Accounting and Finance Questions

Liabilities are what all u owe from the bank on notes payable or in other words it is:

Liability=Asset-Owners equity

what company owes that is liability. liability = Asset-capital

The primary Economic function of the Financial system is to match one person's savings with another person's investment.

* As a key component of the financial system, banks allocate funds from savers to borrowers in an efficient manner.

* They provide specialized financial services, which reduce the cost of obtaining information about both savings and borrowing opportunities.

* These financial services help to make the overall economy more efficient.

The tax that is paid to a third party is Indirect tax.

In accounting, the Three-way Match refers to a procedure used when processing an invoice received from a vendor or supplier. The three-way match is an important step in safeguarding an organization's assets. The purpose of the three-way match is to avoid paying incorrect and perhaps fraudulent invoices.

Here Three-way refers to the three documents involved :

* Vendor's invoice which was received and will become part of an organization's accounts        payable if approved.

* Purchase order that was prepared by the organization.

* Receiving report that was prepared by the organization.

And Match refers to the comparison of the quantities, price per unit, terms, etc. appearing on the vendor's invoice to the information on the purchase order and to the quantities actually received.

After the vendor's invoice has been validated by the three-way match, it can be further processed for payment.

Actuary is the term which is not used in banking sector.

The Debit balance recovery is usually made by raising a credit memo for the regular vendors. However if there are no future transactions from the supplier, we ask the vendor to send the check / make an EFT for the amount due from him. When payment is made to the wrong vendor or payment made in excess, in that case overpayment has gone to the vendor, so for us it is vendor debit balance. For debit balance recovery, we can either follow- up with the vendor to send us the excess amount / refund back, or we can adjust that extra amount in future invoices submitted by that vendor. In case no future transactions, we have to follow-up with the vendor, failing which we have to write off this amount. 

A bad debt provision is a reserve that you build up over time against the future recognition of specific accounts receivable as being uncollectible. Thus, if a company has issued invoices for a total of $1 million to its customers in a given month, and has a historical experience of 5% bad debts on its billings, it would be justified in creating a bad debt provision for $50,000 (which is 5% of $1 million).

It is impossible to know the exact amount of bad debts that will occur at some point in the future from the current account receivable, so it is entirely normal to continually readjust the bad debt provision, as you gain a greater understanding of how collectible the accounts receivable really are. These adjustments may lead to future increases or decreases in the bad debt expense. Since these adjustments can be viewed as a means of manipulating a company's reported profits, you should fully document your reasons for making the adjustments.

You would create a bad debt provision with a debit to the bad debt expense account, and a credit to the bad debt provision account. The bad debt provision account is an accounts receivable contra account, which means that it contains a balance that is the reverse of the normal debit balance found in the associated accounts receivable account. Later, when a specific invoice is found to be uncollectible, you create a credit memo in the accounting software for the amount of the invoice that is uncollectible. The credit memo reduces the bad debt provision account with a debit, and reduces the accounts receivable account with a credit. Thus, the initial creation of the bad debt provision creates an expense, while the later reduction of the bad debt provision against the accounts receivable balance is merely a reduction in offsetting accounts on the balance sheet, with no further impact on the income statement.

The reason for a bad debt provision is that, under the matching principle, you should match revenues with related expenses in the same accounting period. Doing so shows the full effect of a billed sale transaction in a single accounting period. If you were to not use a bad debt provision, and instead used the direct write off method to only charge bad debts to expense when you were certain that a specific invoice was not collectible, then the charge to expense might be many months later than the initial revenue recognition associated with the billing. Thus, under the direct write off method, profits will be too high in the period of the billing to the customer, and too low in the later period when you finally charge some portion or all of an invoice to the bad debt expense.