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TRADE CREDIT, ACCRUED EXPENSES AND DEFERRED INCOME

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Financial Management

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TRADE CREDIT, ACCRUED EXPENSES AND DEFERRED INCOME

  1. 1. TRADE CREDIT, ACCRUED EXPENSES AND DEFERRED INCOME
  2. 2. 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
  3. 3. DEFINATION “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.”
  4. 4. 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
  5. 5. 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.
  6. 6. ADVANTAGES Easy availability, No formalities involved, Convenient method of raising short term finance,
  7. 7. DISADVANTAGES Prices 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.
  8. 8. ACCRUED EXPENSES
  9. 9. 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.
  10. 10. EXAMPLES OF ACCRUED EXPENSES Accrued wages and salaries Accrued taxes
  11. 11. 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.
  12. 12. DIFFERENCE B/W ACCRUED EXPENSES AND DEFERRED INCOME
  13. 13. Accrued Expenses Deferred Expenses are expenses paid in advance but not yet incurred are expenses already incurred but still unpaid
  14. 14. 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.

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