TRADE CREDIT, ACCRUED EXPENSES AND DEFERRED INCOME

TOPICS TO BE COVERED:-TRADE CREDIT:-DEFINATION

INTODUCTION

ADVANTAGES

DISADVANTAGES

ACCRUED EXPENSES:-INTODUCTION

EXAMPLE

DEFERRED INCOME:-INRODUCTION

EXAMPLE

DIFFERENCE B/W ACCRUED EXPENSES AND DEFERRED INCOME

“A supplier sends goods to the buyer on credit which the buyer accepts, and thus, in effect, agrees to pay the amount due as per sales terms in the invoice.”

DEFINATION

INTRODUCTION

Arises out of transfer of goods,

It is unsecured,

Granted for periods ranging from 15 days to 3 months,

Buying firm receives supplies without paying immediately

INTRODUCTION

Reflects the buyer’s power to purchase now and pay later,

Indicates the seller’s faith in the buyer,

No securities required for getting trade credit.

ADVANTAGES

Easy availability,

No formalities involved,

Convenient method of raising short term finance,

DISADVANTAGESPrices charged for credit

sales are usually higher,

Supplier has to bear a loss of

bad debts,

Requires a large working capital to supply goods on credit.

ACCRUED EXPENSES

ACCRUED EXPENSES

Accrued expenses are expenses incurred but not paid yet.Interest free source of finance.The accrued expenses account is a short-term liability.

Accrued wages

and salaries

Accrued taxes

EXAMPLES OF ACCRUED EXPENSES

Deferred income

• Any income that is received before it is earned.

• Rent paid in advance is an example of deferred income that is received during one accounting period but earned in later accounting period.

DIFFERENCE B/W ACCRUED EXPENSES AND

DEFERRED INCOME

Deferred Expenses are expenses paid in advance but not yet incurred

Accrued Expenses are expenses

already incurred but still unpaid

Deferred expenses are in fact an asset because it stands as a prepaid expenses.

Accrued Expenses are in fact a liability because it

stands as unpaid expenses.