What is mean by deficiency account?
What is mean by deficiency account?
: an account supplementing the balance sheet of a financially weak enterprise showing estimated realization values of assets and their insufficiency to meet creditors’ claims and occasionally indicating the causes of the difficulty.
Why do we prepare deficiency account?
When company become insolvent deficiency accounts is prepared . This account shows the reason of company deficiency . A company deficiency is because of losses ,decrease in the value of assets or any other such reasons. This account is not made on double entry system but it is statement of simple calculation.
What are statement of affairs?
A Statement of Affairs provides a detailed summary of a company’s assets and liabilities and is a key part of the insolvency process. It provides a clear audit trail of the status of business assets, and how much would be available to creditors once assets have been sold.
What is Statement of Affairs answer in one sentence?
Solution. A statement of assets and liabilities in which amount of capital is found out by taking difference between total assets and total liabilities is known as statement of affairs.
How do you write a statement of affairs?
What should be included?
- Current balance sheet and management accounts.
- Asset valuations.
- Details on VAT and PAYE position.
- A list of employees (addresses, salaries, start dates), trade creditors, suppliers.
- Amounts owed to the bank (director/shareholder loans included)
- Any debts (both secured and unsecured)
What is difference between balance sheet and statement of affairs?
The key difference between Balance Sheet and Statement of Affairs is that the balance sheet is one among the financial statements, which presents the financial position of a particular business to a given date while, in contrast, statement of affairs summarizes the assets and liabilities of a particular business entity …
Why is statement of affairs not called a balance sheet?
Solution : Although Statement of Affairs, like Balance Sheet, shows assets and liabilities yet it is not a Balance Sheet. It is so because the values of the assets and liabilities, shown in the Statement of Affairs are merely the result of estimates made by the owner and no Ledger Accounts exist for them.
What is difference between provision and reserve?
A reserve is an appropriation of profits for a specific purpose. In short, a reserve is an appropriation of profit for a specific purpose, while a provision is a charge for an estimated expense. …
What is a secret reserve?
A secret reserve is the amount by which the assets of an organization are understated or its liabilities are overstated. An entity might establish a secret reserve for competitive reasons, to hide from other businesses that it is in a better financial position than appears in its financial statements.
How is secret reserve created?
No Adjustment of Prepaid Expenses :- Secret Reserve can be created by the non adjustment of prepaid expenses too. Over-valuation of Liabilities :- Secret Reserve can also be created by over-valuation of liabilities or by showing Doubtful liabilities as real liabilities in balance sheet.
What are secret reserve what are their merits and demerits?
Advantages of Secret Reserve Achieving a better financial position. Act as a source of funds and working capital. Eliminates unhealthy competition by concealing true profit from competitors. Provide stability to the organisation.
What is fictitious asset?
Fictitious assets are the assets which has no tangible existence, but are represented as actual cash expenditure. Expenses incurred in starting a business, goodwill, patents, trademarks, copy rights comes under expenses which cannot be placed any headings. Fictitious assets have no physical existence.
What is an example of fictitious assets?
Loss incurred on issue of debentures The above examples are provided to demonstrate few expenses which may not be treated as an expenditure for the accounting period in which they are incurred, hence they will be recorded as fictitious assets in the balance sheet of a business.
Which of the following is not a fictitious asset?
These assets include a debit balance of profit and loss A/c and the expenditure not yet written off such as advertising expenses etc. Among the given options Discount on issues of shares and debentures is not the example of fictitious assets.