Direct Method for calculating Funds from Operations |
Direct Method for calculating Funds from Operations |
To use this method, we at least need to have the information relating to gross profit, incomes and expenses.
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Particulars | Amount | Particulars | Amount | |||
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To Salaries and Wages To Rent and Rates To Interest To Provision for Taxes To Depreciation on Machinery To Depreciation on Furniture To Loss on Sale of Motor Car To Reserve for Bad Debts To General Reserve To Special Reserve To Goodwill Written off To Discounts on issue of Shares To Net Profit | 3,42,000 1,24,000 76,000 1,32,000 87,000 39,000 91,000 42,000 1,25,000 75,000 50,000 40,000 5,25,000 | By Gross Profit By Commission By Miscellaneous Income By Profit on Sale of Asset | 12,50,000 2,80,000 1,54,000 64,000 | |||
16,84,000 | 16,84,000 |
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Particulars | Amount | Particulars | Amount | |||
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To Salaries and Wages To Rent and Rates To Interest To Reserve for Bad Debts To Funds From Operations | 3,42,000 1,24,000 76,000 42,000 11,00,000 | By Gross Profit By Commission By Miscellaneous Income | 12,50,000 2,80,000 1,54,000 | |||
16,84,000 | 16,84,000 |
The funds from operations would be carried down to the Profit and Loss appropriation account. The affect of the other transactions relating to losses, gains, appropriations and adjustments is dealt with through this account.
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Particulars | Amount | Particulars | Amount | |||
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To Provision for Taxes To Depreciation on Machinery To Depreciation on Furniture To Loss on Sale of Motor Car To Goodwill Written off To Discounts on issue of Shares To Net Profit (unappropriated) | 1,32,000 87,000 39,000 91,000 50,000 40,000 7,25,000 | By Funds from Operations By Profit on Sale of Asset | 11,00,000 64,000 | |||
11,64,000 | 11,64,000 | |||||
To General Reserve To Special Reserve To Net Profit | 1,25,000 75,000 5,25,000 | By Net Profit (unappropriated) | 7,25,000 | |||
7,25,000 | 7,25,000 |
We first consider the postings representing losses, gains and thus obtain the net profit before appropriations and adjustments. Next we consider the postings representing appropriations and adjustments thereby obtaining the net profit transferred to the capital account.
We generally come across a consolidated view of the above account wherein information relating to losses and appropriations are mixed up and information relating to adjustments and gains are mixed up instead of being dealt with separately.
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Particulars | Amount | Particulars | Amount | |||
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To Provision for Taxes To Depreciation on Machinery To Depreciation on Furniture To Loss on Sale of Motor Car To General Reserve To Special Reserve To Goodwill Written off To Discounts on issue of Shares To Net Profit | 1,32,000 87,000 39,000 91,000 1,25,000 75,000 50,000 40,000 5,25,000 | By Funds from Operations By Profit on Sale of Asset | 11,00,000 64,000 | |||
11,64,000 | 11,64,000 |
The Profit and Loss appropriation account in financial accounting is posted with transactions representing appropriations and adjustments only. Whereas in financial management (in finding funds from operations) it is posted with transactions representing losses, gains, appropriations and adjustments.
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Particulars | Amount | Particulars | Amount | |||
---|---|---|---|---|---|---|
To Salaries and Wages To Rent and Rates To Interest To Reserve for Bad Debts To Funds From Operations | 3,42,000 1,24,000 76,000 42,000 11,00,000 | By Gross Profit By Commission By Miscellaneous Income | 12,50,000 2,80,000 1,54,000 | |||
16,84,000 | 16,84,000 | |||||
To Provision for Taxes To Depreciation on Machinery To Depreciation on Furniture To Loss on Sale of Motor Car To Goodwill Written off To Discounts on issue of Shares To Net Profit (unappropriated) | 1,32,000 87,000 39,000 91,000 50,000 40,000 7,25,000 | By Funds from Operations By Profit on Sale of Asset | 11,00,000 64,000 | |||
11,64,000 | 11,64,000 | |||||
To General Reserve To Special Reserve To Net Profit | 1,25,000 75,000 5,25,000 | By Net Profit (unappropriated) | 7,25,000 | |||
7,25,000 | 7,25,000 |
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