Working Capital: Effect on Liquidity & Operations
A business can show a profit on paper and still struggle to pay suppliers, employees, or electricity bills on time. The reason is often not profitability but timing. Money may be stuck in invento…
A business can show a profit on paper and still struggle to pay suppliers, employees, or electricity bills on time. The reason is often not profitability but timing. Money may be stuck in invento…
A business can own ₹5 lakh worth of assets, yet that does not automatically mean the owner has ₹5 lakh invested in it. Some assets may have been purchased using borrowed money. Others may have been…
A machine is purchased for ₹5,00,000. Five years later, someone asks, “How much depreciation should be charged every year?” The calculation looks simple—but one small mistake about residual value…
A business can show ₹80,000 as expenses in its records, but that does not always mean ₹80,000 has actually been paid. Suppose electricity for March is ₹6,000, but the bill will be paid in April. …
A business can buy a machine for ₹10 lakh, yet after a few years the balance sheet may show that machine at a much lower value. The machine has not necessarily been sold, damaged, or physically red…
Imagine a business earns ₹1,00,000 from sales in March, but some of the expenses related to those sales are paid only in April. Should the entire ₹1,00,000 become March's profit? That sounds …
A business can make a sale today, receive the customer's payment three months later, and still need to show that sale in the period in which it was earned. That simple timing issue is where m…
A business can receive ₹1,00,000 from a customer today and still not have ₹1,00,000 as this period's revenue. Similarly, it may pay an expense next month but need to recognise part of that expe…
A business can receive money today for work completed months later. It can also incur an expense today even though the benefit will help generate revenue for several future periods. If every paymen…
When two companies report the same type of transaction differently, their financial statements can tell two very different stories—even when their underlying business performance is almost identica…
A business transaction can look deceptively simple. A proprietor invests ₹1,00,000, the business buys furniture, or goods are purchased on credit. But behind every such transaction, accounting is…
A business can buy furniture, receive cash from customers, take a bank loan, or pay a supplier. Each transaction looks different on the surface, but accounting needs one consistent way to show wh…
A journal entry may look complete once the debit and credit sides are recorded, but the accounting work is not finished there. Imagine a small business owner checking how much cash is available, …
A business owner proudly announced that sales had doubled this year. Everyone expected record profits. Yet, when the financial statements were finalized, the business reported only a modest net p…
A shop owner proudly told me, "This month was fantastic. We didn't pay the electricity bill, so our profit is much higher than last month." At first glance, it sounded like good new…
Before we get into definitions, think about this for a moment. Imagine two businesses earn exactly ₹10,00,000 in sales during March. One reports a healthy profit, while the other shows only a small…
Imagine two companies preparing their financial statements. Both earn similar profits, both operate in India, and both follow accounting rules. Yet, when an investor compares their annual reports, …
A shopkeeper proudly tells you, "My business earned ₹8 lakh this year." A few minutes later, you notice that he is struggling to pay suppliers because there is very little cash available.…
A small shop in Gwalior had impressive sales throughout the year. The owner proudly told everyone that business was booming. Yet, when the accountant prepared the annual financial statements, the bus…
A friend once told me about a local furniture business that had become the talk of the town. Orders were pouring in, customers loved the products, and the owner proudly announced that the busines…
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