Business Accounting

Question: Show the ledger accounts in B’s books.

Solution: In B’s Books:

Bills Payable Account

A’s Account

Interest Payable Account

Note:On maturity, the bank will present the bill to B. On its dishonor, the bank will hand the bill back to A and will debit A’s bank account with the face value of the bill. In A’s book, the amount is debited back to B’s account to show that B is still in debt.

Below shows the accounting entries of Bills Receivable and an illustration on how to pick up the Bills Receivable in the Ledger Accounts.

Question:  Show the ledger accounts in A’s books. 

Solution:  In A’s Books: 

                            Bills Receivable Account

                                   B’s Account

                                   Bank Account

                         Discount Charges Account

                           Interest Receivable Account

• “is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future date, a sum certain in money to or to the order of a specified person or bearer”

2.       Parties to a Bill of exchange: 

• There are three (3) parties to a bill viz:

     (i)     Drawer - the party who draws the bill and signs it ( usually creditor)

     (ii)    Drawee - the party to whom the bill is addressed (usually debtor)

     (iii)  Payee – the party to whom the bill is expressed to be payable 3.       When a drawee accepts the bill and signs he/she  is known as the acceptor. The acceptor is primarily liable on a bill to the drawer so long as the drawer retains the bill. When the bill is negotiated and transferred to a payee, the drawer than become liable on the bill as well as the acceptor.

4.      The bill of exchange after it is accepted is known as bill receivable to the drawer and bill payable to the acceptor  5.   When a bill receivable is discounted, the bill is actually being sold to the discount house for cash. The difference between the amount stated in the bill and the cash received is known as discount. This discount is the consideration payable for obtaining the money in advance of maturity date. The discount house will then hold the bill until maturity when it will present it to the debtor for payment.

Benefits Of Budgeting:

Reinforce the management process of planning ahead. In fact, budget compel the managers to think and anticipate of future challenges, formulate strategies ,etc so as to achieve  the desired company’s goals;

A budget is in reality a set of plan. This plan is created by all the relevant managers to create a course of action for future action(s)

Create a basis for Performance Evaluation of Managers’ performance. Incentives are based on how much have been achieved against the budgeted figures. Hence, if budgets are set up realistically will assist to motive manager and employees positively.

Aid in resource planning and allocation, key or scarce resources or capital expenditure are carefully review during the establishment of the budgets;

Promote continuous improvement. In the budgeting stage, non-value adding activities shall be elimianted, new or enhanced processes are designed to increase productivity, etc.;

Budgeting is the best time for all level of manager to co-ordinate together so as to plan ahead, promotes teamwork, process improvement and goal congruency between the company and the employees.

Delegation of duties, authority limit and responsibility are more properly segregated as budgets are set up. With budgets, top management feel that they are in control of the various business activities of the company.

Limitation Of Budgeting:

De-motivation of employees as they feel that the budgeted figures are way too high to achieve;

Budgetary slack or padding the budgets as managers will intentionally blow up their budget figures for fear of top management’s reprimanding them;

A budget tends to emphasize on results and the real reasons are being ignored;

Unrealistic budgets can lead managers to make decisions that might be detrimental to the company. A good example of over-ambitious sales budget will lead to disastrous impact like giving steep discount to increase volume,etc.;

No matter how well prepared a budget might be, it will never be able to reflect truly the reality/complexities faced by the company;

There is a need to revise/update the budget which at the time was based on a certain set of circumstances/best information.

Budgets if not properly buy in by all relevant parties will not get the full cooperation hence it might lead to the motto:Planning to fail