using funds from your linked account.

Can I still earn interest on a zero-balance savings account?

Yes! Although zero-balance savings accounts are designed for no money in the account, you can still receive interest on any funds deposited. The interest rates may vary between different banks and institutions.

 



 

Bought Goods for Cash Journal Entry

As a general accounting term, “Goods” refer to tangible products or merchandise that a business buys or manufactures for the purpose of selling to customers. These goods can include various items such as electronics, clothing, furniture, groceries, etc.

The acquisition of goods by an entity for resale to its customers is recorded as a purchase. It is shown on the debit side of a Trading A/c.

Purchase can be of two types,

Cash Purchase: The purchase of goods is considered a cash purchase if the payment is made immediately after the purchase.

Credit Purchase: When payment is made at a later date, the purchase is considered a credit purchase.

 

Journal Entry for Purchased Goods in Cash

Purchase A/c Debit
 To Cash A/c Credit

Modern Rules Applied

  • Dr. the increase in ‘Expense’ as expenditure is increased for the firm.
  • Cr. the decrease in ‘Assets’ as cash goes out of the business.

Traditional Rules

  • ‘Purchase’ is a Nominal A/c; therefore, Dr. all expenses & losses.
  • ‘Cash’ is a Real A/c; therefore, Cr. what goes out.

Related Topic – Quiz on Rules for Debit and Credit

 

EXAMPLE

ABC ltd. purchased goods worth 10,000 from ZY Motors. The company paid the total amount in cash on the date of purchase. Show the journal entry for the transaction.

Purchase A/c 10,000
 To Cash A/c 10,000

 

In the Trading Account, 10,000 purchases made in cash will be recorded as a debit.
Trading Account Showing PurchasesRelated Topic – Simple petty cash book

 

Effect on the Accounting Equation

ASSETS = CAPITAL + LIABILITIES

As per the accounting rules, this equation must always be balanced. The transaction, ‘bought goods for cash,’ affects both sides of the accounting equation.

To understand it more clearly, let us take an example.

Company XYZ Ltd. has 50,000 cash as its capital. It purchases goods from AP Ltd. worth 20,000 and pays immediately with cash. Show its effect on the accounting equation.

The company has,

  • A combination of 50,000 ‘Cash’ & 30,000 as ‘Capital’.
  • It has purchased goods worth 20,000 in cash.
Assets = Liabilities + Capital
Balance 50,000 0 50,000
Cash A/c (20,000) 0 0
Stock A/c 20,000 0 0
Total 50,000 0 50,000

 

>Read Sold Goods for Cash Journal Entry



 

Sold Goods for Cash Journal Entry

As a general accounting term, “Sales” refers to the revenue generated by a business by selling products or services. This is the income generated by the business’s core business operations.

A firm records sales of its products or services as revenue on its financial statements. The amount of sales recorded is based on the selling price of the goods or services sold and any applicable taxes or discounts.

Sales can be of two types,

Cash Sales: When the payment for the goods sold is received immediately, it is considered cash sales. The buyer makes payment at the time of purchase of goods.

Credit Sales: When the payment for goods sold is received later, it is considered credit sales.

 

Journal Entry for Sold Goods in Cash

Cash A/C Debit
 To Sales A/C Credit

Modern Rules Applied

  • Dr. the increase in Assets as cash comes into the business.
  • Cr. the increase in Income as sales increase income.

Traditional Rules

  • ‘Cash’ is a Real A/c; therefore, Dr. what comes in.
  • ‘Sales’ is a Nominal A/c; therefore, Cr. all incomes and gains.

Related Topic – Journal Entry for Amortization

 

Example

Mr. Y  has a business of trading furniture and fittings. He sold fittings to Mr. Z for 10,000 on a cash basis. The journal entry for the above transaction will be:

Cash A/C 10,000
 To Sales A/C 10,000

(Being fittings sold for 10,000 to Mr. Z)

  • Depending on your specific business and chart of accounts, the specific amounts and account names may differ.
  • Based on your company’s accounting system, enter the correct date, amounts, and account names.

The sales of 10,000 made in cash shall be recorded on the credit side of a Trading A/c of the entity. Below is the extract of the Trading A/c, showing the same.Trading Account Showing Sales

Related Topic – Difference Between Revenue and Profit

 

Effect on the Accounting Equation

ASSETS = CAPITAL + LIABILITIES

As per the accounting rules, this equation must always be balanced. The transaction, goods sold for cash, has an effect on both sides of the accounting equation.

To understand it more clearly, let us take an example.

Company XYZ Ltd. has 50,000 cash as its capital. It sold goods worth 20,000 at 25,000 for cash. (Profit margin 25,000 – 20,000 = 5,000). Show the effect on the accounting equation.

Assets = Liabilities + Capital
Balance 50,000 0 50,000
Cash A/c 25,000 0 5,000
Stock A/c (20,000) 0 0
Total 55,000 0 55,000

 

>Read Bought Goods for Cash Journal Entry



 

How to Convert IRA to Gold – A Guide

Have you ever given any thought to the possibility of diversifying your retirement portfolio by purchasing gold? As the state of the global economy remains unstable, an increasing number of investors are seeking the financial protection that can be found in precious metals.

Are you prepared to take charge of your retirement funds and investigate the world of individual retirement accounts (IRAs) that contain gold? Let’s get started and find out how to convert your IRA into gold and the potential benefits this could have for your future! Take a peek at this page for more

So, are you ready to have some fun?

What exactly is a transfer?

A gold IRA can be funded through a rollover or transfer from an existing retirement account.

With a rollover, you can transfer funds from your current IRA to a new gold IRA within 60 days after receiving the withdrawal proceeds from your current IRA custodian. If you take the money out before you turn 59.5, you’ll only have to pay a 10% penalty.

The transfer process involves no physical movement of funds; rather, your current IRA custodian will send the funds electronically to your new gold IRA custodian. This is the most common option because it’s convenient (you won’t have to handle the money alone), and it eliminates the risk of waiting longer than 60 days. Find out more info here.

 

How to open an account?

Opening a gold IRA account can be an exciting thing to do, but you shouldn’t do it rashly. All of you newbie investors need to locate a firm that deals exclusively with gold IRAs (officially known as self-directed IRAs) in order to open an account.

After opening an IRA, you can invest in gold and other metals by instructing your account custodian to make purchases on your behalf as long as they meet certain criteria set forth by the Internal Revenue Service (IRS). Your financial assets will be safely stored after they’ve made the purchase for good. How amazing is that

 

How to make the big transfer?

Once the account has been set up, we want you to know that the transfer process is pretty much a piece of cake!

So, here’s what you need to do, folks:

Get in touch with the IRA service provider handling your current account and let them know that you’d like to start a transfer.

Then, you would have to complete the necessary paperwork, and you’ll need to specify the new account details and the amount you wish to transfer.

Once that’s done, you should pretty much wait for the money to be transferred to your gold IRA from the account administrator. And once the funds are here, you can start your epic journey of buying precious metals. This will be a dream come true for any investor, folks!
If you’re dead set on gold, for instance, you need to choose what gold you want to buy. For example, you can look into coins and bars.

Tell the custodian of your gold IRA account to make the final purchase. They will utilize the money in your account to acquire the metals you want.

And now it’s time for the utmost protection of your assets. But don’t sweat it because a custodian is responsible for the safety of your precious yellow metal. They will tuck it in safely within a secure vault, so you’ll have peace of mind knowing that your wealth is protected!

Even while some companies will tell you otherwise, it’s usually not a good idea to store your gold at home. Keep an eye out for anyone making such a claim, as doing so can result in severe fines from the Internal Revenue Service.

Not just that, but thieves are often looking for victims to steal from. Imagine if your precious assets land in the hands of a thief because you’ve decided to store your gold home. Yikes!

That’s why it’s always better to have it stored in a secured vault.

And from then on, make sure to keep an eye on your account statements and the growth of your investments. The wise idea is to take a look at different websites, like BMOGAM Viewpoints, to find out more about what this transfer means for your financial health.

 

What are the perks of this transfer?

We’re so glad you’ve asked this question because you NEED to be aware of the benefits or risks before making a final decision. Perhaps if you know why so many folks decide on this option, you will decide more quickly.

Protection from inflation

Throughout times when inflation is high, our wallets pretty much suffer the most. This type of scenario is one of the reasons why so many people want to convert their IRAs to gold!

Gold has, on average, preserved its value over the course of history, and it’s frequently seen as a trustworthy asset for storing money in periods of economic unpredictability.

People move their retirement savings into gold to hedge against inflation and maintain their purchasing value in old age.

Economic security

When it comes to money, everyone pretty much wants to feel secure, right? So, we want you to know that putting some of your money into gold may help cushion the blow if the economy or perhaps even the stock market takes a downturn. Pretty awesome, right? Be sure to check out this page for more https://www.wikihow.life/Put-Gold-in-an-IRA.

Growth opportunity

As gold prices have increased over the past decade, its potential worth may continue to rise. If this amazing trend continues, your investment portfolio will also increase in value. Yay!

Diversification

Placing all of your money in a single investment or asset is a high-risk strategy. It’s quite alright if you feel you can’t handle several investments at the same time, but know that sticking to just one for a long time is a big no-no.

Awesomely enough, gold and silver provide an outstanding opportunity to diversify away from any other investments that you may already have, therefore lowering the amount of risk that is associated with your portfolio.

 

Are there any fees associated with the transfer?

When transferring gold from an IRA, you won’t have to pay any transfer fees to the IRS or any other agency. Your account administrator may charge a fee, although the amount will vary based on the company’s policies.

Talk to your current IRA custodian about any fees or charges that can be incurred if you make a transfer to a gold IRA. Discover more here.

 

A few final words

Ah, gold! Have you ever wondered where we’re all be right now if it wasn’t for gold? That’s how much of an influence it has over the world.

So, if you’re contemplating converting your good ol’ IRA to this awesome and shiny precious metal, be sure to understand everything there’s to know about the transfer. Sure, we’ve offered you some helpful insight, but it’s always good to check out other posts and articles as well.

The more you know, the more sure you’ll be in your decision. After all, we want what’s best for you and your finances. So, good luck!

 



 

Why Do FD Rates Increase?

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If you are considering investing in a fixed deposit account, you should know about one thing that stays constant – the fluctuation of its interest rate. FD rates increase and decrease more than you can imagine. In this article, we’ll look at the reasons that affect the change in FD rates and things to remember before investing in FD for maximum profit.

Do the FD Interest Rate Change Frequently?

Based on the inflation situation in the country, FD rates increase. This happens because the RBI (Reserve Bank of India) loans commercial banks at a decided period on an interest rate called the repo rate. The increase in this repo rate raises the bank’s interest rate on their loan from the RBI, resulting in increased FD rates.

 

What Affects the Increase in FD Rates?

  • Change in the Repo Rates

The first reason that causes the constant change and increase in the fixed deposit interest rate is the increased inflation rate. In order to get positive returns from the bank, an investor should always keep an eye out on the changing situation of inflation because this is the main cause of changing FD rates.

  • Enough Liquidity

If a bank with your fixed deposit account has sufficient liquidity, they won’t rely on the market-based FD rates as they will not need to be competitive to stabilise their position. This is generally a situation banks adopt in times of tight liquidity.

  • Demand and Supply Conditions of Lending

The next thing that causes increased FD rates is the demand and supply chain conditions in the lending world. Banks usually decrease their FD rates if there’s less demand for lending in the market. And if there’s a great demand for borrowing in the financial sector, banks usually increase their fixed deposit rate.

  • The situation of Call Money

Call money is used for short-term loans granted between banks or financial institutions. They are usually given for one day and typically attract a higher interest rate than other types of loans. One way it can cause an increase in FD rates is through its impact on the overall liquidity position of banks.

When banks have more funds to lend, they tend to reduce their deposit rates to encourage customers to borrow more. However, when there is a shortage of funds, banks may increase their deposit rates to attract more deposits and improve their liquidity position, affecting FD rates.

  • Fall of a Bank’s Fund Cost

The fall of the fund cost of a bank causes an increase in the FD rates because even with the high interest rates, the base rates revision is based on retail loans, causing revision of the fixed deposit interest rates.

Further, this falling rate also showcases the high liquidity of a bank in the market, leading to borrowing shortly from the call market. And if the call market borrows on lower rates, it can cause a change in the retail deposits.

 

What to Know When Investing in an FD?

Now that you know what causes a huge stir-up in fixed deposit rates, it’s time to understand the right time to invest in this financial tool and what to keep in mind when investing in an FD for maximum profit.

  • Taxable Income

The FD interest is taxable, so whatever interest rate you earn on your fixed deposit will be taxed. If the interest of your FD in one financial year is more than ₹40,000 or ₹50,000 for senior citizens, you’ll be taxed 10% TDS.

So, if you are ready to have taxable investments and savings and have thoroughly researched the taxable amount and what influences the tax rates, you can start investing in this fruitful financial product.

  • Laddering

As established before, the fixed deposit rates fluctuate on a large scale. But if you don’t want to lock in your money at a low interest rate, investing in FD with varying maturity periods is a wise choice. This is called laddering, and it helps reinvest short-term fixed deposits when FD interest rates increase.

  • Market Research

Conduct extensive market research to monitor the interest rate of fixed deposits by NBFCs and banks. This will help you understand the pattern of when FD interest rates increase and decrease.

Bottom Line

Market changes are never easy to predict, so studying the market before you invest and giving it much-needed time to get stable is necessary for maximum profit. This helps you prepare for any unfortunate event.

 



 

Debit Balance of Profit and Loss Account

There are two sides to accounting: debit and credit. Profits & incomes are placed on the credit side (right). This is because we gain money, and in accounting terms, this is credit. Similarly, the debit side (left) shows all the expenses & losses.

Now, if we have a debit balance in the Profit and Loss account, it means the debit side is larger than the credit side. The money we spent (debit) was more than the money we earned (credit). Layman explanation of debit balance of profit and loss accountSo, if you hear someone say, “We have a debit balance in our Profit and Loss account”, it’s like saying, “We spent more than we earned. We have a loss!”. Therefore Debit Balance of Profit and Loss Account means “Loss” or “Net Loss” for a business.

 

Meaning and Definition

The income statement or Profit & Loss account is a financial statement that provides a summary of a company’s expenses, losses, incomes, and gains over a specific period of time. As a result of this account, the company can determine whether it can grow revenue or lower costs in order to generate profit.

Debit balance, in layman’s terms, means the “Debit Total > Credit Total”.

In the world of accounting, Profit and Loss accounts have a debit balance when the debit side (expenses & losses) exceeds the credit side (incomes and gains). Such a balance is called Net Loss, and it is adjusted from the reserves or capital. If continued over a longer period, it could lead to the insolvency of the company.

Net loss reduces the overall capital invested by the owners. For stakeholders, this reflection gives them a good idea of how the company is doing financially.

Similarly, a credit balance means that the “Credit Total > Debit Total.”

Related Topic – Assets have a Debit Balance, and Liabilities have a Credit Balance

 

Example

Following is the Profit and Loss account of PQR for the year ending Dec 20YYExample showing debit balance in profit and loss account (net loss)In the above example, the debit total is 20,000, and the credit total is 10,000. The balance of 10,000 on the credit side represents the balancing figure, which has been highlighted in red.

The above example shows a debit balance of the Profit and Loss account. The firm incurred a loss during the year even though there was a Gross Profit. This simply means that the indirect expenses of the firm are higher than the income generated.

10,000 will be reduced from the Capital account, thereby reducing the total capital invested in the business.

Related Topic – Debit and Credit Balance in Trial Balance Quiz

 

Debit Balance of Profit and Loss Account shown in the Balance Sheet

At the end of a financial year, the net loss is transferred to the balance sheet and shown as a deduction from Capital. This indicates that the company has not made enough money to cover its costs.

It is reflected as a negative amount, indicating the company has suffered losses. This reduction in equity signifies that the company’s overall financial position has been negatively impacted.

The image given below shows the transfer:

debit balance of P&L account shown in the balance sheetNet Profit

When the credit side of the Profit and Loss account is greater than the debit side, it is a credit balance. This credit balance is called Net Profit. It means that the indirect income of the business is more than the expenses. The net profit is added to the capital.

Related Topic – Profit and Loss Suspense Account

 

Gross Profit and Gross Loss

In the trading account, the terms “gross profit” and “gross loss” refer to the financial results of a company’s core trading activities, specifically related to the buying and selling of goods. It shows all the direct incomes and expenses like Sales, Purchases, Wages, etc.

Gross Profit – In simple terms, it means the “Revenue Earned from the Sale of Goods > Total Cost of Goods Sold.” It is the profit generated before considering indirect expenses, taxes, and interest.

A company’s gross profit tells you how profitable and efficient it is at managing its direct costs of production or acquisition. This shows a credit balance in a Trading account.

Gross Loss – On the other hand, a gross loss means that the “Revenue Earned from the Sale of Goods < Total Cost of Goods Sold.” It indicates that the company has incurred more costs in acquiring or producing goods than it has generated in sales income.

A gross loss or debit balance in a Trading account tells you the company’s direct costs are too high or its pricing strategy isn’t generating enough revenue to cover those costs.

  • Both gross profit and gross loss are critical measures in assessing the profitability and performance of a company’s trading activities.
  • They provide insights into the efficiency of cost management, pricing strategies, and the overall success of the company’s core operations.
  • GP & GL are further analyzed and used in combination with other financial statements to evaluate the overall financial health of the business.

 

>Read Credit Balance of Profit and Loss Account



 

Profit Sharing Ratio

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Imagine that you and your friend own a grocery store together. The place was found by you, the supplies were arranged, and everything was set up by you. Your friend invested some money and worked at the counter.

Both of you agree that since you worked harder, you should get more money from the store’s profits. You and your friend decide you’ll get 60%, and your friend will get 40%.

This is your profit-sharing ratio: 60:40. It means that for every 100  the store makes, you get 60, and your friend gets 40.

Profit Sharing Ratio ratio example in a pie chart

Definition

A partnership business is a type of business structure where two or more people come together to start a business. In a partnership, each person contributes resources like money, assets, skills, etc.

The profit-sharing ratio refers to the ratio in which the profits and losses of the business are distributed among the partners. It is determined under a written agreement known as the partnership deed which is prepared as per the terms agreed upon by the partners.

Normally, the partnership deed specifies the split percentage on which the partners will bear losses or distribute profits. However, in some cases, the ratio may differ for the distribution of losses.

However, in the absence of any information in the partnership deed about the profit-sharing ratio, the partners are assumed to be sharing the profits and losses equally.

Related Topic – What is the reconstitution of a partnership?

 

Factors Affecting the PSR

There are a lot of factors depending on which the partners decide upon this ratio. Some of them are mentioned below:

  • Sharing profits on the basis of the effort and skills each partner brings into the business is a common practice.
  • Division on the basis of responsibility taken, i.e. the ratio may be based on the role of each partner in the business.
  • In some cases, the profit-sharing ratio may be based on the past performance of each partner in the business.
  • On the basis of capital contribution, i.e. the partner who contributes a greater share of capital earns a greater percentage of profits, or
  • Division on the basis of consideration of both the above-mentioned factors, or
  • Any such clause or terms as the partners may agree upon.

Related Topic – Meaning and Methods of Valuation of Goodwill

 

Calculation & Formula

Ideally, there is no need to calculate the profit-sharing ratio as the ratio is mentioned in the partnership deed, and if no partnership agreement exists, then the profits are deemed to be equally divided between the partners.

However, there can be a few cases under which we calculate the ratio. The cases are mentioned below :

Case 1: If two partners, Y and Z, invest amounts of 100 and 200, and the partners decide to share the profits in the ratio of the amounts invested. Calculate the new profit-sharing ratio.

Y:Z = 100:200

Y:Z  = 1:2

Profit-sharing ratio = Ratio of Invested capital

 

Case 2: If two partners, E & F, each invest an amount of 100 for a period of 12 months and an amount of 200 for a period of 12 months, and they decide to share the profits in the ratio of amount multiplied by the period for which such amount is invested. The profit-sharing here would be,

E:F = 100*12/12 : 200*12/12 

E:F = 1:2

(Note: The time weights shall be taken in common units of measurement)

Profit-sharing ratio = Ratio of capital invested*Period of investment

Related Topic – What is Realisation Account in a Partnership?

 

Example of Profit Sharing Ratio

A, B, and C decide to start a business together. They form a partnership firm and introduce capital as 40,000, 30,000, and 20,000, respectively. They further decided to share profits and losses in the ratio of their capital. Thus their profit-sharing ratio is calculated as follows:

Particulars A B C
Capitals 40,000 30,000 20,000
Ratio 4 3 2

The profit-sharing ratio will be 4:3:2

Related Topic – 100 Most Important Accounting Terms for Interviews

 

New and Old Profit Sharing Ratio

There could be several reasons that necessitate a change in the profit-sharing ratios in a partnership. Here are a few: Such change in profit sharing ratio is the consequence of events such as:

  • Change in capital contribution
  • Admission of a partner
  • Retirement of a partner
  • Death of a partner
  • Mutual consent among the partners

The new profit-sharing ratio is the ratio in which the partners will divide the future profits and losses of the firm. The current percentage split becomes the old profit-sharing ratio.

The old profit-sharing ratio might be the initial agreement or the result of a previous reconstitution as agreed upon by the partners.

 

Example of Old and New Profit Sharing Ratios

Old Profit Sharing Ratio

Consider two partners, A and B, who run a business together. Their existing (old) profit-sharing ratio is 1:2. This means for every 3 units of profit, A receives 1 unit and B gets 2 units.

Introduction of New Partner and New Profit Sharing Ratio

Now, they have decided to bring in a new partner, C, to help expand the business. They all agree that the profit will now be shared equally among the three of them.

So, the new profit-sharing ratio between A, B, and C will be 1:1:1. This means for every 3 units of profit, each partner (A, B, and C) will receive 1 unit.

Related Topic – What is Revaluation Account in a Partnership?

 

Sacrificing Ratio and Gaining Ratio

Gaining Ratio: is the ratio in which one or more partners gain a share of profit. It is generally calculated at the time of retirement or death of an existing partner as the outgoing partners lose their share of profit, and hence the remaining partners gain that. The formula for calculation is:

Gaining Ratio = New Profit Sharing Ratio – Old Profit Sharing Ratio

Example: X, Y, and Z are partners sharing profits and losses in the ratio of 4:3:2. Partner X retires. Therefore, Y and Z decide to share the profits and losses in the future at 5:4. Calculate their gaining ratio.

Y Z
Old Ratio 3/9 2/9
New Ratio 5/9 4/9
Gaining ratio (New – Old) 2/9 2/9

In the given case, partners Y and Z each have gained 2/9th of the share of profits due to the retirement of partner X.

 

Sacrificing ratio: is the ratio in which partners of a firm forego their share of profits. It usually comes into play at the time of admission of a new partner as the old partners sacrifice a part of their current share in favour of the incoming partner.

Such sacrificing partners are compensated by the gaining partner(s) in the form of goodwill. The formula for the calculation of sacrificing ratio is,

Sacrificing Ratio = Old Ratio –  New Ratio

Example: A, B, and C are partners sharing profits and losses in the ratio of 5:3:2. A new partner, “D”, is admitted to the firm, and the new sharing ratio is 4:3:1:2. Calculate the sacrificing ratio.

A B C
Old Ratio 5/10 3/10 2/10
New Ratio 4/10 3/10 1/10
Sacrificing Ratio (Old-New) 1/10 0 1/10

Hence, in the given case, partners A & C have sacrificed 1/10th share of profit each for the new partner. Partner B loses nothing.

 

Gaining Ratio Sacrificing Ratio
1. This is the portion of profit sharing that each partner receives when the profit-sharing ratio changes due to admission, retirement, or death. 1. It represents how much each existing partner has given up or sacrificed to accommodate a new partner or adjust for a partnership agreement change.
2. New Ratio – Old Ratio 2. Old Ratio – New Ratio
3. Analyze the profit share gained by each partner. 3. Calculate how much profit share each partner has given up.
4. Increase in a partner’s share of profit. 4. A decrease in a partner’s profit share.

All these ratios are essential tools for managing a partnership. They ensure that all partners are treated fairly and understand exactly what portion of the profits (or losses) they are entitled to and what they stand to gain or lose when changes are made to the partnership structure.

 

>Read Realisation Account Vs Revaluation Account



 

Why are Salaried Employees More Likely to Qualify for Instant Personal Loans?

Personal loans have become the go-to funding option in recent years, especially because they are super easy to get and several lenders offer online processing as well. When you are in need of funds and can get a loan online, it not only makes it convenient but also a reliable choice for salaried individuals.

Factors Responsible for Easy Approval of Instant Personal Loans for Salaried Persons

Let’s explore what lenders take into consideration when giving out instant personal loans for salaried individuals.

 

  • A Good Repayment Record

If you have a strong payback history, you have a better chance of getting authorised for an instant loan available for salaried employees. Lenders look at your payback history to determine your creditworthiness.

According to them, you are a responsible borrower if you have a history of paying your debts on time and managing your finances wisely. Thus, avoid late payments and defaults to keep your chances of getting a loan bright.

 

  • Employer Reputation

Your employer’s reputation might also play a vital role in obtaining a quick loan. Lenders consider it when determining your job security. Working for a respected firm recognised for paying its employees on time will boost your chances of obtaining loan approval.

So always check the ratings of an organisation before joining. This way, you’ll have one less thing to worry about whenever you need finance.

 

  • Handsome Annual Income

This is quite obvious! A high annual income might significantly improve your chances of being authorised for a quick loan. Lenders assess most of your repayment ability based on your income. It will benefit you to get a steady salary covering your monthly costs, loan payments, and savings commitments.

It demonstrates that you are financially secure and can manage your money appropriately. Who else can be a better borrower?

 

  • Healthy Credit Score

Lenders use your credit score to assess your creditworthiness. In fact, after salary, the most crucial factor in getting instant loans for salaried employees is a good credit score. This is because, along with high income, a higher reliability is desirable for a borrower.

A high credit score demonstrates you are a responsible borrower with a sound financial management track record. So always follow good money practices and keep a check on your credit score.

 

Reasons You Should Get an Instant Loan for Salaried Employees

Now that you know the factors responsible for the easy approval of instant loans for salaried persons, let’s see why you should get one.

  • These Loans are Extremely Easy to Get

Obtaining an immediate loan has never been easier, thanks to the arrival of FinTech. You may apply for a loan online. The procedure is straightforward. You won’t have to go to a bank or complete lengthy paperwork.

Moreover, the paperwork for an online loan is relatively swift. Many conventional banks are also following suit to remain relevant.

 

  • You Can Use Them for any Purpose

One of the major benefits of obtaining a quick personal loan is that it can be used for any purpose. Unlike regular loans, which require you to declare the intention of the transaction, an instant personal loan can be used for anything.

So whether you need to consolidate your debts or need some financial push for your next vacation – Just apply for an instant personal loan available for salaried individuals and get your thing done!

 

  • These Loans Include Hassle-free Documentation

Another advantage of obtaining a personal loan is the documentation process is easy. You won’t have to submit a mountain of paperwork or wait weeks for your loan to be authorised. Most lenders need simple documents such as your ID, address, and income proof.

You may only be asked for additional documents if your financial profile has some complications. Still, getting these loan approvals is quite simple.

 

  • The Approval and Disbursal are Quick

You apply for a personal loan mostly because you need the money urgently, and there is no other way to get it. Thus, one of the most significant benefits of obtaining an instant loan available for a salaried person like you is the speed with which it is approved and disbursed.

The lender will generally accept your loan within a few hours of receiving your application. The cash will be sent to your bank account within a few days.

 

In conclusion, if you are a salaried person, an instant loan might be an excellent alternative for you to arrange finance. You may receive the funds you need fast and efficiently. So, consider the points listed above and the benefits of these loans. Also, remember to find a reputable lender and thoroughly study the terms and conditions before applying for a loan.

 

>Read Personal Loans



 

IMPS, NEFT, or RTGS: Which Mode of Money Transfer Takes the Cake?

Over the past few decades, the payment scenario has undergone quite a tremendous change. With our reliance on online modes of transaction consistently increasing, more and more digital modes of money transfer have emerged. These modes of digital transactions not only provide convenience but also ensure security.

In addition to card payments and net banking, there are a variety of other modes through which you can transfer money online. NEFT, IMPS and RTGS are some of the most popular modes of digital transfer that have been in constant use for years now. They allow you to send a substantial amount of money from one bank account to another in a swift and secure manner.

However, at times, the services provided by each of these modes of online transfer can be easily confused.

Given below is a detailed analysis of each of these modes to provide better clarity.

 

NEFT

NEFT or National Electronic Fund Transfer is a digital mode of transferring funds that lets you send money from your account to the recipient’s. There is no maximum limit on the amount that you can transfer in a day. You can send money to any bank account, provided they are NEFT-enabled.

NEFT transfers are not real-time transactions. This implies that it takes a while for your transfers to be completed. Prior to December 2019, RBI had regulations as per which NEFT transactions could only be processed during fixed timings. This meant that you could only initiate transfers between 8 AM and 6:30 PM on weekdays. On Saturdays, you could make transfers between 8 AM to 12 PM. However, post-2020, the regulations were lifted and NEFT transactions can now be performed 24*7.

You would need to add the beneficiaries on your bank’s internet portal to carry out NEFT transfers. No fee will be charged on online NEFT transactions if you are a savings bank account user. According to the guidelines provided by RBI, NEFT payments are transferred in half-hourly batches throughout the day. You can make NEFT transfers through offline modes as well. Apart from transferring funds, you can also use NEFT to pay your credit card dues, foreign exchange remittances, loan EMIs, and so on.

 

You might now wonder how to make an NEFT transfer. Here’s how:

  • Visit your bank’s Internet portal
  • Select “Fund Transfer”
  • Opt for “NEFT” from the list provided
  • Tap on “Add Beneficiary”
  • Type out details such as name, IFSC Code, bank account number, etc. of the beneficiary
  • Select “Add” or “Confirm”
  • Type out the OTP sent to your number for authentication
  • It will take about 24 hours for your beneficiary to be added
  • Once that’s done, select the beneficiary, type out the amount, and confirm the transaction
  • Select “Confirm” and your NEFT transfer will be processed

 

RTGS

RTGS or Real Time Gross Settlement is generally used for transfers that are large in value and need to be cleared immediately. The minimum amount that you can transfer through RTGS is ₹2 Lakhs. There is no maximum limit unless your bank imposes one. For an RTGS transfer, you will need to make sure that your account as well as your recipient’s account is RTGS-enabled.

Although managed by the RBI, the difference between NEFT and RTGS is that an RTGS transfer can be done instantly, unlike an NEFT transfer. The amount that you send, reaches your beneficiary immediately as it is a real-time transfer. RTGS transactions can be done 24*7 except between 11:30 PM and 12:30 AM. There are no added charges on transfers made using RTGS. These transfers can also be made using offline modes.

Here’s how you can make an RTGS transfer:

  • Go to your bank’s Internet portal
  • Tap on “Fund Transfer”
  • Choose “RTGS” from the menu provided
  • Select “Add Beneficiary”
  • Fill in details such as bank account number, name, IFSC Code, etc. of the beneficiary
  • Tap on “Add” or “Confirm”
  • For authentication, fill in the OTP sent to your number
  • Your beneficiary will be added in about 24 hours
  • Post that, choose the beneficiary from the list, fill in the amount, and proceed with the transaction
  • Tap on “Confirm” and your RTGS transfer will be completed

 

Here’s a table to help you understand the basic difference between NEFT and RTGS:

NEFT  RTGS
Not a real-time transfer  Is a real-time transfer 
Has a minimum transfer limit of  ₹1 Has a minimum transfer limit of  ₹2 Lakhs
Settled in half-hourly batches  Settled one-on-one
Takes times Is an instantaneous transfer 
Can be performed 24*7 Can be performed 24*7, except between 11:30 PM and 12:30 AM

 

IMPS

IMPS or Immediate Payment Service is an online money transfer service managed by NPCI or the National Payments Corporation of India. An IMPS transfer has features of both NEFT and RTGS. Like NEFT, through IMPS you can transfer amounts as low as ₹1. These transfers, like an RTGS transfer, will take place in real-time. However, the maximum amount that you can transfer using IMPS is ₹2 Lakhs.

You can initiate an IMPS transfer through Internet banking, ATMs, SMS, and mobile payment platforms. You can access this service 24*7 on all days. An IMPS transfer is ideal for transfers that are comparatively smaller in value. On completion of the transfer, both you and the recipient will be instantly notified by your bank. Other than bank account transfers, you can also use IMPS for merchant payments, mobile banking, and so on.

Here are steps on how to make an IMPS transfer through mobile banking:

  • Go to your mobile banking app
  • Select the Fund Transfer option
  • Opt for “IMPS”
  • Enter the mobile number, transfer amount and MMID (Mobile Money Identifier) of the beneficiary
  • To authenticate your transfer, fill in your mobile PIN (MPIN)
  • Your transfer will be completed and a confirmation message will be sent to you

Given below are steps on how to make an IMPS transfer through Internet banking:

  • Visit your bank’s online portal
  • Choose “Fund Transfer”
  • Tap on “IMPS” from the list
  • Choose “Add Beneficiary”
  • Enter details like IFSC Code, name, bank account number, etc. of the beneficiary
  • Choose “Add” or “Confirm”
  • For verification, fill in the OTP sent to your number
  • In about 24 hours your beneficiary will be added
  • Once your beneficiary has been added, select the beneficiary from the list and enter the amount
  • Select “Confirm” and your IMPS transfer will be done

Online modes of fund transfer are fast, secure and hassle-free. Additionally, they also offer flexibility and choice with regard to how much money you wish to transfer and how instantly you want it done. Having read about NEFT, IMPS, and RTGS, you should now be able to choose a mode of transfer that best suits your transactional requirements.

 



 

How to Handle Volatility?

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Everything in life is unpredictable. You can’t quite be sure of anything, can you? That’s just how things were. If predictions were real, by now, we could see billionaires everywhere. Just like that, the stock market also has volatility. Here, you would have to be careful about how things work.

So, here we go – let’s learn what to do when the stock market is volatile.

 

Tips to Handle Volatility

a) Your Financial Goal is Always Plan A

That is the most important thing for you to remember. If you look at the VIX chart for the previous nine years, you will notice that it has been on a downward trend. However, in the interim, there have been at least 8-10 occasions where volatility has surged significantly.

The main concept is to stick to your long-term financial plan. This strategy is geared towards your long-term objectives and has some built-in safeguards to deal with volatility. The systematic investment plan (SIP), for example, is intended to capitalize on market volatility.

Since SIPs are the foundation of your financial strategy, they are critical to ensuring that the power of compounding works in your favour. If you look at the performance of SIPs over the last nine years, they would have significantly exceeded the index since they have taken advantage of market volatility.

Even if you find the best-performing trading platform in India (like groww.in), when you don’t stick to your financial goal, it is all just moving in a directionless form.

 

b) Futures and Options Can Benefit You

Futures and options are viewed by many investors as a low-margin alternative to cash market trading. They are, in fact, superb risk management products. These derivative products should be used most effectively in volatile markets.

For example, if you are long on equities in a volatile market, you can use futures to lock in profits while still benefiting from roll premiums. Second, you can utilize put options to hedge your risk, as well as beta hedging with index futures to mitigate portfolio risk. If you are wholly willing to be a little more daring and aggressive, volatility tactics such as straddles and strangles can help you make the most of tumultuous markets. In unpredictable times, you truly have a lot of options.

c) Go Far and Beyond with Diversification

Understand that there is no Best trading platform or one-suits-all solution. So, expansion is the only way.

When markets are volatile, how do you manage your asset mix? During volatile times, certain assets do not exhibit the same degree of volatility as equities. When equities indexes are turbulent, debt markets, for example, tend to be more stable. As a result, debt in your portfolio brings stability and the promise of consistent income.

Similarly, gold typically gains from macroeconomic volatility. In these turbulent times, increasing your exposure to gold through gold ETFs can be beneficial. The moral of the story after all is to keep your asset mix diverse to fight volatility.

d) Stay Strong on that Emergency Fund

Your emergency cash savings act as a financial buffer during difficult times or when unforeseen needs arise. The conventional wisdom states that you need to keep three to six months’ worth of money on hand to meet any immediate requirements that may occur.

Consider increasing that to six to nine months or longer if you are experiencing economic hardship or the nature of your profession. It will give you more financial flexibility to assist you in getting through difficult times.

e) Financial Professionals Can Help

To help you feel confident that you are on track toward your financial goals, an experienced financial professional can assess your current plan or lead you through the process of building one.

Even if you are currently satisfied with your plan and investment portfolio, the economic landscape might change quickly. A financial professional can help you review your situation and change your plan as needed to protect or safeguard your financial position or take advantage of new market opportunities.

f) Don’t Run

In general, the answer is no (with some exceptions). Market volatility decreases, and prices rise over time. Maintaining a long-term plan through bad circumstances can also allow you to buy more stock when it is on sale. If you need the value of your assets fairly quickly or income to live on (for example, if you’re a retiree), it may be better to rotate out of stocks and into more conservative investments when volatility occurs.

g) Know Your Risks

Your investment approach is heavily influenced by the level of risks that you are willing to take. You will wish to from time to time.

h) Rebalance

Because market volatility can produce abrupt changes in investment prices, your asset allocation may deviate from your desired divisions following periods of intense fluctuation in either direction.

During these periods, you should rebalance your portfolio to bring it back in line with your investing goals and the level of risk you prefer. When you rebalance, sell some of the asset class that has grown to take up a larger portion of your portfolio than you’d like, and use the proceeds to acquire more of the asset class that has shrunk. When your allocation deviates by 5% or more from your original target mix, it’s time to rebalance.

You should also rebalance if an asset class has a divergence of more than 20%. For example, if you want emerging market equities to account for 10% of your portfolio but discover that they account for 8% or 12% following a significant market move, you may want to adjust your holdings.

 

Final Note

You could never know what is in store for you – so be ready for it all. This guide could help you know what exactly to do when the market is volatile.



 

How to Get a Credit Card for an LLC? The Complete Guide

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As a business owner, having a credit card for your LLC (Limited Liability Company) can be a convenient way to manage your business expenses and build credit for your company. However, getting a credit card for your LLC can be a bit more complex than getting a personal credit card.

Why do you Need a Credit Card for your LLC?

A credit card can be a necessary tool for LLCs for the following reasons:

Separating Business and Personal Finances

LLCs are separate legal entities, which means that they have finances that are distinct from the owner’s personal finances. Using a credit card specifically for business expenses makes it easier to keep track of business expenses and prevents the commingling of personal and business finances, which is essential for tax purposes and financial record-keeping.

Cash Flow Management

A credit card can help LLCs manage their cash flow effectively. For instance, if an LLC needs to purchase inventory or equipment but does not have the cash on hand to make the purchase, a credit card can provide a revolving line of credit that allows the business to pay for these expenses over time.

Rewards & Cashback

Many credit cards offer rewards programs and cash-back incentives that can benefit the LLC. These rewards may include points, miles, or cashback for purchases made with the card. This can be particularly useful for LLCs that make regular purchases for their business.

 

Steps to Get a Credit Card for an LLC

Let us check out the steps to get a credit card for your LLC.

Obtain an EIN (Employer Identification Number)

The first step in getting a credit card for your LLC is to obtain an EIN from the Internal Revenue Service (IRS). An EIN is a unique identifier assigned to your LLC for tax purposes. You can apply for an EIN online through the IRS website. You will need to provide information such as your LLC’s legal name, mailing address, and the names and Social Security numbers of the LLC’s owners.

Open a Business Bank Account

Once you have your EIN, the next step is to open a separate bank account for your LLC. This will help you keep your personal and business finances separate, which is important for legal and tax purposes. You will need to provide your EIN, business registration documents, and personal identification to open a business bank account.

Build Business Credit

To qualify for a credit card for your LLC, you will need to establish a credit history for your business. You can do this by paying bills on time, maintaining a positive bank account balance, and applying for credit lines or loans. Building business credit can take time, but it is an important step in getting a credit card for your LLC.

Research Credit Card Options

Once your LLC has established a credit history, it’s time to start researching credit card options. Look for cards that are suitable for your LLC’s needs and credit history. Some credit cards offer rewards or benefits that match your preferences and needs, such as cashback, points, miles, travel insurance, purchase protection, or extended warranties

Apply for a Business Credit Card

Once you have determined which business credit card is best for your LLC, visit the website of the credit card issuer and fill out an application. Provide accurate and complete information about your LLC, such as your business name, EIN, address, and income. Wait for the credit card issuer to review and approve your application.

Use the Credit Card Responsibly

Once your LLC has been approved for a credit card, use it responsibly and make timely payments to avoid accumulating debt and damaging your LLC’s credit score. It’s important to keep your personal and business finances separate to avoid confusion and ensure that your LLC is properly protected.

 

Tips to Choose a Credit Card for an LLC

Selecting a credit card for a Limited Liability Company (LLC) can be a critical decision that can have significant financial and operational implications for the business. Here are some tips to help an LLC select a credit card that suits its needs:

Determine the Primary Use of the Card

The first step in selecting a credit card for an LLC is to determine the primary use of the card. This will depend on the nature of the LLC’s business and the types of expenses it incurs. For example, an LLC that makes frequent purchases of travel or office supplies may benefit from a credit card that offers travel or office supply rewards.

Consider the Interest Rates and Fees

It’s important to consider the interest rates and fees associated with the credit card. Some cards may offer rewards and benefits but come with high annual fees or interest rates. An LLC should choose a card that offers competitive interest rates and fees. Just as the LLC annual fees by state differ, high credit card interest rates and fees could be a burden in certain instances.

As the cost and fees of forming an LLC differ from state to state,

Review the Rewards Program

If the LLC plans to use the credit card for regular business expenses, it’s important to review the rewards program carefully. Some credit cards offer cashback on purchases, while others offer points or miles. An LLC should choose a rewards program that aligns with its business goals and offers the most significant benefits for its spending patterns.

Check the Credit Limit

It’s important to check the credit limit on the card to ensure that it is sufficient to cover the LLC’s expenses. An LLC should choose a credit card with a limit that is high enough to accommodate its regular spending but not so high that it puts the business at risk of overspending.

Evaluate the Customer Support

A credit card issuer with responsive customer support can be a valuable asset for an LLC. The card issuer should have a strong reputation for providing timely and effective customer support in case of any issues or concerns.

Check for Additional Benefits

Check for Additional Benefits
Some credit cards offer additional benefits that can be useful for an LLC. For example, some cards offer rental car insurance or travel accident insurance. An LLC should choose a card that offers benefits that are relevant to its business operations.

By evaluating these factors, an LLC can choose a credit card that is a valuable tool for managing its finances and supporting its business operations.

 

Final Thoughts

Getting a credit card for your LLC requires a bit of legwork, but it can be a valuable tool for managing your business finances and building credit for your company. Selecting a credit card for an LLC requires careful consideration of the card’s interest rates, fees, rewards program, credit limit, customer support, and additional benefits. By following the steps outlined in this article, you can get a credit card for your LLC and help your business grow.

Having a credit card can be an essential tool for LLCs, as it provides benefits such as building credit, separating personal and business finances, managing cash flow, convenience, and liability protection.

 



 

Factors That May Affect International Shipping Rates in Your Business

All shipping services are essential in the eCommerce industry since there are no other ways to deliver products to clients. While you may claim that consumers can pick up the products, this jeopardizes both parties’ confidentiality and safety. Furthermore, it is inconvenient for the clients, and with the current gas price, travelling across the country to pick up your goods would be prohibitively costly.

Shipping expenses are rising for businesses all across the globe. Rising delivery prices, particularly international freight charges, may be difficult for merchants and customers.

The cost of delivering items impacts every level of the supply chain. Hence price hikes to account for higher shipping costs are typical.

Many firms see high shipping costs as the most significant contributor to product prices and inflation. To ship products across borders as cheaply as possible, you must first understand why shipping prices are rising in the first place.

 

Package Price

A package value, often known as the Customs value, is the content value of a shipment that substantially impacts the price you are paid for shipping in eCommerce. Sellers that ship high-value items must insure their parcels, which raises the delivery cost.

In addition, the total monetary worth of all products in your shipment determines the import duty the recipient must pay. As a result, you should contact the postal service or the customs office to confirm that you are not shipping high-end merchandise.

Antiques, art artefacts, expensive rugs, porcelain, crystals, and record collections are examples of high-value things. You may come across a courier service that does not handle high-value products since they are prone to theft, loss, or damage.

 

Tariffs or taxes

A tariff is a levy levied by a particular country on an imported commodity at the border. Taxes help governments collect money while also protecting local manufacturers. This situation may impact your company if you develop your brand internationally.

Tariffs and taxes, in addition to the accessibility of most domestic products, play an important factor in why most customers purchase locally-made commodities. When you ship internationally, you must pay a fee before the shipment reaches its destination.

When shipping to a different destination country where you do not have a free trade agreement (FTA) to avoid customs and fees, unlike when sending to the United States, although there is little you can do about it, you may select a shipping company such as firstmile.com that provides cheaper shipping costs to compensate for foreign duties.

 

Fuel Prices

Fuel prices have soared for various reasons, including the war between Ukraine and Russia. These factors have an impact on you as a vendor as well.

If you’re wondering how fuel prices impact shipping charges, remember that, depending on the type of shipping service, gasoline costs may account for up to 60% of total shipment expenses. Worldwide fuel costs have already surpassed $100 per barrel for international shipping, significantly impacting shipping operations.

To maintain service standards, a shipping courier, whether international or domestic, must pay these expenses, which implies that the size of the package must also grow. If the UPS global shipping rate is also impacted, it is best to prepare for the worst to discover strategies to lessen the issue.

 

Dimensions and weight of the package

While larger goods tend to cost more, some organizations assess products by weight and parcel dimensions since certain items are transported in large boxes while being smaller in size for the shipment. Most couriers utilize this pricing strategy to optimize the space within the shipment container.

To save money on overseas shipping, ensure the package boxes have enough capacity to hold the contents; otherwise, you’ll have to pay extra. However, you may save money using shipping materials such as courier bags and Kraft envelopes for smaller products.

 

Distance between shipping and delivery

Shipping prices are also affected by the distance between the vendor and the customer. If the destination is closer to the branch, shipping costs will be lower, including UPS international shipping rates. However, the shipping charge will be greater if the location is farther away.

The computation begins at the package pickup point, usually the branch location, and ends at the recipient’s address.

 

Shipping Providers

Your shipping decision is the essential element influencing international shipping charges. Express shipping, such as priority mail international and priority mail express international, is more costly than regular or economy shipping since the arrival time is shorter.

Because the selected shipping service influences the delivery prices of the overseas cargo, following the best shipping strategy will help you locate the best shipping choice. For example, many businesses do not impose extra fees during the holiday season. However, delays are to be anticipated due to the high amount of products shipping around this period. As a result, the buyer may still need to choose the more costly shipping option, international priority, for the products to arrive on time.

A shipment schedule can prevent instances like these and relieve your clients’ financial hardship. You or your client do not need to choose the expedited delivery option since you specify exactly when you will send the products.

 

Shipping Security

Shipping problems are not commonplace in the shipping and delivery sector. However, the likelihood of their occurrence remains high. As a result, you must take all precautionary measures available to guarantee that nothing occurs to the items.

Aside from working with an overseas shipping firm, you may use shipment protection as a backup plan in case anything unexpected occurs. It will not refund your money but build trust between you and the consumer.

Build trust with your consumers since it will benefit your firm. Even the most respectable business and well-proven marketing plan have areas for improvement, so anticipate the buyer to be dissatisfied at times, despite the seller’s best efforts and earnest intentions. When you create trust, most consumers will overlook a mistake.

It may seem daunting with the costs, procedure, and everything else in between, but executing the correct approach will help you thrive in international shipping.

 



 

Tips to Help You Avoid Student Debt

As the cost of higher education continues to rise, many students find themselves struggling to pay for college. According to the College Board, the average cost of tuition and fees for the 2020-2021 academic year was $37,650 at private colleges, $10,560 for state residents at public colleges, and $27,020 for out-of-state students at public colleges.

The high cost of education often results in students taking out loans to pay for their college education, leading to significant student debt.

However, student debt can have long-lasting negative effects on a person’s financial health, including limiting their ability to buy a home, start a business, or save for retirement. Therefore, it is essential to take steps to avoid student debt as much as possible.

In this article, we will discuss practical tips to help you avoid student debt. Whether you are in high school, about to start college, or already enrolled, these tips can help you minimize your debt burden and set you on the path to financial stability. Let’s dive in!

 

Start with a plan

Before starting college, it’s essential to have a plan in place to avoid taking on excessive student debt. Here are some tips to help you get started:

  1. Research the cost of education: Research the cost of attending the colleges you are interested in, including tuition, fees, and living expenses. This information will help you create a realistic budget for your college years.
  2. Determine the funding options: Explore all your funding options, including scholarships, grants, work-study programs, and federal student loans. Be sure to fill out the Free Application for Federal Student Aid (FAFSA) to determine your eligibility for financial aid.
  3. Create a budget: Once you know how much college will cost and how much funding you have available, create a budget that accounts for all your expenses. This includes tuition, fees, textbooks, housing, food, transportation, and personal expenses.

 

Save money before college

Saving money before college can help reduce your reliance on student loans. We have some tips that can aid you in saving money.

  1. Work and save money during high school: Consider getting a part-time job during high school to save money for college. Every dollar you save is one less dollar you’ll need to borrow.
  2. Look for scholarships: Apply for as many scholarships as possible. Many scholarships are available based on academic merit, extracurricular activities, and other criteria. The cheap essay writing service offers a scholarship essay writing service to help you increase your chances of winning scholarships.
  3. Attend community college or trade school: Consider attending a community college or trade school for your first two years of college. These institutions often have lower tuition and fees, and credits earned can transfer to a four-year college or university.

 

Make smart decisions during college

To decrease your college expenses, it’s advised to make intelligent decisions while in college. To make the most of your college experience, consider the following suggestions:

  1. Choose an affordable college: Consider attending a public college or university or an in-state private college to save money on tuition and fees.
  2. Live off-campus: Living off-campus can be cheaper than living in a dormitory. Consider sharing an apartment with roommates to reduce your living expenses.
  3. Work part-time: Consider getting a part-time job during college to help cover your expenses. Be sure to balance your work and academic responsibilities.

 

Minimize expenses while in college

To reduce your overall college expenses, it’s a good idea to cut down on your spending while in college. Check out these saving tips:

  1. Buy used textbooks: Buy used textbooks or rent them instead of buying new ones. You can also look for digital versions of textbooks to save money.
  2. Use student discounts: Many businesses offer discounts to students. Always ask if a student discount is available before making a purchase. 
  3. Avoid unnecessary expenses: Be mindful of your spending and avoid unnecessary expenses, such as eating out or buying expensive clothing.

 

Stay in communication with your lender.

To effectively handle your student loans, it’s crucial to maintain regular communication with your lender. Here are some suggestions to assist you in managing your student loans:

  1. Know your loan terms: Understand the terms and conditions of your student loans, including the interest rate, repayment period, and repayment options.
  2. Stay in touch with your lender: Keep your lender informed of any changes in your contact information or financial situation. If you’re having trouble making payments, contact your lender to discuss your options.
  3. Consider loan consolidation: Consolidating your student loans can simplify your payments and may lower your interest rate. However, be aware that consolidation can extend your repayment period, which may result in you paying more interest over time.

 

Final words

In conclusion, taking steps to avoid student debt can have a significant impact on your financial future. By implementing the tips discussed in this article, you can minimize your reliance on student loans and reduce your overall college costs.

By being proactive and mindful of your finances, you can set yourself up for a more stable financial future and focus on achieving your academic and professional goals.

 



 

How to Find Homeowners Insurance by Address

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Homeowners insurance (HOI) is an important part of owning property. Coverage may help you cover losses from thieves or help you get reimbursed for medical bills if you happen to slip and fall. Therefore, it’s important to know what HOI is, how it works, and how to find out information about policies in your area.

Thankfully, it’s not hard to find information about homeowners when you use an address lookup tool. Additionally, you can reach out to members of your community or look for more information. We’ll show you the fastest ways below.

 

What Is Homeowners Insurance?

Homeowners insurance (HOI) is a type of insurance that’s available for people who own homes or properties. Typically, it’s a single-premium insurance plan that covers property insurance and liability.

Depending on the insurance policy, damage from pets or severe weather may also be included in an HOI plan. Understanding what HOI is and how it works may help you determine the cost in your area.

 

How Much Does HOI Cost?

The price of HOI varies depending on where you live, the size of the home, and the type of coverage available. Another factor is how much it costs to rebuild a home if it becomes ruined by damage like fire.

HOI may also vary based on special provisions like insurance for war, floods, and severe weather. Insurance for damage caused by pets will also raise the premium.

 

Does Everyone Have HOI?

No, some homeowners may not have homeowners insurance. Legally, residents aren’t required by law to insure their homes, so there may be cases where people don’t have a policy.

That said, most companies that provide mortgages require homeowners to enrol in insurance plans to prevent a loss of capital if something happens. Additionally, mortgage insurance is also available for similar purposes.

 

How to Find Information About Homeowners Insurance?

Information about someone’s homeowner’s insurance is not always available in the public record, so you’ll have to contact them if you want to file a claim.

While it’s hard to find information about a specific HOI policy, it’s possible to estimate the cost of HOI or what policy types are available in an area with a public records search tool.

 

How to Find Information About HOI Policies in Your Area?

When it comes to public record search tools, you want to use the best possible tool. So, you’ll want databases that include accurate information that’s current or within at least one year. This is where Information.com comes into play, which is our favourite address lookup tool.

Information’s website has an address lookup tool that allows you to find information about an address. When you enter an address into the tool, you can learn about who lives there, estimations on the value of the home, and much more. Therefore, you can deduce some information about potential HOI policies and their cost in your area.

What’s more? It reveals additional information about properties.

You can find the following information about an address when you run a search with Information.com:

  • Owners of the home
  • Past owners of the home
  • Sex offender status of residents
  • Criminal records of residents
  • Court records of residents
  • Liens on the home
  • Purchase records

You may find some or all of this information when you look into an address.

 

How to Find HOI Policies Online?

Another way to find details about an HOI policy is online. It’s possible to Google policy providers in your area to learn about potential insurance plans.

Calling the company or visiting their website will provide you with the specific details you’re looking for. Online forums and other resources on Google will also help you find information about HOI in your area.

 

Find Information About Homeowners Insurance Today

Homeowners’ insurance is an integral part of owning a home. Without coverage, you’re liable for stolen goods, property damage, and other expenses like damage from severe weather. Therefore, it’s important to consider the options you have available in your area to find the best homeowners insurance that fits your needs.

To help you narrow down your search, public record search tools like Information.com will help you find common policy information in your area.

 



 

Understanding Freight Accounting and its Benefits

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As a shipping company owner, freight accounting helps you keep track of the costs of sending goods from one place to another.

You can sometimes send a product from a warehouse where it’s made to the company’s warehouse that sells the product. You can also send the product from a manufacturing company to a store or directly to the customer.

Regardless of how you send your products, paying close attention to freight accounting is vital as it will help you know about all the costs involved. Freight accounting will also help you know how your business is doing.

freight accounting infographic showing shipping box on belt

 

How freight accounting is important to your business

Freight accounting breaks down the amount of money your business spends shipping and receiving different products.

Some of your company’s freight costs may be negotiable or changeable, which could help you save money, while others are fixed, and there is nothing you can do about it. Your accounting team needs to track freight costs accurately to find these areas.

If you have a full picture of how and where you spend money, it’s easier to develop ways to improve efficiency and cut costs.

Knowing the health of your business also gives you peace of mind as you know what you need to do to keep your business operational.

 

Freight accounting best practices

If you have a shipping company such as https://www.shipnetwork.com/ and freight accounting is a significant part of your business, there are several things you should do to have a great time and save your company as much money as possible. Some of these things include:

Have a separate shipping account

To avoid mixing things up, you should set up a separate shipping account that is easy to access and manage. You put in all the costs of sending goods to customers or other businesses here.

Play by the law

Also, it’s crucial to ensure that your company’s shipping and accounting practices align with all laws, such as tax and environmental laws. A good rule of thumb is to ensure that your business:

  • Keeps accurate records of your money.
  • Sends all the necessary paperwork to the government.
  • Obtains any relevant permits.
  • Maintains records in a safe place.
  • Checks the records often.
  • Implements controls to safeguard data.
  • Stays up to date on all the rules in your city, state, and country

 

Prepare your accounts once a month

Cash flow statements, forecasts, and income statements should be made often, ideally at least once a month.

The reason for this is that as a logistics company, you have a lot of transactions, and it’s important to stay on top of them to keep the company’s finances in order and reduce risk.
Having up-to-date accounts will help you make better decisions and ensure you always have up-to-date information about how your business is doing.

Count your earnings only when the product reaches the customer.

You should only count money as income once all of the conditions in your contract with the customer have been met.

The contract will say what the shipping or transportation company needs to do to meet its obligations.

The related revenue should be counted either over time or at a certain point, depending on when control of the good or service is given to the intended recipient and what it is.

For example, a cruise ship should record revenue over time as the customer gets and uses the service.

A delivery company should count revenue when the customer receives the goods.

 

Follow the International Financial Reporting Standards (IFRS)

The International Accounting Standards Board puts out IFRS, which are accounting rules you should follow in your business.

The organization guides companies in making and sharing their financial statements in a way that is true, fair, and comparable to how other organizations worldwide do the same.

The standards are based on principles that provide a global framework that many see as the best way to do things.

The IFRS is critical for logistics and transportation companies because many work internationally and do business across borders.

A common set of accounting standards also makes it easier for investors to understand a company’s financial statements and spot investment opportunities.

 

Follow the laws in your area

As mentioned above, logistics companies should follow not only IFRS but also any local rules important to their business and how it works.

Logistics and transportation companies often work in more than one country. Because of this, you must know the laws in all the countries where you operate and the laws in the country where you file the annual reports.

 

Make use of modern accounting software.

Many businesses still use outdated accounting software that can’t meet their needs in the modern business world.

Companies are dealing with a growing amount of data that needs to be processed, recorded, and analyzed correctly so that it can be helpful to anyone who might use it.

Outdated accounting systems can only handle small amounts of data, making it hard to make good decisions and save time.

Newer accounting software that runs in the cloud has many valuable features, such as AI and business intelligence.

These more advanced systems can automate manual tasks, help people work together, and connect to other business systems to make them more efficient.

Cloud-based systems can benefit any logistics company dealing with a wide range of transactions and many moving parts.

While there are many companies you can get software programs from, each company is unique to the other.

A good rule of thumb is to take your time to research and find a reputable company with the software you are after. Working with a company specializing in software programs for shipping and logistics companies will be even better.

Besides the cost, support is another vital factor to consider when buying software. You want to get your software from a company you are sure will support you should there be a problem.

The last thing you want is to want to handle the accounting tasks, yet you can’t use the software because it’s faulty, and you can’t access the necessary support.
A good rule of thumb is to work with a company providing 24-hour support on its programs.

 



 

Journal Entry for Amortization

  1. Amortization Journal Entry for Intangible Assets
    1. Example
  2. Entry using Accumulated Amortization A/c
    1. Example with Accumulated Amortization
  3. Treatment in the Financial Statements
  4. Journal Entry for Amortization of Patent
  5. Journal Entry for Amortization of Goodwill
  6. Is Amortization an Expense?

 

Amortization means spreading out the cost of an intangible asset, like a patent or trademark, over the time it is useful. This cost is considered an expense in accounting and is subtracted from the income periodically.

Depreciation is a similar concept, but it’s used for tangible fixed assets, like equipment or buildings.

Intangible assets are things that do not have a physical existence, and they’re usually hard to evaluate. Examples include patents, copyrights, franchises, goodwill, trademarks, customer data, etc.

 

Amortization Journal Entry for Intangible Assets

When amortization is charged, it is shown on the debit side of the income statement as an expense. This means some value of the intangible asset was used in the current accounting period, and the value was therefore reduced.

The net cost of the asset (or current value) = Cost of acquisition – amortization.

The journal entry for the Amortization of intangible assets is as follows:

Amortization Expense A/c Debit Debit the increase in expense
 To Intangible Asset A/c Credit Credit the decrease in assets

(Being intangible asset amortized)

Two accounts are involved in the journal entry for amortization of intangible assets: the amortization expense account & the intangible asset account.

Related Topic – Amortization Vs Depreciation

 

Example

Unreal Co. registers a new trademark in the year 20YY for 20,000 for a period of 10 years. Show the journal entry to be passed in the books of XYZ Ltd every year for the amortization charged on this trademark.

In the books of XYZ Ltd.

Amortization Expense A/c 2,000
 To Trademark A/c 2,000

(Being trademark amortized for the year 1)

The firm will debit the Amortization expense with the amount of 2,000, crediting the Trademark A/c for the same amount for the next 10 years.

This entry reduces the value of the intangible asset on the balance sheet by 2,000 and recognizes the expense on the profit & loss account. You would repeat this entry each year until the asset is fully amortized.

Related Topic – What is Goodwill in Accounting?

 

Entry Using Accumulated Amortization Account

Similar to the accumulated depreciation account, the accumulated amortization account can also be used to record the journal entry for amortization.

Amortization Expense A/c Debit
 To Accumulated Amortization A/c Credit

An accumulated amortization account is a contra-asset account, which is a type of contra account. This means that it offsets the value of the intangible asset account on the balance sheet.

  • Amortization expense is collected in the Accumulated Amortization account instead of being charged directly to the asset every year.
  • It helps track the amount of amortization charged to an asset and shows its net value.
  • Each year, the amortization expense is recorded as a debit to the amortization expense account and a credit to the Accumulated Amortization account.
  • The Accumulated Amortization account appears as a deduction from the intangible asset account on the balance sheet.
  • The difference between these two accounts shows the net value of the intangible asset after accounting for the amount of its cost that has been written off as amortization.

The Accumulated Amortization account acts as a running total of the amount of the asset’s cost written off over time.

Related Topic – Is Accumulated Depreciation an Asset or Liability?

 

Example with Accumulated Amortization Account

ABC Ltd. has a trademark of 50,000 for a period of 5 years. The company maintains a related accumulated amortization account to charge the amortization expense.

Show the journal entries for 5 years. In addition, pass the journal entry at the end of those 5 years when the trademark has been fully amortized. (no scrap value)

Here’s a table to illustrate the amortization process over five years:

Year Cost of Trademark Amortization Expense Accumulated Amortization
Year 1 50,000 10,000 10,000
Year 2 50,000 10,000 20,000
Year 3 50,000 10,000 30,000
Year 4 50,000 10,000 40,000
Year 5 50,000 10,000 50,000

 

In the books of QPR Ltd for year 1

Amortization Expense A/c 10,000
 To Accumulated Amortization A/c 10,000

(Being amortization expense charged on the trademark for year 1)

  • The amortization expense account is debited to recognize the expense for the year.
  • The accumulated amortization account is credited to record the reduction in the value of the trademark.

The same entry will be repeated in the books of QPR Ltd. for the next 5 years until it is balanced out at the end of the period to nullify the asset balance.

Ensure that amortization expense is accurately recorded by reviewing the intangible asset’s useful life and estimated salvage value.

 

At the end of 5 years

The accumulated amortization account will have a total balance of 50,000 after 5 years of amortization. This balance represents the total amount of the intangible asset that has been expensed. Eventually, the intangible asset will have zero remaining cost, meaning it’s fully amortized.

Journal entry at the end of 5 years

Accumulated Amortization A/c 50,000
 To Trademark A/c 50,000

In the end, we credit the intangible asset account with the remaining balance of 50,000 to bring the account balance to zero while debiting the accumulated amortization account with the same amount to clear out the balance in the account.

This reflects that the asset has been fully expensed and is no longer on the balance sheet.

Related Topic – What are Fixed Assets?

 

Treatment in the Financial Statements

There are mainly two effects of amortization in the financial statements.

  1. It is shown as an expense in the income statement (profit & loss account)
  2. It is shown as a reduction from the intangible asset’s value in the balance sheet.

 

Amortization Expense Shown in the Income StatementAmortization Expense Shown in the Income Statement

Amortization Reduced from the Respective Intangible Asset in the Balance SheetAmortization Expense Shown in the Balance SheetRelated Topic – Adjustments in Final Accounts (financial statements)

 

Journal Entry for Amortization of Patent

A patent is a legal right provided by the government to the inventor or the owner of an invention (if a patent is sold). This gives the owner the exclusive right to make, use, and sell their invention. No one can copy or use the invention without the patent owner’s permission.

It is recorded as an intangible asset on the balance sheet. However, like other assets, patents also lose their value over time as they can be obsolete, expire, etc. To reflect this decrease in value, firms amortize their patents.

Let us understand the journal entry to amortize a patent with an example.

XYZ Ltd purchased a patent for 50,000 which is expected to expire after five years. Show the entry for amortization expense charged each year on the patent.

Amortization Expense A/c 10,000
 To Patent A/c 10,000

This journal entry will be passed in the books of XYZ Ltd. every year until the asset’s value becomes zero. (5 x 10,000)

  • The price of a patent includes the cost of registration, legal charges, documentation, etc.
  • Initially, these patents are recorded at the original purchase price or estimated cost, and then annual amortization entries are passed until the account reaches zero.

Related Topic – Depletion Vs Depreciation Vs Amortization

 

Journal Entry for Amortization of Goodwill

Goodwill in accounting refers to the intangible value of a business that is above and beyond its tangible assets, such as equipment or inventory. It represents the reputation, customer base, and other non-physical assets contributing to the business’s value.

Goodwill is typically created when one business acquires another business, and in the process, the acquiring business pays more than the book value of the acquired business. It is recorded on the acquiring company’s balance sheet.

Goodwill = Amount Paid to Acquire a Business – Book Value of the Acquired Business

 

Let us understand the journal entry to amortize goodwill with an example.

ABC Ltd. purchased the business of XYZ Ltd. for a total of 50,000, while the actual book value of the business was 30,000. Show the journal entry for amortization of goodwill in the books of ABC LTD. in year 1 after the acquisition assuming it will be amortized over 10 years.

The annual journal entry in the books of ABC ltd. will be as follows,

Amortization Expense A/c 2,000
 To Goodwill A/c 2,000

Working Note – The difference of 20,000 will be treated as Goodwill of the business and written off annually for the next 10 years.

  • Annual amortization entries are passed until the goodwill reaches zero.
  • Valuation of Goodwill can be changed over time due to changes in the business environment, market conditions, or other factors.

Related Topic –  Capex and Opex

 

Is Amortization an Expense?

The short answer is yes. Amortization is considered an expense. This is because the cost of an intangible asset is spread over the years, and such periodic charges reduce its value over time.

Let’s consider a hypothetical example. Suppose a company purchases a patent for 50,000 with a useful life of 5 years. The company should not show it as a one-time charge; instead, it should spread the cost over its life and expense off by 10,000 per year.

 

Short Quiz for Self-Evaluation

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>Related Long Quiz for Practice Quiz 15 – Amortization

>Read Journal Entry for Depreciation



 

What is a Chattel Mortgage and How Does it Work?

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In this post, we are going to take a look at a niche, and often overlooked form of financing – the Chattel Mortgage. While Chattel Mortgages are limited in their suitability they nevertheless form an essential part of the lending canon when it comes to certain asset classes – let’s get started.

mortgage stock photo

 

What Is a Chattel Mortgage?

Put simply, a Chattel Mortgage is a mortgage that is secured over a moveable asset (or chattel) such as a manufactured (i.e. prefab) home, a high-value vehicle such as a plane or boat, or a piece of construction equipment.

 

How Does a Chattel Mortgage Work?

There are some crucial differences between a regular mortgage and a chattel mortgage which we will now examine. A regular mortgage is taken as security for land and more often than not a property built upon it. When a borrower obtains a regular mortgage, they still own the land and property and the mortgage is secured by way of a lien or charge at the land register. The mortgagee can obtain possession of the property in the event of a default and sell it to repay the loan.

With a chattel mortgage, the loan is secured over a moveable asset rather than land. In the case of a chattel mortgage over a manufactured house or a trailer, the property is used as security but not the land on which it is situated. Additionally, with chattel mortgages, the asset is technically owned in the name of the lender until such a time as the borrower has fully repaid the loan at which point ownership is transferred.

 

How Does A Chattel Mortgage Compare With Unsecured Financing?

The obvious difference between a chattel mortgage and unsecured financing is that with a chattel mortgage, the lender does have some form of security. In the case of a chattel mortgage over a boat, the lender can repossess the boat and sell it in the case of a default.

With an unsecured loan, the lender has no security for the money and effectively has to take its chances and hope that the borrower fully repays. While an unsecured lender can take legal action against a borrower personally, this is often more expensive than it’s worth.

That said, by their nature, the kind of assets secured under chattel mortgages are not always easy to recover or resell and so it is not a watertight form of security. For this reason, the interest rates of chattel mortgages can be almost as high as with unsecured lending.

 

How Does A Chattel Mortgage Compare With Secured Financing?

There are some striking similarities between a chattel mortgage and some secured loans and in some ways, a chattel mortgage could even be viewed as a form of secured loan. For example, vehicles can sometimes be offered as security or collateral for loans such as in the case of car leases – if the borrower defaults, then the lender can take the car and sell it to repay the debt

However, it is less common for lenders to offer secured loans over assets such as boats, planes or pieces of high-value construction equipment. Also, chattel mortgages can sometimes be for very large sums that far exceed the maximum loan amounts offered by secured loan lenders.

 

A Chattel Mortgage vs Lease

There are some strong similarities between a chattel mortgage and a lease and some consumers do confuse the two. Indeed in both cases, the ownership of the asset is retained by the lender for the duration of the loan repayment period. This can be frustrating for some consumers as they are still usually responsible for maintaining, insuring and generally looking after an asset of which they are not the legal owner.

The main difference, however, is that once a chattel mortgage is repaid, the asset is transferred to the borrower whereas, when the lease expires the lessee simply acquires the right to buy the asset, but still needs to pay over a further sum of cash. Of course, in the case of a vehicle or a piece of equipment, there is a possibility that the asset may have become malfunctioning or even obsolete over the term of the loan and as such may be something of a compromised asset anyway.

Issues regarding legal liability also sometimes come into play here too. Under a chattel mortgage, the borrower sometimes can be held liable as both user and owner in the event that the asset causes injury or death. With a lease, the borrower can only be held liable as the user in the same eventuality.

The other notable difference is that leases are usually offered over more conventional kinds of assets such as cars, as opposed to aeroplanes.

 

Final Thoughts on Chattel Mortgages

Chattel mortgages are a relatively rare form of credit and most consumers are unaware that the concept even exists. Still, for those looking for finance on planes, cranes or manufactured homes (a growth industry by the way) they can be invaluable.

Of course, the interest rates are high and the ownership situation does bother some prospective borrowers but nevertheless, there is most certainty a place for chattel mortgages in the credit landscape.

 



 

Alternatives to short-term loans

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Short-term loans come in a range of forms, with one of the most popular being payday loans. They are a quick and easy way to get cash when you need it and can be helpful when faced with an unprecedented expense or emergency.

However, these loans can come with high interest rates and fees, making them a costly option for many people. Below, we will explore some alternatives to short-term loans that may be more affordable and less risky so you can still benefit from funds when you need them.

stock image for alternatives to short-term loans

 

What are short-term loans?

Before we dive into finding out what some of the most popular alternatives to short-term loans are, it helps to get to know more about these loans themselves. Short-term loans refer to a type of loan that is typically repaid within a short period of time, usually between a few weeks to a few months.

These loans are designed to provide borrowers with immediate access to funds to cover unexpected expenses or emergencies, for example, a broken boiler or an urgent car repair. Short-term loans often come with higher interest rates and fees compared to traditional loans, as they are considered a higher risk due to the shorter repayment period.

They can be obtained from a variety of lenders, including banks, credit unions, and online lenders, and can be used for a range of purposes. It’s important that borrowers think carefully about the repayment period that their chosen lender requires so that they can decide whether they are able to afford the loan.

 

Who can benefit?

So, who can benefit from these types of loans? Short-term loans can be helpful to a wide range of individuals who are in need of immediate funds to cover unexpected expenses or emergencies. This may include individuals who have experienced a sudden job loss, unexpected medical bills, or a car breakdown.

Small business owners who need quick cash flow to cover payroll, inventory, or other expenses can also benefit from short-term loans. Additionally, those with poor credit scores who may not qualify for traditional loans may find short-term loans to be a viable option as the approval requirements tend to be more lenient.

However, it’s important to note that while short-term loans can provide immediate relief, they often come with higher interest rates and fees, so as we mentioned previously, borrowers should carefully consider their ability to repay the loan before taking on any debt.

 

Credit Cards

The first alternative that could be helpful is credit cards. They offer a revolving line of credit, which means you can borrow money as you need it up to a certain limit that you can set yourself.

Many credit cards also offer 0% introductory interest rates, which can be a great way to save money on interest charges. However, it’s important to be aware that credit card interest rates can be quite high, so paying off your balance in full each month is important to avoid accruing interest and damaging your credit score.

 

Personal Loans

The first alternative that could be helpful is credit cards. They offer a revolving line of credit, which means you can borrow money as you need it up to a certain limit that you can set yourself. Many credit cards also offer 0% introductory interest rates, which can be a great way to save money on interest charges.

However, it’s important to be aware that credit card interest rates can be quite high, so paying off your balance in full each month is important to avoid accruing interest and damaging your credit score.

 

Credit Union Loans

The first alternative that could be helpful is credit cards. They offer a revolving line of credit, which means you can borrow money as you need it up to a certain limit that you can set yourself. Many credit cards also offer 0% introductory interest rates, which can be a great way to save money on interest charges.

However, it’s important to be aware that credit card interest rates can be quite high, so paying off your balance in full each month is important to avoid accruing interest and damaging your credit score.

 

Government Assistance Programs

Government assistance programs can also be an alternative to short-term loans. These programs may provide financial assistance to people in need, such as low-income families or those facing a financial crisis.

Examples of government assistance programs include the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and the Low-Income Home Energy Assistance Program (LIHEAP).

 

Peer-to-Peer lending

Peer-to-peer lending may be able to help if you’re trying to avoid a payday loan. With peer-to-peer lending, borrowers can get a loan from individual investors rather than a bank or other traditional lender.

Peer-to-peer lending platforms, such as Lending Club and Prosper, can connect borrowers with investors who are willing to lend money at lower interest rates than traditional lenders. However, it’s important to note that peer-to-peer lending may not be available to people with bad credit.

While short-term loans can be a quick and easy way to get cash when you need it, they can come with high interest rates and fees. Alternatives to short-term loans, such as credit cards, personal loans, credit union loans, government assistance programs, and peer-to-peer lending, can be more affordable and less risky.

It’s important to consider all your options before taking out a short-term loan and be aware of the terms, fees, and interest rates associated with each alternative.

 

Choosing a finance option for you

Choosing the right finance option can be a crucial decision that can impact your financial health and overall well-being. When considering different finance options such as credit cards, peer-to-peer lending, and credit unions, there are several factors to consider. Start by assessing your financial needs and goals, and then research each option’s interest rates, fees, and eligibility requirements.

Consider your credit score and whether you are likely to qualify for each option. Additionally, think about how quickly you need the funds and whether you prefer the flexibility of revolving credit, like a credit card, or a fixed-term loan. It’s also important to read the fine print and understand the repayment terms and any potential penalties or fees for late payments or early repayment.

 



 

Investing in Second Citizenship

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A Lucrative Investment You Should Consider in 2023

Second citizenship refers to being a citizen of more than one country. The dual citizen shares the rights and responsibilities of both countries and is regarded as a national citizen in more than one country under the laws of those countries.

Having a second passport nowadays is the new life insurance policy. The safety, freedom, and stability of the second country are priceless when it comes to the abrupt abandonment of the home country and relocating to a new one. Such circumstances can include civil unrest, political and economic instability, or in the worst-case scenario, a war.

But is dual citizenship worth the investment? Definitely! Many entrepreneurs and wealthy business people started investing in dual citizenship to take advantage of the multiple benefits it provides. They are always seeking prosperous ways to secure their future and expand their business apertures globally.

In this article, we’ll give you reasons why a second passport is your and your family’s getaway to a better future.

 

Citizenship by Investment Programs

What are CBIs or Citizenship by Investment Programs? These are programs that facilitate the process of obtaining dual citizenship in return for a certain investment from a foreign investor. The programs help families to acquire alternative citizenship and enjoy the rights of a second country as their home.

Those on these programs invest in the economy of the host country and must uphold the customs and laws of the country. They then have rights such as being able to own property and vote.

CBI programs offer citizenship through legal conduct, and it’s a faster process compared to the traditional immigration process.

 

How Dual Citizenship Opens the Doors?

Visa-Free Traveling

Owning a second passport opens the doors to multiple opportunities, including visa-free travel to more than a hundred countries. For instance, the St. Lucian citizenship by investment programs secures dual passports for foreign investors. St. Lucian passports allow citizens to travel without a visa or with a visa on arrival to more than 140 countries, including Singapore, the UK, Israel, Hong Kong, and the Schengen Zone.

St. Lucia offers a globally respected CBI program and has rolled out an e-payment platform to facilitate the virtual application process. The processing time was cut to 56 days after the platform was implemented, and the country has also updated the “qualifying dependent” category to include co-dependents in all investment options.

 

Lifestyle Benefits

lifestyle

The various lifestyle benefits open up new life horizons and allow dual citizens to experience the world from a whole new perspective. Besides adopting a new lifestyle, a second passport will also allow you to meet new people, explore different areas, learn about new and exciting cultures, and travel the world.

Additionally, it’s a secure option for relocating safely to another location and a sense of pride knowing you own a piece of paper that enables you to work and live in another country.

 

Global Mobility

One of the main reasons people invest in alternative citizenship is freedom of movement. Global mobility enables them to travel abroad and form business partnerships, purchase property, and enter a particular country without going through the visa-acquirement process.

Global mobility is priceless to business people who want to save time, money, energy, and resources on acquiring visas for travelling.

 

Business Opportunities

If you want to do business abroad and save money on visa application fees, consider investing in St. Kitts and Nevis or St. Lucia.

St. Kitts and Nevis’ passport ranks 25th globally, while St. Lucian is 31st. These Caribbean passports are very powerful and enable applicants to travel freely between countries.

The passport is valid for ten years after it has been obtained.

 

Tax Management

Dual citizenship eases the tax burdens and allows for a better tax optimization process. For example, the Caribbean countries have zero taxes on capital gains, inheritance, and wealth acquired overseas. These profits are not subject to taxes, so investors can manage their wealth more effectively.

 

Asset Protection

Banking options in countries of dual citizenship strictly implement services for preserving investors’ assets and protecting their wealth. They offer a variety of protection tools like offshore trusts, offshore banks, and specialized bonds for maximizing wealth and protecting assets.

 

Best CBI Programs

According to a survey, the best citizenship programs in the last four years are:

  • For 2023, St. Kitts and Nevis was chosen as the best CBI Program;
  • In 2022, Dominica took the trophy home;
  • 2021 was in favour of St. Lucia;
  • Grenada took first place in 2020;

 

The Perks of Caribbean Citizenship

The perks of Caribbean citizenship include:

  • Fast application process – the applicants can receive their passports within 60 days;
  • Remote application – no need to visit the country where you’ll obtain citizenship; the program will process the citizenship even when the applicant is in the home country;
  • Obtain citizenship for the whole family;
  • Minimal investments, starting from $100,000;
  • Various investment options;
  • Visa-free traveling; Dominica’s passport enables dual citizens to enter 127 countries without a visa or with a visa on arrival; Grenada allows entrance to 131 countries, and St. Kitts and Nevis to 156 countries;
  • The Vanuatu passport can be obtained for the main applicant and co-dependent applicants like parents, grandparents, or a spouse; You can obtain the Vanuatu passport within a month – it’s the fastest route to get alternative citizenship.

Fun fact – St. Kitts and Nevis’ program is the oldest in the world. It’s considered the great-grandfather to the rest of the programs that were established later on.

 

Requirements

The requirements are different in each country, and every applicant must fulfil them to become part of the program and eventually obtain a second passport. For instance, some programs require the applicants to provide a document as proof of good health and undergo medical examinations, and others don’t.

The common requirements for all programs are:

  • Invest in one of the investment options – includes real estate, national funds, enterprise projects, and government bonds;
  • Have a clean criminal record;
  • Provide a legal document of the source of the investment;

Check the specific requirements for the country you’ll apply to make sure you fulfil them all!

 

You Should Consider Dual Citizenship

You should consider investing in dual citizenship if you want to improve your lifestyle and secure a plan B. A passport has been an invaluable document ever since the Biblical ages, and it represented a “safe passage” document that allowed people to cross borders and travel between regions.

Nowadays, passports have great advantages, especially if you’re a dual citizen and have the doors opened in many countries.

Before you decide to apply for a second passport, make sure you contact an authorized agency that works in the industry and can help you secure dual citizenship.

 



 

Credit Balance of Profit and Loss Account

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Meaning and Definition

The income statement or Profit & Loss account is an essential financial statement that provides a summary of a firm’s expenses, losses, incomes, and gains for a specific accounting period.

The credit side (right) of a profit and loss account deals with income and gains, whereas the debit side (left) deals with expenses and losses. The difference between the two sides is written on the smaller side.

If we have a credit balance in the Profit and Loss account, it means the credit side is larger than the debit side. In short, if the Credit Total > Debit Total = Credit Balance. For the business, it means that the money we earned (credit) was more than the money we lost (debit).

The credit balance of a Profit and Loss Account means “Net Profitfor the business, whereas a debit balance of a profit and loss account indicates a net loss.

 

Example

Following is the Profit and Loss account of PQR for the year ending Dec 20YY

Credit Balance shown in Profit and Loss Account as Net ProfitIn the above example, the debit total is 22,000, and the credit total is 92,000. The balance of 70,000 represents the balancing figure, which has been highlighted in red.

The above example shows a credit balance in the Profit and Loss account. This simply means that the income generated by the firm is higher than the indirect expenses incurred.

70,000 will be added to the Capital A/C, thereby increasing the total capital invested in the business.

Related Topic – Meaning of Capitalized in Accounting

 

Credit Balance of Profit and Loss Account shown in the Balance Sheet

At the end of a financial year, the net profit is transferred to the balance sheet and shown as an addition to the Capital. This means that the company has made more money after covering its costs.

It is reflected as a positive amount. This addition in equity signifies that the company’s overall financial position has been positively impacted.

The image given below shows the transfer:

Credit balance of profit and loss account transferred in the balance sheet

Net Loss

When the debit side of the Profit and Loss account is greater than the credit side, it is a debit balance. This debit balance is called Net Loss. It means that the indirect income of the business is less than the expenses. The net loss is subtracted from the capital.

Related Topic – Gross Profit and Gross Loss

 

Frequently Asked Questions Related to this Topic

Question – 1 – Select the most appropriate alternative from those given below:

The credit balance of the Profit and Loss Account means _____?

  1. Gross Loss
  2. Net Loss
  3. Net Profit
  4. Gross Profit

Answer – The answer is C. The reason is clearly explained in the above text in this article.

 

Question – 2 – What is the credit side of the profit and loss account?

Answer – The credit side of a profit and loss account shows a combination of Gross profit, Revenues from secondary activities, and Gains.

 

Question – 3 – The credit balance of the profit and loss account is shown on the _______.

A. “Assets” side of the balance sheet.

B. “Liability” side of the balance sheet.

C. not shown on the balance sheet.

D. half on the “Assets” side and half on the “Liabilities side.

The answer is B. Profits earned and losses incurred by a business are to be transferred to the owner(s). This is why it is added to the capital and adjusted accordingly.

 

Question – 4 – Profit and Loss Account is a _____ account?

  1. Personal
  2. Real
  3. Nominal
  4. Valuation

Answer – The answer is C. It is a nominal account prepared at the end of an accounting period.

Related Topic – Net Profit Ratio

 

Conclusion

  • Both external and internal users of accounting information utilize an income statement to assess overall business performance and efficiency.
  • An income statement with a credit balance indicates that the business is seeing a net profit.
  • As a result of net profit, investors benefit from an increase in total capital.

 

>Read Debit Balance of Profit and Loss Account



 

What to Do When Living Paycheck to Paycheck

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63% of Americans live paycheck to paycheck, and the cost of living is quickly outpacing wage growth. There are a few reasons people find themselves in this situation, but poor budgeting and overspending are the most common. In this article, we’ll look at what you can do to save money if you’re living paycheck to paycheck.

 

1. Take a look at your biggest expenses first

The things that cost you the most will make the biggest impact on your overall financial health. Typically, these are your fixed expenses like rent, mortgages, car payments, and student loans. Many people make the mistake of cutting small expenses like Netflix subscriptions or take-out coffee when they’re trying to save money. While every little bit counts, these changes won’t make much difference unless you first cut out your major expenses.

Some of these (such as student loans) can’t be reduced, but others (like your rent) can be controlled. For example, if your rent is $1,800 per month and you’re only making $3,000 per month, 60% of your income goes towards housing. If you can find a way to reduce your rent by even $100 per month, that will give you an extra $1,200 per year to work with.

 

2. Downsize your biggest amenities

Once you identify your biggest expenses, it’s time to look at your lifestyle and see where you can cut back. If you’re overspending on rent, that’s probably the best place to start. Moving to a place that’s a few hundred dollars cheaper can make a huge difference in your monthly budget.

If you have a car payment, consider selling your car and buying a cheaper one (or no car). Public transportation, walking, or biking can save you a lot of money each month. And if you work from home, you could even Uber whenever you need to go somewhere. A few other areas where you might be able to cut back are eating out, drinking, and travelling. If you’re spending a lot of money in these areas, see if you can reduce your spending or find cheaper alternatives.

 

3. Make a budget and stick to it

One of the best ways to take control of your finances is to create a budget, which is a plan that allocates your income towards different expenses. If you aren’t good at money management, you can use a budgeting app like Albert to help you track your spending and stay on track. You can also use a simple Excel spreadsheet to create your budget. A few best practices to keep in mind when creating a budget include:

Make sure your income and expenses match up: If your expenses are more than your income, you’ll need to find a way to reduce your spending.

Automate your bills and savings: This will help ensure you’re always paying your bills on time and saving money each month. Give yourself some wiggle room: It’s important to be realistic when budgeting, so make sure you allow yourself some flexibility.

 

4. Create a plan for your debts

If you’re struggling to make ends meet because of high-interest debt, it is important to create a plan to pay it off as quickly as possible. There are a few different ways to do this, but the most effective is the debt snowball method.

This involves paying off your debts from smallest to largest while making minimum payments on your other debts. As you pay off each debt, you’ll have more money to put towards your next debt and eventually be debt-free.

 

5. Don’t sacrifice what makes you happy

There’s no point in compromising your quality of life just to save a few extra dollars. If there are things that make you happy, find ways to keep them in your budget. For example, if you love going out to eat, try cooking at home more often and only eating out a few times per month. Or, if you enjoy travelling, look for cheaper destinations or ways to save money on travel costs.

The key is to find a reasonable balance between your happiness and your financial goals, and the reality is that cutting out your five-dollar coffee won’t make much of a difference if you’re overspending in other areas.

 

6. Put money aside for investing

Apps like Acorns and Robinhood make it easy to start investing with just a few dollars. If you’re unsure where to start, plenty of resources online can help you begin. Investing is important because it allows you to grow your money without doing anything. Over time, your investments will compound, and you’ll be able to achieve financial freedom slowly but surely.

 

7. Live below your means

This may seem obvious, but it’s worth repeating: if you want to save money, you need to spend less than you make. One way to do this is to figure out your monthly take-home pay, and then create a budget that doesn’t exceed that number. This will force you to find ways to cut back on your spending.

Another way to live below your means is to list your non-negotiable expenses and find ways to save money in other areas. For example, if you have a gym membership that you use regularly, it might not make sense to cancel it. If your gym membership costs $100 per month, you could consider opting for a more budget-friendly option.

 

8. Find other ways to make more money

If you’re struggling to make ends meet, it might be time to find ways to increase your income. There are a few different ways to do this, such as:

  • Asking for a raise at work
  • Getting a second job or side hustle
  • Selling items you no longer need
  • Refinancing your debt to get a lower interest rate
  • Freelancing work

 

9. Prepare for emergencies and upcoming bills

If an unforeseen expense comes up, you could use loans from My Canada Pay in a pinch, but it’s always best to have an emergency fund to cover unexpected costs. You should also make sure you’re prepared for upcoming bills by setting money aside each month. This way, you won’t have to worry about how you’ll pay your bills if something unexpected comes up.

 

Endnote

If you’re like most Americans, putting money aside for the future can be tough, but it’s important to remember that you’re not alone in this struggle. By following the tips in this guide, you can make headway on your financial goals and be on your way to a more secure future.

 



 

Cent Vs Micro Account: Which One Is Better?

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When you start trading, your broker will likely ask whether you want a cent account or a micro account. If you are a beginner, chances are that you will give your broker a strange look. What are the differences – and does it matter which type of account you choose?

The fact is that it does matter. Depending on your level of experience, the wrong account may just bring you losses. This may be a result of investing more than you can afford, or even missing out on investments that you could have done.

To make sure that you are investing like a professional, here is some information about cent and micro accounts that you will want to know.

 

Defining the Cent Account

As the name may suggest, the cent account allows you to trade small amounts of currencies, with the standard lot being at around 0.001%. With this type of account, it does not matter how small your deposit is. Some forex brokers don’t even set a limit; it can be $0, for all it’s worth. That being said, you will need at least a few cents to start trading.

The main issue is that these types of accounts are very small – and, therefore, are not provided by many brokers. This is relatively expectable, as most brokers keep their focus on profit. The more money you make, the better. When you only earn a few cents a time, it is not too rewarding.

Still, the couple of cents that you earn would be much more advantageous than what you’d earn if you had a demo account. You can earn a significant amount of profit, but it would take a long time to do so, along with a lot of dedication.

The main goal of a cent account is to help you get used to the real market without risking too much of your money. You can test out a couple of strategies and figure out your trading style while setting aside your fear of loss.

 

Defining the Micro Account

Micro accounts trade more than a cent account but less than a standard account (another common option offered by forex brokers). The micro account trades about 1/100 of the lot of a standard account. In other words, you trade only about $1,000 per transaction, which is why it got the name “micro.”

This type of account uses micro lots for trading, which is why you won’t need to make too big of a deposit. Usually, it starts for less than $50, and the rest of the profit is brought by leverage. When compared to the standard account, which usually requires a $500-$1,000 deposit, the amounts are rather small. It’s a good option for those that are serious about trading but don’t have the confidence to commit to a standard account. 

The problem is that while you earn more profit than cent accounts, it is still relatively small. This is why micro accounts are mostly recommended before you upgrade to the standard version. 

However, it does help give you a better feel of the real market. The risk is still relatively low, making it a good option for novices who have basic knowledge of trading. Microaccounts are also a common choice for experts who wish to test out new trading strategies. This way, they can work their theories without putting too much of your money in danger.

Each micro account may have different fine details, from one broker to another. This is why you may want to ask them for the exact features before you sign up.

 

Differences between the Cent and Micro Accounts

The differences between cent and micro accounts are not that many, but they are rather significant. Here are the main areas where they are different:

Trading Volume

The cent account has a trading volume of 100 units, regardless of the base currency that you use. On the other hand, micro accounts go as high as $1,000 units in the base currency. This makes the latter a better option for those who are more experienced in the trading process.

Lots

The lots in both accounts are similar but hold different trading volumes. For the cent account, 100 units are called 1-cent lots. As expected, trading volumes or micro accounts are 1,000 units per one micro lot. Therefore, the Forex Cent lot is the equivalent of 10% of a Micro lot.

What Do These Differences Mean?

Forex trading comes with several risks. To minimize the risks while maximizing your profits, forex brokers with “Micro” or “Cent” types of accounts will choose the best type for your needs. Your forex experience will also be taken into account when they do that.

To make the trading risks as low as possible, the micro account reduces the minimum trading lot, whereas the cent account makes use of the account currency. When the minimum trading size of a micro account is turned into a trading lot, it can reach much lower in comparison to a micro account.

As such, cent accounts come at lower risks when compared to micro accounts while not needing a high deposit. If you are a beginner in the trading industry, a cent account may be the better choice for you. This allows you to browse through the market and exchange forex currencies without putting too much money at risk.

On the other hand, micro accounts give you a better chance for profit. This is because the micro account holds more power, the earnings being more significant. This is why micro accounts represent the better choice for traders who already know the market and want to take a better chance at a profit.

The Bottom Line

Both accounts are a good option for beginner brokers who are still learning their way around the real market. That being said, cent accounts bring less financial risk, whereas micro accounts bring more potential profit. It’s up to you to choose which one works best for you.

 



 

What Are The 7 Components Of Effective Financial Planning?

When it comes to financial planning, it’s important to consider all aspects of your current and future financial well-being. This means not just looking at immediate goals and expenses but also considering long-term plans and investments.

When it comes to managing your money, whether you are an individual or a business, it is always important to speak to a qualified financial planner, and you can visit bestfinancialplanners.com.au to find one in your area.

In the meantime, here are the seven critical components of effective financial planning to set you up for a wealthier and more comfortable future:

Setting Clear Goals

Without clear goals, it’s easy to get sidetracked and spend money on unnecessary things rather than investing in your long-term goals. In addition, having specific targets in mind helps you measure your progress and make adjustments as needed.

When setting goals, it’s important to be realistic and ambitious – aiming too high can lead to frustration, but setting low expectations can limit your potential. It’s also helpful to break down larger goals into smaller, achievable steps you can work towards over time.

By setting clear financial goals and creating a plan to reach them, you’ll be able to take control of your finances and work towards a bright future.

 

Identifying Potential Risks

When it comes to our finances, we often want to focus on the positive aspects – investments that are performing well, steady income, and meeting our goals. However, it’s just as important to consider potential risks to plan for future uncertainties.

This could include the loss of a job, unexpected medical expenses, or changes in the economy like the current official cash rate determined by the Reserve Bank of Australia.

By identifying and planning for these potential risks, we can minimise their impact and ensure financial stability for the long term. This may involve building an emergency savings fund, diversifying investments, or purchasing insurance policies.

While it’s never fun to think about negative scenarios, taking the time to identify potential risks is a vital component of effective financial planning.

 

Creating a Budget and Tracking Expenses

It’s easy to lose track of where your money is going, particularly when faced with a plethora of expenses, both necessary and frivolous. That’s why creating a budget and tracking expenses is such a crucial part of financial planning.

By setting goals and determining what you can realistically afford to spend, you can ensure that your spending aligns with your overall financial objectives. And by consistently monitoring your expenses, you can identify patterns and adjust as needed to stay on track.

So don’t underestimate the importance of budgeting and expense tracking in any effective financial plan.

 

Determining Insurance Needs

Before determining how much to invest or save, it’s crucial to ensure that your assets and loved ones are protected in unexpected circumstances. This includes evaluating needs for life, disability, health, and property insurance.

These types of coverage can help provide security and peace of mind, knowing that you and your family will be taken care of in unfortunate situations. It’s also important to periodically reassess your insurance needs as they may change over time.

 

Planning for Taxes

One mistake and you could end up owing thousands to the government, putting a major strain on your finances. That’s why it’s crucial to plan for taxes as part of your overall financial strategy.

This means ensuring that you have enough set aside to cover any tax payments, taking advantage of any deductions or credits available to you, and staying on top of any changes in tax laws that could affect your financial situation. By taking taxes into account in your planning process, you can save yourself stress and money in the long run.

So don’t forget to factor in taxes when creating your financial plan – it could make all the difference.

 

Developing a Retirement Strategy

Without a solid retirement strategy, you may be unable to sustain your desired lifestyle after leaving the workforce. When you consider only one in five Australians will have enough superannuation to fund a comfortable retirement, this becomes extremely important.

The earlier you start planning for retirement and contributing to a retirement fund, the more time your money has to grow through investments and compound interest.

It’s important to continually reassess and adjust your retirement strategy, taking into account changes in income, expenses, and the market. Working with a financial advisor can help ensure that you have enough money saved to maintain your desired standard of living during retirement.

 

Managing Investment Portfolios

By carefully selecting and monitoring various investments, individuals and businesses can grow their wealth and ensure long-term financial security. However, managing an investment portfolio is not a simple task. It requires knowledge of various investment options, the ability to monitor and adjust positions constantly, and a clear understanding of personal financial goals.

Seeking the assistance of a professional financial advisor or investment manager can help in this process. Still, ultimately individuals must take responsibility for actively managing their portfolios. Neglecting this critical component of financial planning can have significant negative consequences for both short-term and long-term financial success.

By taking the time to address each of these areas, you can ensure that you have a solid foundation for achieving both short and long-term financial success. And remember – don’t be afraid to seek guidance from a financial advisor or planner if necessary. They can provide valuable expertise and support in navigating these sometimes overwhelming tasks. Ultimately, actively engaging in comprehensive financial planning can alleviate stress and lead to increased peace of mind about your financial future.

 



 

How to Hire an Accountant for Your Startup Business

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As a new business owner, you want to focus on running and growing your company. You may have thought about hiring a full-time or a part-time accountant as a solution depending on your workload. An accountant could be the only person who will ease off the financial paperwork that is taking too much of your time. This post looks at why you should hire an accountant, how to hire and how much it costs.

Why Should You Hire an Accountant?

Small businesses also need an accounting professional. Below are reasons why you need an accountant as a small business owner.

Perfect Financial Records and Financial Statements

A professional accountant will ensure that your financial records and statements are in order. As a business owner, you will be able to get a snapshot of all the necessary financial information whenever you need it. This information will help you in doing an analysis of your business and assist you in sticking to your plans to grow the enterprise.

Keeping Up With Laws On Taxation and Saving Tax

A certified public accountant will ensure that your business complies with the latest tax laws. An accountant will also ensure that you get tax write-offs when you file your taxes and assist with tax planning.

 

How to Hire an Accounting Professional

It is crucial for you to find a person with the financial knowledge that matches your business and how it operates. Taxation and financial needs for various companies are different. For instance, a sole proprietorship business setup without employees is different from a business with employees. Below are things to consider when hiring an accountant:

  • Make a list of the services you would like the accountant to handle
  • Network and consult with business owners to find out the accounting firms or accountants they chose to work with and why. For example, you can choose to work with an accounting firm such as Pherrus Financial for business taxation compliance services.
  • Create a list of questions to ask a prospective accountant or an accounting firm, then make an appointment. There are some accountants or firms that offer free consultations.
  • Issues to discuss during the hiring process include fees for tasks such as payroll, financial statements, financial reporting, first tax filing and all tax-related charges.
  • During the interview, ask for recommendations for accounting software.

 

The Cost of Hiring an Accountant

Costs will be different depending on the accounting service that you need. The amount of money you’ll pay will also depend on the qualifications of the accountant and their experience.

Costs for a CPA with a college degree without experience will differ from a certified professional with five years of experience. If you wish to work with an accounting firm, you will pay between $100 to $250 an hour. A self-employed accountant working as a subcontractor will cost you $40 an hour.

Availability

As a startup business, you don’t want to hire an accountant who will be available during the tax season only. This type of accountant leaves you without a solution for other areas, such as tax advice and payroll.

You need to ensure that your accountant will be available throughout the year. Ensure that your CPA will solve other business challenges in addition to record statements and taxes. Most startup owners utilize an accountant’s services such as discussing:

  • Business Planning
  • Financial Management
  • Operating Costs
  • Tax Laws
  • Tax Preparation
  • Recording transactions

Your accountant should not only deliver the tax return but also talk to you about all the above.

An Understanding of Your Industry and Business

While you seek professional candidates who know all aspects of accounting, look for someone with the right background for your business. The ideal accountant is familiar with the operations of your specific business. They should have experience working with similar businesses in your industry and understand the operating procedure and costs associated with managing your business.

Additionally, you should hire a professional with experience working with companies at a similar stage as your business. With this kind of experience, the accountant knows the challenges and opportunities ahead, so they will not be caught off guard as the business grows.

 

Endnote

Hiring an accountant for your startup is a wise decision. You will have more time to concentrate on growing your business. You don’t have to be an expert in bookkeeping and taxes to run a business, but you can find someone who is certified to help you out. If you have not hired an accountant yet, start by following the steps above and grow your business.