Month: May 2020

Inventory Control – Definition, Objectives, Methods and Steps

Posted on by Tally Academy

Definition of inventory control

Inventory control is an activity of checking a shop’s stock and to maintain the inventory at desired levels, keeping in view the best economic interest of an organization. In simple words, inventory control is a process of ensuring that a business maintains the adequate quantity of stock to meet the forecasted demand with minimum holding cost.

 

Why do businesses carry an inventory?

The below table explains different inventory types and the reason why such inventories are held by the business.

Raw materials The reason for holding raw materials is to reap the price advantage available on purchase of bulk or on any seasonal raw materials which can be procured only during the harvest seasons.
Inventory in work-in-progress The reason is to balance the production flow. Let’s say if any batch order which requires the same kind of raw material, it can be diverted from the batch order that has been postponed by the management for certain time thereby not affecting the production flow.
Readymade components A company usually does not produce every component that goes into the product. Sometimes they buy readymade components available in the market. In such a situation, it becomes necessary for the company to hold stock of those readymade inventories which are required in the production of the final product.
Finished goods A company stocks the finished goods during the waiting period until it finds its customer. In some cases, more stocks are held to create demand for the product and get a high price for the product.

From the above, it’s quite clear that for various reason, you need to hold inventories in the business. In this process, how much to stock is an important question that needs to be answered. Here is why inventory control plays an important role.

Importance of inventory control

Managing adequate stock is key for managing inventory successfully. Overstocking will lead to cash flow blockage and the additional cost for managing excess stock. On the other hand, understocking leads to loss of sale due to non-availability of stock at the right time.

As a result, a business needs to implement inventory control so that the right product at the right place and the right time is available.

Inventory control helps the business in knowing the shortfall and quantities to be ordered considering the net stock available. Thus, it ensures that enough stocks are maintained to meet customer needs, at any point in time.

Objectives of inventory control

Inventory control has two key objectives:

Customer service level

Why do you produce goods? The answer is simple it is to sell the goods at a good price. In an open market, there are so many manufactures who may produce the same goods as you may. Then how could you be different and attract customers to your product? The answer here is plain, it’s only through proper customer service.

Customer service means having the right goods available in the right quantity in the right place at the right time. This can only be achieved if you have proper inventory control measures followed up in your organization.

Cost of holding inventories

Another objective of inventory control is to optimize the cost of ordering and carrying inventories. As we know that the overall objective of inventory control is to achieve satisfactory levels of customer service by keeping the inventory costs within reasonable bounds.

Therefore, the cost of ordering inventories and carrying those inventories throughout the production is also important to keep the overall cost of selling as low as possible.

Advantages of inventory control

  • Maintaining an optimum level of inventories
  • Helps in laying the procurement process considering the wait-time, lead-time etc.
  • Periodical inspection of inventories
  • Guides us on storing and issuance of inventories from godowns.
  • A systematic record of movement of materials.
  • It helps to lay out plans for physical verification of inventories.

Steps involved in inventory control

Step 1: Deciding on the minimum levels of inventories

A production department is incomplete if it does not have a good relationship with the sales and marketing department. It is because the demand or need for the product you produce can only be assessed by people who are close to customers such as sales and marketing.

Thereby deciding on the levels of inventory i.e. maximum-minimum limits of inventory is important because as a manufacturer you would not like the raw materials to go obsolete even before the production has begun or to stock up raw materials that have very limited use in the production of a finished product.

Step 2: To decide on the re-order level

The demand for anything is uncertain in this world. Especially with customers taste and preferences. A product manufactured by you may be selling high and you must be ready to decide as how much to produce adhering to customers demand.

For which you have to decide as to when you will be re-stocking the raw materials which will be used in the production of the final product. If the restocking time passes beyond the committed time of the finished product to the customer, then you will not be able to deliver a complete product to the customer.

Step 3: Choosing a sound inventory control method

There are several types of inventory control method available and you can choose the one which suits your business. No matter which method you choose, it is important that the techniques should assist knowing the minimum quantity of stock, point in time at which the stock should be re-ordered and right quantity that should be ordered.

Inventory Control Methods

The following are the different types of inventory control methods used by the business.

ABC analysis

Here, the stock is divided into three sections namely A, B and C. A section consist of inventories that are high in value with low sales frequency or consumption. This category of stocks requires to be controlled closely. Category B consists of stocks that are of moderate value and with decent sales frequency. In category C, you have inventories with low value having high sales frequency requiring minimum inventory control.

Just in time (JIT)

Here, the company maintains an inventory level that is required during production. Under this method, you will not be having any excess inventory beyond the production requirements and it helps you get rid of the cost involved in storing excess stock.  Here, the order of stock is placed when old stock is close to zero and this puts production in risk, even if there are small delays.

Economic order quantity (EOQ)

In this method, the company will get to know how much quantity of inventory should the company order at any point of time and when should they place the order considering the minimum level of inventory.

Fast, slow, and non-moving (FSN)

Here, the inventories are classified based on the movement. All the inventories are categorized as fast-moving, slow-moving, and non-moving. Basis the movement across the categories, the order is placed.

Conclusion

Inventory is money sitting around in another form. You paid money for your inventory, and you will get that money back when you sell it. Until you sell them, you need to hold and manage inventories. Gone are those days where managing inventory was a nightmare. This is because the businesses have started using inventory management software which comes with in-built and automated inventory control techniques.

Basis the consumption of the inventories, the inventory management software is smart enough to know the net stock, shortfall, and quantity of stock to be ordered. More importantly, information is available readily at a click which allows the businesses to take timely decisions.

Payment Declaration Form – GST PMT – 08: Definition, Format and Rules

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What is Form GST PMT-08?

The Form PMT-08 is used to make payment of self-assessed tax by all quarterly taxpayers under the new GST returns system. This form shall be used in the first two months of the quarter. It is used for declaring and paying the tax liability and claiming the eligible input tax credit. It is to be used by 20th of the next month (for the first two months of the quarter). It will be followed by the filing of RET-1/2/3 by the 25th of the month following the quarter.

Since the taxpayer pays the monthly tax liability through this form, such a form is a replacement for the current form GSTR – 3B. Thus, GST PMT – 08 is used to declare and pay the tax liability and claim eligible input tax credit. Furthermore, the taxpayer must make the payment of self-assessed liabilities through GST PMT – 08 by the 20th of the month succeeding the month for which tax is to be paid. Once the payment is made, the taxpayer needs to file GST RET – 1, GST – RET 2 or GST RET – 3 by the 25th of the month following the quarter to which such a return pertains.

Format of GST PMT-08

Form GST PMT-08 Format

Key things to keep in mind while filing GST PMT-08

  • PMT-08 form applies to all returns i.e., SAHAJ, SUGAM, and Normal returns (quarterly filing only)
  • A taxpayer who opts to do return filing on a quarterly basis needs to make a payment on a monthly basis depending on the supplies initiated within the month
  • With the help of this form, only eligible ITC can be claimed
  • Self-assessed liabilities will be paid for the initial two months of the quarter for quarterly filers and these amounts shall be populated to RET-1
  • The credit of the tax paid within the initial two months of the quarter will be available at the time of return filing for the quarter
  • Self-assessed liabilities will be paid within the 20th of every month
    Liability can either be settled out of the balance in the electronic cash ledger or electronic credit ledger, whichever is applicable
  • Tax liability and input tax credit (ITC) availed will be based on self-assessment subject to the adjustment made in the main return of the quarter
  • According to Section 50 of the Act, excess ITC claimed/short liability declared will be liable for interest charges. Hence, any late payment will draw interest as per the rate mentioned in Section 50 of the Act
  • Also, the declaration in this form needs to be filed even if no supplies were initiated during the month

What is Form GST Anx-2 under New GST Return?

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Under the New GST Return System, there will be one main return called the FORM GST RET-1 and two annexures i.e. FORM GST ANX-1 and FORM GST ANX-2. The return will have to be filed on a monthly basis, except for small taxpayers (taxpayers with a turnover up to Rs 5 crore) who can opt for the quarterly filing of returns.

What is FORM GST ANX-2?

FORM GST ANX-2 is an annexure to the main return FORM GST RET-1, and will have all the details of inward supplies, for the recipient of supplies to take action by either accepting or rejecting these documents, or marking them as pending, for action to be taken later. If the recipient accepts these documents, it means that the supplies reported in such documents by the suppliers in FORM GST ANX-1 are correct.

What are the contents of FORM GST ANX-2?

GSTIN: A taxpayer needs to input the GSTIN.

Basis details: Basic details such as trade name, legal name, etc. will be auto-populated on the basis of the GSTIN.

Inward supplies received from a registered person (other than the supplies attracting reverse charge), imports and supplies received from SEZ units / developers on Bill of Entry: The details will be entered as follows-

 

Table No. Name of the Table Instructions
3A Supplies received from registered persons including services received from SEZ units The details in these tables will be auto-populated from the following tables of the supplier’s FORM GST ANX-1 return:

3B – Supplies made to registered persons

3E –  Supplies to SEZ units/developers with payment of tax

3F – Supplies to SEZ units/developers without payment of tax

3G – Deemed exports

The recipient has the option to take action on the documents by either accepting, rejecting or marking them as pending.
3B Import of goods from SEZ units/developers on Bill of Entry
3C Import of goods from overseas on Bill of Entry
4 Summary of the input tax credit This will be the total figure of input tax credit for the return filing period, based on action taken by the recipient of supplies such as:

Total credit on all documents that have been rejected

Total credit on all documents that are kept pending

Total credit on all documents that have been accepted
5 ISD credits received This table is for reporting eligible input tax credit that has been received from an input service distributor. This needs to be entered document-wise.

What is the format of FORM GST ANX-2?

FORM GST ANX-2 Format

Key things for taxpayers to keep in mind while filing GST ANX-2

  • The supplier can upload documents continuously and on a real-time basis in FORM GST ANX-1 and will be auto-populated in this annexure i.e. FORM GST ANX-2
  • The details of the documents uploaded by the supplier shall be available for the recipient in FORM GST ANX-2 to take action such as to accept, reject or to keep the document pending
  • If a document is accepted by a recipient, it means that the document has been received before the recipient has filed his return and that the details reported by the supplier are correct
  • Any corrections in the rejected documents can be made only by the supplier through his FORM GST ANX-1
  • If a recipient marks a document as pending, this means he has deferred his action on the said document for a later date, of either accepting or rejecting the document. Input tax credit on these documents will not reflect in the main return i.e. FORM GST RET-1
  • The supplier cannot amend pending invoices until they are rejected by the recipient
  • The status of whether the supplier’s return is filed or not will be made known to the recipient in his FORM GST ANX-2. However, this does not affect the eligibility of the input tax credit available to the recipient, which will be decided as per the Act along with the rules made thereunder
  • A separate functionality will be available to search for and reject an accepted document, on which credit has already been availed. This credit will be shown under reversal in table 4B(1) of FORM GST RET-1, which can be adjusted in table 4A(11) of the same return, in order to arrive at the amount of input tax credit that has been availed
  • FORM GST ANX-2 will be deemed filed based upon the filing of the main return i.e. FORM GST RET-1 relating to the particular tax period
  • If documents have been uploaded by a supplier in his FORM GST ANX-1, but he has not filed his return for the previous two consecutive periods, then the recipient will not be able to take credit on these documents even if the same is made available to him in his FORM GST ANX-2. However, the option will be available to reject or keep these documents pending. For suppliers who file their returns quarterly instead of monthly, then the term ‘two consecutive periods’ are replaced by ‘one quarter’

PAYMENT ADVICE – DEFINITION, COMPONENTS & FORMAT

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For any business, irrespective of its size of operations, small or medium or large scaled enterprises, it is always important to keep track of money that flows into the business. Once an invoice is issued by you, you as a prudent businessman want to ensure that every one of them is paid so that you have a healthy cash flow.

As a businessman, you also want to keep your customer relationship healthy and show a professional and courteous approach to money management. Here, in this scenario, maintenance of documents such as payment receipts and payment advice notes comes in very handy for any business.

What is payment advice or payment advice note?

Payment advice note is a document or letter of communication sent by a customer or buyer to businesses which states that an invoice has been paid to vide cheque, NEFT, RTGS or by any means of electronic transfers etc.,

It is a letter of communication that acknowledges the seller as to which outstanding invoices have been cleared by the buyer and by what means. Therefore, a payment advice note can be very useful when it comes to matching payments to an invoice.

Difference between payment receipt and payment advice note

Payment receipt Payment advice notes
A payment receipt is a document showing the proof of payment issued by the supplier

 

It is usually issued by the supplier to the customer to acknowledge receipt of payment.

 Payment advice is sent by customers to the seller

 

This is issued by the customer to the supplier that an invoice has been paid and it provides the invoice reference and date as well.

Components of payment advice

Payment advice should contain the following information :

  • The date on which payment advice was drafted.
  • A reference to invoice number or invoice number against which the payment has been made.
  • The amount of payment against such invoice
  • The method of payment such as Cheque, NEFT, RTGS etc.,

Sample payment advice format

sample payment advice format

How do businesses generate payment advice?

Today, most businesses are using accounting software to manage the books which comes with the inbuilt capability to generate various statements including payment advice. Also, managing the outstanding bills portfolio has become very simple with the help of ERP software. It allows you to know the bills which has been paid and which has been outstanding due.

Payment advice processed using accounting software helps to ensure the professional standards have been followed as receipts can be easily tracked against the invoices in real-time.

Using Tally.ERP 9, makes it easier to generate payment advice and send it to suppliers/other parties along with the cheques/other instruments. It is fully flexible to add or remove the additional details from payment advice to meet your business needs.

Consolidated Balance Sheet: Definition, Example and Steps to Prepare it?

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What is a consolidated balance sheet?

A consolidated balance sheet is a financial statement that shows the financial position of a parent company and its subsidiary companies. In simple words, a consolidated balance sheet is mere consolidation of financial details of all a subsidiary including parent company and presenting as one balance sheet for the entire group.

A consolidated balance sheet is usually prepared by the business operating as a group of companies that have more than one subsidiary and it portrays the combined details of assets and liabilities.

What is Consolidated Balance Sheet

Format and example of consolidated balance sheet.

P Ltd acquired Q Ltd on 1.1.2018. Their balance sheet as at 31.3.2017 is given below. Using this, let us prepare a consolidated balance sheet.

P Ltd Balance Sheets as at

31st March 2017

Liabilities P Ltd

( INR )

 Assets P Ltd

( INR )
Share Capital :

10,000 Equity shares of Rs 10/- each fully paid

5,000  Equity shares of Rs 10/- each fully paid

  

1,00,000

 

–

 Fixed Assets

Investments :

4,000 Shares in Q Ltd

  80,000

 

40,000
General reserve 40,000 Stock  20,000
Profit and Loss Account 20,000 Debtors  25,000
Creditors 10,000 Cash and Bank   5,000
  1,70,000   1,70,000

Q Ltd Balance Sheets as at

31st March 2017

Liabilities Q Ltd

( INR )

 Assets Q Ltd

( INR )
Share Capital :

10,000 Equity shares of Rs. 10/- each fully paid

5,000  Equity shares of Rs. 10/- each fully paid

  

–

 

50,000

 Fixed Assets

Investments : –

4,000 Shares in Q Ltd

  45,000

 

–
General reserve 10,000 Stock  10,000
Profit and Loss Account 10,000 Debtors  10,000
Creditors   5,000 Cash and Bank  10,000
   75,000    75,000

Consolidated  Balance Sheet P Ltd and it is Subsidiary Q Ltd

As at 31.12.2017

consolidated balance sheet example

How do businesses prepare consolidated balance Sheet?

A consolidated balance sheet is a key financial statement in case of group companies. The financial statements of different companies belonging to the same group are consolidated to present the financial position as a whole.

Manually preparing a consolidated balance sheet involves several steps right from arriving the share capital, profits etc. and it is a tedious task. As a result, businesses have automated the task of consolidating financial information using accounting software. Thereby, consolidated balance sheet is readily available as an when required. Not just consolidated balance sheet but also several other key financial and accounting reports can be consolidated a click of a button.

Using Tally.ERP 9, you can consolidate the entire books of accounts, view consolidated reports and seamlessly compare the parent and subsidiary companies report.

In Tally.ERP 9, you can do this by creating a group company. It allows you to conveniently view all your companies in one place.

Group company creation in Tally.ERP 9

Group company function as a single economic entity, where financial reports such as balance sheet, profit and loss a/c and trial balance are consolidated without any impact on the transactions and real-time basis.

Using the group company, you can compare the performance of your subsidiary companies and keep a tab on the overall business.

GST Exempted Goods: List of Goods Exempt Under GST

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Under different taxation systems, a host of goods or services is exempt from tax owing to socio-economic reasons. For instance, under the service tax regime, clinical and education services were exempt from service tax. Similarly, the sale of life-saving drugs or books meant for reading in different state governments were exempt from taxes.

Like all such taxes, there are few exceptions even under GST where goods or services are exempt from tax liability. Such exemptions on specified goods or services are granted by the government based on certain conditions. Hence, while determining the tax liability under GST, one needs to check for not only the goods or services that are chargeable to GST. But, one also needs to look into the goods or services that are exempt from tax.

Thus, the taxpayers need to understand not only the provisions regarding exemptions but also their implications to avoid any wrong application. So, before jumping to the list of non-gst goods, let’s first define what is an exempt supply under GST?

What is an Exempt Supply under GST?

As per section 2(47) of CGST Act 2017, an exempt supply means any goods or services or both:

  • which attract nil rate of tax or
  • that may be wholly exempt from tax under section 11 or
  • may be wholly exempt from tax under section 6 of IGST act or
  • including non-taxable supply

Thus, exempt supply includes the supply of following types of goods or services:

  • supply attracting nil rate of tax
  • supplies wholly exempt from tax
  • non – taxable supplies

GST Exempted Goods: List of Goods Exempt Under GST

Live Animals

  • Live asses, mules and hinnies (HSN Code – 0101)
  • Bovine animals (Live) (HSN Code – 0102)
  • Live swine (HSN Code – 0103)
  • Sheep and goats (Live) (HSN Code – 0104)
  • Live poultry, that is to say, fowls of the species Gallus domesticus, ducks, geese, turkeys and guinea fowls (HSN Code – 0105)
  • Other live animal such as Mammals, Birds, Insects (HSN Code – 0106)

Meat

  • Meat of bovine animals, fresh and chilled (HSN Code – 0201)
  • Bovine animals’ meat or frozen meat (other than frozen and put up in unit container) (HSN Code – 0202)
  • Meat of swine, fresh, chilled or frozen (other than frozen and put up in unit container) (HSN Code – 0203)
  • Sheep or goats’ meat, fresh meat, chilled meat or frozen meat (other than frozen and put up in unit container) (HSN Code – 0204)
  • Meat of horses, asses, mules or hinnies, fresh, chilled or frozen (other than frozen and put up in unit container) (HSN Code – 0205)
  • Edible offal of bovine animals, swine, sheep, goats, horses, asses, mules or hinnies, fresh, chilled or frozen (other than frozen and put up in unit container) (HSN Code – 0206)
  • Meat and edible offal, of the poultry of heading 0105, fresh, chilled or frozen (other than frozen and put up in unit container) (HSN Code – 0207)
  • Other meat and edible meat offal, fresh, chilled or frozen (other than frozen and put up in unit container) (HSN Code – 0208)
  • Pig fat, free of lean meat, and poultry fat, not rendered or otherwise extracted, fresh, chilled or frozen (other than frozen and put up in unit container) (HSN Code – 0209)
  • Poultry fat, free of lean meat, and pig fat, not rendered or otherwise extracted, salted, in brine, dried or smoked (other than put up in unit containers) (HSN Code – 0209)
  • Meat and edible meat offal, salted, in brine, dried or smoked; edible flours and meals of meat or meat offal, other than put up in unit containers (HSN Code – 0210)

Fish, Meat and Fillets

  • Fish seeds, prawn / shrimp seeds whether or not processed, cured or in frozen state (other than goods falling under Chapter 3 and attracting 5%) (HSN Code – 3)
  • Fish, fresh or chilled, excluding fish fillets and other fish meat of heading 0304 (HSN Code – 0302)
  • Live fish (HSN Code – 0301)
  • Fish fillets and other fish meat (whether or not minced), fresh or chilled (HSN Code – 0304)
  • Crustaceans, whether in shell or not, live, fresh or chilled; crustaceans, in shell, cooked by steaming or by boiling in water live, fresh or chilled (HSN Code – 0306)
  • Molluscs, whether in shell or not, live, fresh, chilled; aquatic invertebrates other than crustaceans and molluscs, live, fresh or chilled (HSN Code – 0307)
  • Aquatic invertebrates other than crustaceans and molluscs, live, fresh or chilled (0308)

Eggs, Honey and Milk Products

  • Natural honey, other than put up in unit container and bearing a registered brand name (HSN Code – 0409)
  • Fresh milk and pasteurized milk, including separated milk, milk and cream, not concentrated nor containing added sugar or other sweetening matter, excluding Ultra High Temperature (UHT) milk (HSN Code – 0401)
    Curd; Lassi; Buttermilk (HSN Code – 0403)
  • Chena or paneer, other than put up in unit containers and bearing a registered brand name (HSN Code – 0406)
  • Birds’ eggs, in shell, fresh, preserved or cooked (HSN Code – 0407)

Non – Edible Animal Products

  • Human hair, unworked, whether or not washed or scoured; waste of human hair (HSN Code – 0501)
  • All goods i.e. Bones and horn-cores, unworked, defatted, simply prepared (but not cut to shape), treated with acid or gelatinized; powder and waste of these products (HSN Code – 0506)
  • Semen including frozen semen (HSN Code – 0511)
  • All goods i.e. Hoof meal; horn meal; hooves, claws, nails and beaks; antlers; etc. (HSN Code – 050790)

Live Trees and Plants

  • Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage (HSN Code – 6)

Vegetables

  • Tomatoes, fresh or chilled (HSN Code – 0702)
  • Cucumbers and gherkins, fresh or chilled (HSN Code – 0707)
  • Potatoes, fresh or chilled (HSN Code – 0701)
  • Onions, shallots, garlic, leeks and other alliaceous vegetables, fresh or chilled (HSN Code – 0703)
  • Cabbages, cauliflowers, kohlrabi, kale and similar edible brassicas, fresh or chilled (HSN Code – 0704)
  • Lettuce (Lactuca sativa) and chicory (Cichorium spp.), fresh or chilled (HSN Code – 0705)
  • Carrots, turnips, salad beetroot, salsify, celeriac, radishes and similar edible roots, fresh or chilled (HSN Code – 0706)
  • Other vegetables, fresh or chilled (HSN Code – 0709)
  • Dried vegetables, whole, cut, sliced, broken or in powder, but not further prepared (HSN Code – 0712)
  • Manioc, arrowroot, salep, Jerusalem artichokes, sweet potatoes and similar roots and tubers with high starch or inulin content, frozen or dried, whether or not sliced or in the form of pellets (inserted w.e.f 14/11/2017 : and put up in unit container and –
    (a) bearing a registered brand name; or
    (b) displaying a brand name on which an actionable claim or enforceable right in a court of law is available [other than those where any actionable claim or enforceable right in respect of such brand name has been foregone voluntarily] (HSN Code – 0714)
  • Dried leguminous vegetables, shelled, whether or not skinned or split (HSN Code – 0713)
  • Manioc, arrowroot, salep, Jerusalem, artichokes, sweet potatoes and similar roots and tubers with high starch or inulin content, fresh or chilled; sago pith (HSN Code – 0714)

Fruits and Dry Fruits

  • Coconuts, fresh or dried, whether or not shelled or peeled (HSN Code – 0801)
  • Brazil nuts, fresh, whether or not shelled or peeled (HSN Code – 0801)
  • Other nuts, Other nuts, fresh such as Almonds, Hazelnuts or filberts (Coryius spp.), walnuts, Chestnuts (Castanea spp.), Pistachios, Macadamia nuts, Kola nuts (Cola spp.), Areca nuts, fresh, whether or not shelled or peeled (HSN Code – 0802)
  • Bananas, including plantains, fresh or dried (HSN Code – 0803)
  • Dates, figs, pineapples, avocados, guavas, mangoes and mangosteens, fresh (HSN Code – 0804)
  • Citrus fruit, such as Oranges, Mandarins (including tangerines and satsumas); clementines, wilkings and similar citrus hybrids, Grapefruit, including pomelos, Lemons (Citrus limon, Citrus limonum) and limes (Citrus aurantifolia, Citrus latifolia), fresh (HSN Code – 0805)
  • Grapes, fresh (HSN Code – 0806)
  • Melons (including watermelons) and papaws (papayas), fresh (HSN Code – 0807)
  • Apples, pears and quinces, fresh (HSN Code – 0808)
  • Apricots, cherries, peaches (including nectarines), plums and sloes, fresh (HSN Code – 0809)
  • Other fruit such as strawberries, raspberries, blackberries, mulberries and loganberries, black, white or red currants and gooseberries, cranberries, bilberries and other fruits of the genus vaccinium, Kiwi fruit, Durians, Persimmons, Pomegranates, Tamarind, Sapota (chico), Custard-apple (ata), Bore, Lichi, fresh (HSN Code – 0810)
  • Peel of citrus fruit or melons (including watermelons), fresh (HSN Code – 0814)

Tea, Coffee and Spices

  • Coffee beans, not roasted (HSN Code – 0901)
  • Unprocessed green leaves of tea (HSN Code – 0902)
  • Seeds of anise, badian, fennel, coriander, cumin or caraway; juniper berries [of seed quality] (HSN Code – 0909)
  • Fresh turmeric, other than in processed form (HSN Code – 09103010)
  • Ginger (Fresh), other than in processed form (HSN Code – 09101110)
  • All goods of seed quality (HSN Code – 09)

Edible Grains

  • Wheat and meslin (other than those put up in unit container and bearing a registered brand name) (HSN Code – 1001)
  • Rye (other than those put up in unit container and bearing a registered brand name) (HSN Code – 1002)
  • Barley (other than those put up in unit container and bearing a registered brand name) (HSN Code – 1003)
  • Oats (other than those put up in unit container and bearing a registered brand name) (HSN Code – 1004)
  • Maize (corn) (other than those put up in unit container and bearing a registered brand name) (HSN Code – 1005)
  • Rice (other than those put up in unit container and bearing a registered brand name) (HSN Code – 1006)
  • Grain sorghum (other than those put up in unit container and bearing a registered brand name) (HSN Code – 1007)
  • Buckwheat, millet and canary seed; other cereals such as Jawar, Bajra, Ragi (other than those put up in unit container and bearing a registered brand name) (HSN Code – 1008)

Milling Industry Products

  • Wheat or meslin flour (other than those put up in unit container and bearing a registered brand name) (HSN Code – 1101)
  • Cereal flours other than of wheat or meslin, (maize (corn) flour, Rye flour, etc.) (other than those put up in unit container and bearing a registered brand name) (HSN Code – 1102)
  • Guar meal (HSN Code – 11061010)
  • Cereal groats, meal and pellets (other than those put up in unit container and bearing a registered brand name) (HSN Code – 1103)
  • Flour, of potatoes (other than those put up in unit container and bearing a registered brand name deleted w.e.f 10/11/2017) (HSN Code – 1105
  • Cereal grains hulled (HSN Code – 1104)
  • Flour, of the dried leguminous vegetables of heading 0713 (pulses) (other than guar meal 1106 10 10 and guar gum refined split 1106 10 90), of sago or of roots or tubers of heading 0714 or of the products of Chapter 8 i.e. of tamarind, of singoda, mango flour, etc. (other than those put up in unit container and bearing a registered brand name) (HSN Code – 1106)

Oil Seeds, Fruit and Part of Plants

  • All goods of seed quality (HSN Code – 12)
  • Soya beans, whether or not broken, of seed quality (HSN Code – 1201)
  • Ground-nuts, not roasted or otherwise cooked, whether or not shelled or broken, of seed quality (HSN Code – 1202)
  • Linseed, whether or not broken, of seed quality (HSN Code – 1204)
  • Rape or colza seeds, whether or not broken, of seed quality (HSN Code – 1205)
  • Sunflower seeds, whether or not broken, of seed quality (HSN Code – 1206)
  • Other oil seeds and oleaginous fruits (i.e. Palm nuts and kernels, cotton seeds, Castor oil seeds, Sesamum seeds, Mustard seeds, Safflower (Carthamus tinctorius) seeds, Melon seeds, Poppy seeds, Ajams, Mango kernel, Niger seed, Kokam) whether or not broken, of seed quality (HSN Code – 1207)
  • Seeds, fruit and spores, of a kind used for sowing (HSN Code – 1209)
    Hop cones, fresh (HSN Code – 1210)
  • Plants and parts of plants (including seeds and fruits), of a kind used primarily in perfumery, in pharmacy or for insecticidal, fungicidal or similar purpose, fresh or chilled (HSN Code – 1211)
  • Locust beans, seaweeds and other algae, sugar beet and sugar cane, fresh or chilled (HSN Code – 1212)
  • Cereal straw and husks, unprepared, whether or not chopped, ground, pressed or in the form of pellets (HSN Code – 1213)
  • Swedes, mangolds, fodder roots, hay, lucerne (alfalfa), clover, sainfoin, forage kale, lupines, vetches and similar forage products, whether or not in the form of pellets (HSN Code – 1214)

Gums, Resins, Vegetable SAP & Extracts

  • Lac and Shellac (HSN Code – 1301)

Vegetable Materials and Products

  • Vegetable materials of a kind used primarily for plaiting (for example, bamboos, rattans, reeds, rushes, osier, raffia, cleaned, bleached or dyed cereal straw, and lime bark) (HSN Code – 1401)
  • Unworked coconut shell (HSN Code – 1404)
  • Betel leaves (HSN Code – 4049040)
  • Vegetable materials, for manufacture of jhadoo or broom sticks (HSN Code – 14049090)

Sugar, Jaggery, Honey & bubble Gums

  • Jaggery of all types including Cane Jaggery (gur) and Palmyra Jaggery (HSN Code – 1701 or 1702)

Pizza, Cake, Bread, Pasta & Waffles

  • Puffed rice, commonly known as Muri, flattened or beaten rice, commonly known as Chira, parched rice, commonly known as khoi, parched paddy or rice coated with sugar or gur, commonly known as Murki (HSN Code – 1904)
  • Pappad, by whatever name it is known, except when served for consumption (HSN Code – 1905)
  • Bread (branded or otherwise), except when served for consumption and pizza bread (HSN Code – 1905)

Tea & Coffee Extract & Essence

  • Prasadam supplied by religious places like temples, mosques, churches, gurudwaras, dargahs, etc. (HSN Code – 2106)

Water, Mineral & Aerated

  • Water (other than aerated, mineral, purified, distilled, medicinal, ionic, battery, de-mineralized and water sold in sealed container) (HSN Code – 2201)
  • Non-alcoholic Toddy, Neera including date and palm neera (HSN Code – 2201)
  • Tender coconut water other than put up in unit container and bearing a registered brand name (HSN Code – 2202 90 90)

Flours, Meals & Pellets

  • Aquatic feed including shrimp feed and prawn feed, poultry feed & cattle feed, including grass, hay & straw, supplement & husk of pulses, concentrates & additives, wheat bran & de-oiled cake (HSN Code – 2302, 2304, 2305, 2306, 2308, 2309)

Salts & Sands

  • Salt, all types (HSN Code – 2501)

Fossil Fuels – Coal and Petroleum

  • Electrical energy (HSN Code – 27160000)

Gases and Nonmetals

  • Dicalcium phosphate (DCP) of animal feed grade conforming to IS specification No.5470 : 2002 (HSN Code – 2835)

Drugs & Pharmaceuticals

  • Human Blood and its components (HSN Code – 3002)
  • All types of contraceptives (HSN Code – 3006)

Fertilizers

  • All goods and organic manure (other than put up in unit containers and bearing a registered brand name) (HSN Code – 3101)

Essential Oils, Beauty Products

  • Kajal (other than kajal pencil sticks), Kumkum, Bindi, Sindur, Alta (HSN Code – 3304)

Insecticides, Artificial Carbon & Graphite

  • Municipal waste, sewage sludge, clinical waste (HSN Code – 3825)

Polymers, Polyethylene, Cellulose

  • Plastic bangles (HSN Code – 3926)

Rubber, Plates, Belt, Condensed Milk

  • Condoms and contraceptives (HSN Code – 4014)

Fuel wood, Wood Charcoal

  • Firewood or fuel wood (HSN Code – 4401)
  • Wood charcoal (including shell or nut charcoal), whether or not agglomerated (HSN Code – 4402)

Newsprint, Uncoated paper & paperboard

  • Judicial, Non-judicial stamp papers, Court fee stamps when sold by the Government Treasuries or Vendors authorized by the Government (HSN Code – 4802)
  • Postal items, like envelope, Post card etc., sold by Government (HSN Code – 4802)
  • Rupee notes when sold to the Reserve Bank of India (HSN Code – 48)

Printed Books, Brochures, Newspapers

  • Cheques, lose or in book form (HSN Code – 4907)
  • Printed books, including Braille books (HSN Code – 4901)
  • Newspapers, journals and periodicals, whether or not illustrated or containing advertising material (HSN Code – 4902)
  • Children’s picture, drawing or coloring books (HSN Code – 4903)
  • Maps and hydrographic or similar charts of all kinds, including atlases, wall maps, topographical plans and globes, printed (HSN Code – 4905)

Silk Worm Cocoon, Yarn, Waste & Woven Fabrics

  • Silkworm laying, cocoon (HSN Code – 5001)
  • Raw silk (HSN Code – 5002)
  • Silk waste (HSN Code – 5003)
  • Khadi fabric, sold through Khadi and Village Industries Commission(KVIC) and KVIC certified institutions/outlets (HSN Code – 50)

Wool Materials & Waste, Animal Hairs

  • Wool, not carded or combed (HSN Code – 5101)
  • Fine or coarse animal hair, not carded or combed (HSN Code – 5102)
  • Waste of wool or of fine or coarse animal hair  (HSN Code – 5103)

Cotton Materials, Synthetics & Woven Fabrics

  • Gandhi Topi (HSN Code – 52)
  • Khadi Yarn (HSN Code – 52)

Flex Raw, Vegetable Materials & Paper Yarn

  • Jute fibers, raw or processed but not spun (HSN Code – 5303)
  • Coconut, coir fiber (HSN Code – 5305)

Blankets & Bedsheets

  • Indian National Flag (HSN Code – 63)

Artificial flowers, Wigs & False Beards

  • Human hair, dressed, thinned, bleached or otherwise worked (HSN Code – 6703)

Bricks, Blocks & Ceramics

  • Idols made of clay (HSN Code – 69)
  • Earthen pot and clay lamps (HSN Code – 69)

Glasses, Mirrors, Flasks

  • Glass bangles (except those made from precious metals) (HSN Code – 7018)

Hand Tools & Cutlery

  • Agricultural implements manually operated or animal driven i.e. Hand tools, such as spades, shovels, mattocks, picks, hoes, forks and rakes; axes, bill hooks and similar hewing tools; secateurs and pruners of any kind; scythes, sickles, hay knives, hedge shears, timber wedges and other tools of a kind used in agriculture, horticulture or forestry (HSN Code – 8201)
  • Handloom (weaving machinery)

Industrial Machinery

  • Amber charkha (HSN Code – 8445)

Balloons, Parachutes & Airlift Gear

  • Spacecraft (including satellites) and suborbital and spacecraft launch vehicles (HSN Code – 8802 60 00)
  • Parts of goods of heading 8801 (HSN Code – 8803)

Medical, Chemical & Astronomy

  • Hearing aids (HSN Code – 9021)

Pencil Lighter Toiletries

  • Muddhas made of sarkanda and phool bahari jhadoo (HSN Code – 9603)
  • Slate pencils and chalk sticks (HSN Code – 9609)
  • Slates (HSN Code – 9610 00 00)

Musical Instruments

  • Indigenous handmade musical instruments (HSN Code – 92)

Machinery Lab Chemicals Drugs Medicines

  • Passenger baggage (HSN Code – 9803)

What is Form GST ANX-1 Under New GST Return?

Posted on by Tally Academy

What is FORM GST ANX-1?

FORM GST ANX-1 is an annexure to the main return GST RET-1 introduced under the new filing system of simplified returns under GST. This annexure will contain details of all outward supplies, inward supplies liable to reverse charge and import of goods and services. Details in this annexure will have to be reported invoice-wise (except for B2C supplies) based on continuous uploading facility to be made available on GST portal. The reporting can be done on a real-time basis, and will be available for the recipient of supplies to take necessary action in their FORM GST ANX-2.

What are the contents of FORM GST ANX-1?

A taxpayer needs to input the GSTIN and the basic details such as trade name, legal name, etc. will be auto-populated on the basis of the GSTIN.

Details of outward supplies, inward supplies attracting reverse charge and import of goods and services: The details will be entered as follows-

Table No. Name of the Table Instructions Notes
3A Supplies made to consumers and unregistered persons (Net of debit/credit notes) All supplies that have been made to consumers and unregistered persons (i.e. B2C) need to be reported here. The supplies need to be reported in a summary form tax rate wise and net of debit/credit notes.

HSN Codes are not required to be reported here.
3B Supplies made to registered persons (other than those attracting reverse charge) All supplies (other than those which attract reverse charge) that have been made to registered persons (i.e. B2B) need to be reported here. Reporting of supplies made to entities (including Government departments) having a TDS or TCS registration need to be also reported here.

This would also include amendments, if any.

 Only the supply of services (NOT goods) made by an SEZ to a person located in a  domestic tariff area (DTA) needs to be reported here.

The supply of goods by an SEZ to a person located in the DTA shall be reported in table 3K.

The supply of goods or services made TO an SEZ unit shall not be reported here, but reported in table 3E or 3F, as the case may be.

The ‘invoice value’ needs to be reported in column 6 and the ‘taxable value’ in column 9.

For ex: If the taxable value is Rs 200, the tax at 18% will be Rs 36, hence the total invoice value will be Rs 236.
3C & 3D Exports with/without payment of tax All exports with payment of tax (i.e. Integrated tax or IGST) need to be reported in table 3C, while exports without payment of tax need to be reported in table 3D. The shipping bill number / bill of export number that is currently available as on the date of filing of return needs to be reported against the export invoices.

The details of the remaining shipping bills can be reported after filing of the return. A separate functionality for updating details in table 3C 3D will be made available on the portal.
3E & 3F Supplies to SEZ units/developers with/without payment of tax All supplies made to SEZ units / developers with payment of tax need to be reported in table 3E, and supplies made without payment of tax need to be reported in table 3F. This includes amendments, if any. For supplies made with the payment of tax, the supplier will have an option to select if either he will claim refund on such supplies or the SEZ unit. The SEZ unit is eligible to avail input tax credit and claim a refund on unutilised credit after export, ONLY if the supplier is not availing such refund.
3G Deemed exports All supplies treated as deemed exports need to be reported here. This would include amendments, if any. The supplier has the option to declare if the refund will be claimed by him, or the recipient of deemed export supplies. If the refund is claimed by the supplier, then the recipient will not be eligible to avail input tax credit on such supplies.
3H Inward supplies attracting reverse charge (to be reported by the recipient, GSTIN wise for every supplier, net of debit/credit notes and advances paid, if any) All inward supplies which attract reverse charge need to be reported here by the recipient. The details have to be reported GSTIN-wise and not invoice-wise. Advances paid on such supplies shall be declared in the month in which the advance was paid.

The value of supplies reported shall be net of the following:

debit/credit notes, and -advances on which tax has already been paid at the time of payment of advance, if any.

If only an advance has been paid to the supplier, and no invoice or supply received, then on reporting the same, this credit shall reflect in the main return (FORM GST RET-1), but needs to be reversed in table 4 of the said return. This credit can be availed only on receipt of the supply and issue of invoice by the supplier.
3I Import of services (net of debit/ credit notes and advances paid, if any) Services which have been imported need to be reported here. The value of supplies needs to reported net of debit / credit notes, and advances paid, on which tax has already been paid at the time of payment of advance.

The amount of advance paid needs to be declared in the month in which the same was paid.

Details are not required to be reported invoice-wise in this table.

Services received from SEZ units / developers shall not be reported in this table.

If only an advance has been paid to the supplier, and no invoice or supply received, then on reporting the same, this credit shall reflect in the main return (FORM GST RET-1), but needs to be reversed in table 4 of the said return. This credit can be availed only on receipt of the supply and issue of invoice by the supplier.
3J Import of goods The details of taxes paid on the import of goods need to be reported here.

 

These goods were subjected to IGST at the time of import, and are hence not subjected to tax once again while filing this return. The amount of IGST and cess paid at the port of import needs to be reported here, in order to avail input tax credit.

 Any reversal done due to ineligibility of credit or otherwise is to be carried out in table 4B of the main return (FORM GST RET-1).
3K Import of goods from SEZ units / developers on a Bill of Entry Goods received from SEZ units / developers on a Bill of Entry need to be reported here by the recipient.

 

These goods were subjected to IGST at the time of clearance into the DTA, and are hence not subjected to tax once again while filing this return.

 The SEZ unit making such supplies should not include such outward supplies in table 3B.

The reporting in table 3J and 3K shall be required till such time the data from ICEGATE and SEZ to GSTN system starts flowing online.
3L Missing documents on which credit has been claimed in T-2 /T-1 (for quarter) tax period and supplier has not reported the same till the filing of return for the current tax period The recipient needs to provide document-wise details of the supplies for which credit has been claimed but the details of supplies are yet to be uploaded by the supplier(s) concerned as detailed below:

 

(i) Where the supplier has not reported supplies even after a lapse of two tax periods in the case of monthly return filers and after a lapse of one tax period in the case of quarterly return filers.

 

(ii) Where the supplier uploads the invoice after the recipient reports the same in this table, then such credit needs to be reversed by the recipient in table 4B(3) of the main return (FORM GST RET-1) as this credit cannot be availed twice.
4 Details of the supplies made through e-commerce operators liable to collect tax under section 52 (out of any outward supplies declared in table 3) All supplies made through e-commerce operators liable to collect tax under section 52 shall be reported here at a consolidated-level in this table even though these supplies have already been reported in table 3.

What is the format of FORM GST ANX-1?

Form GST ANX-1 Format

Important pointers taxpayers should know while filing FORM GST ANX-1?

  • The supplier can upload documents continuously and on a real time basis
  • The documents issued during a particular tax period or for any other prior period, which have been uploaded by him in the current return filing period, shall be accounted towards the tax liability of the supplier in whichever return these details have been uploaded
  • The recipient will get input tax credit during a tax period based on documents uploaded by the supplier till the 10th of the month following the month for which the return is being filed for, or the10th of the month following the quarter in case of quarterly filers
  • The details of the documents uploaded by the supplier shall be available for the recipient in FORM GST ANX-2 to take action such as to accept, reject or to keep the document pending
  • Supplies which attract reverse charge need to be reported only by the recipient and not by the supplier in this annexure
  • The place of supply (POS) has to be reported for all supplies, and this requirement is mandatory. In the case of intra-State supplies, the POS will be the State in which the supplier is registered
  • The tax rate applicable on IGST supplies can be selected from a drop-down menu. For intra-State supplies, the tax rate will be half the tax rate of Integrated tax, to be split equally between Central tax and State / UT tax. Cess should be reported under the cess column if it is applicable
  • Wherever supplies are reported net of debit/credit notes, even if the values become negative in any particular cases, the same can be reported as it is
  • All suppliers with an annual aggregate turnover over Rs 5 crores, and in relation to imports, exports, and SEZ supplies have to upload HSN-level data., whereas other taxpayers (with annual aggregate turnover up to Rs 5 crores) can report HSN codes on an optional basis in the relevant table, or leave the same blank
  • The tax amount shall be computed by the system based on the taxable value and tax rate. The tax amount so computed cannot be edited, except by issuing debit/credit notes. However, the amount under Cess will be reported by the taxpayer himself
  • Any documents rejected by the recipient shall be conveyed to the supplier only after filing of the return by the recipient
  • The new return system provides for editing or amendment of details only from the supplier’s side. The recipient can reset, unlock or reject a document, however, the option to edit or amend a document shall be made available to the supplier only
  • The rejected documents can be edited before filing any subsequent return for any month or quarter by the supplier, and the credit of the same will be available to the recipient in the next open FORM GST ANX-2. The liability for such edited documents, however, will be accounted for in the tax period in which the supplier has uploaded the documents.
  • In situations where the particulars of the document may be correct but the document has been reported in the wrong table. A facility of shifting these documents to the appropriate table will be provided in such cases so that these rejected documents can be shifted instead of needing to amend them
  • A supplier can, at any time, amend documents relating to supplies made to persons such as composition taxpayers, ISD, UIN holders etc., and the same shall not be dependent upon the action taken (accept/reject/pending) by the recipient
  • Documents belonging to the previous period prior to the current return filing system can be uploaded in the relevant tables of this annexure. Only those details can be uploaded which have not been included in the erstwhile FORM GSTR-1

Inventory Management: Importance and Benefits

Posted on by Tally Academy

Inventory is one of the most crucial aspects of any business model. A close tab on the movement of inventory can make or break your business and that’s why entrepreneurs always emphasise on effective inventory management. While a few business owners do understand the significance and cruciality of tracking inventory on a regular basis, some fail to realise its importance making their business fall through the unseen cracks.

Importance and Benefits of Inventory Management

The importance of inventory management cannot be stressed enough especially for eCommerce and online retail brands. Accurate inventory tracking allows brands to fulfil orders timely and accurately. Inventory management in businesses must grow as the company expands. With a strategic plan in place that optimizes the process of overseeing and managing inventory, including real-time data of inventory conditions and levels, companies can achieve inventory management benefits that include:

Accurate Order Fulfilment

With an effective inventory management system, you can easily track the stock in the warehouse. Bid goodbye to overstocking, stocking of obsolete items, understocking and start focusing on making your brand become one of the key players in the market space. Develop a robust plan with the help of an efficient accounting software and avoid inaccurately filled orders, high return volumes and a loss of customer base.

Better Inventory Planning and Ordering

Striking a balance between the demand and supply is extremely crucial for businesses, thus, inventory management provides aid in better planning and ordering of stock items. Imagine having a huge demand for a particular product but not having enough material to supply the same. Sounds like your worst nightmare, right? A detailed inventory management mitigates these issues, allowing warehouse managers to refresh inventory only when needed. It’s both space and cost-effective.

Increased Customer Satisfaction

Since a systematic and robust inventory tracking system will give you a comprehensive view of your stock at-hand, it yields in an increased customer satisfaction. In retail sector, customers resent late deliveries or “out of stock” notifications and eventually never return to the website to fulfil their shopping needs. However, good inventory management leads to orders being fulfilled more quickly and shipped out to customers faster. The enhanced processes can help eCommerce and online retail brands build a strong repertoire with consumers – and keep them coming back for more.

Organised Warehouse

A good inventory management strategy leads to an organized fulfilment centre. An organized warehouse results in more efficient present and future fulfilment plans. This also includes cost-savings and improved product fulfilment for businesses utilizing the warehouse for managing inventory.

Minimise the Blockage of Financial Resources

The importance of inventory control is to minimise the blockage of financial resources. It reduces the unnecessary tying up of capital in excess inventories and also improves the liquidity position of the firm. With proper inventory tracking module, business owners can take quicker decisions about the stock lying in the warehouse more wisely.

Income Statement – Definition, Format and Example

Posted on by Tally Academy

Definition of income statement

The income statement presents information on the financial results of a company’s business activities over a period of time.

It communicates to users how much revenue the company has generated during the period and the cost incurred by it in connection to generating such revenues. Income Statement is also called by different names as “statement of operations” or “statement of earnings” or “profit and loss statement”.

Business engaged in services usually prepare income statement instead of profit & loss a/c. While the objective remains the same, owing to the difference in the nature of business, few components are different in the income statement.

Components of income statement

Revenue

Revenues are the amounts from the sale of goods and services in the normal course of business. And net Revenue means all proceeds from the sale of goods and services excluding the returns.

 For example, Zen Phones, an electronic store selling phones and computers. This implies that Company A is in the sales business and its revenue is from the sale of computers and mobile phones.

Let’ take another example.

Max associates is a law firm rendering consultancy services to their clients. Here, they are engaged in the business of rendering services for which it charges a fee. So here fee is the revenue forming part of Income Statement.

However, there are also other forms of revenue such as interest income, royalty income, rental income etc. that will be part of the statement.

Expenses

Expenses are the amounts incurred to generate revenue and includes the cost of rendering services such as operating expenses, interest payments, rent, salaries and wages, taxes etc.

For example, Max associates is a law firm providing legal consultancy services to its clients.

In the process of rendering services, the company will incur various expenses such as promotional expense (advertisement expenses), sales managers’ salaries, depreciation on usage of fixed assets and other administrative expenses to earn revenue by rendering services. All these expenses form part of the income statement as they are incurred in relation to such revenues.

Net Income

Here, the net income is nothing but an excess of revenue over the expenses. In other words, after deducting all the expenses and taxes from the revenue earned during the period, remaining is the net income from the business operation.

Format of income statement

A format of an income statement is very important as it is the means of communication of operating results to outsiders. The income statement format includes details such as the company’s name, the title stating, “Income Statement”, the period covered, and other key components as discussed above.

Company Name

    Income Statement

          For the period ______
Particulars  Amount (Rs.) Amount (Rs.)
Revenues

Service revenue/revenue from sale of goods/royalty/rental/interest income/commission income etc.

   xxx
Expenses

Salary expense

Rent expense

Depreciation expenses

Office expenses

Bank charges

Interest expense

 

Total Expenses

  

xxx

xxx

xxx

xxx

xxx

xxx

  

 

 

 

 

 

 

 

xxx
Profit before taxes (Revenues – Expenses)   xxx
Tax Expense   xxx
Net Profit or Net Income (Profit before taxes – taxes)   Xxx

Single-step income statement format

 

Income statement example

Below is the income statement example of Max Associates, who are into legal consultancy service.

Max Associates

    Income Statement

          For the period 1-4-2019 to 31-3-2020
 Particulars Amount (Rs.) Amount (Rs.)
Revenues

Revenue from legal consultancy fee

    

25,00,000
Expenses

Salary expense

Rent expense

Depreciation expenses

Office expenses

Bank charges

Interest expense

 

Total Expenses

  

2,00,000

1,80,000

30,000

20,000

12,000

8000

  

 

 

 

 

 

 

 

4,50,000
Profit before taxes (Revenues – Expenses)   20,50,000
Tax Expense   3,00,000
Net Profit or Net Income (Profit before taxes – taxes)   17,50,000

Why do businesses prepare income statements?

We must mainly remember one thing that a company does not operate wholly on owned funds, it borrows money from outsiders to run its operational activities.

So, the external users of income statement i.e. investors, creditors and other lenders must make decisions about resource allocation as where to put their money. They use the income statement to find out answers for the questions they may have about the future profitability of the business.

  • For investors – This statement will help them to decide whether to keep or sell the shares they own in the company. The investors also use the income statement to determine the ability of a company to pay dividends.
  • For lenders – Lenders use the income statement to find out whether the company will be able to repay the loan with interest in the future.
  • Creditors – They use the income statement to determine whether the company will be profitable enough to repay their debts as they come due.

How do businesses prepare income statement?

With the help of ERP software, preparing an income statement is made a lot easier. Gone are those days where you need to wait for the closure of books to determine the net income. Today, most businesses have automated the preparation of various financial statement including income statement using ERP software or accounting software.

Usage accounting software has helped the business owners to frequently check the income statement and accordingly take the corrective actions as when required.