REAL ACCOUNTS   DEBIT WHAT COMES IN 
                CREDIT WHAT GOES OUT
NOMINAL ACCOUNTS DEBIT ALL EXPENSES AND LOSSES
                 CREDIT ALL INCOMES AND REVENUES
PERSONAL ACCOUNTS  DEBIT THE RECEIVER
                   CREDIT THE GIVER

REAL ACCOUNTS      DEBIT WHAT COMES IN
                   CREDIT WHAT GOES OUT
             
NOMINAL ACCOUNTS   DEBIT ALL EXPENSES AND LOSSES  
                   CREDIT ALL INCOMES AND REVENUES

PERSONAL ACCOUNTS  DEBIT THE GIVER
                   CREDIT THE RECEIVER

as for accounting principals there are three,
under that we select which one is debit and credit and also 
called as the duble accounting system we must recored the 
transation one is debit and credit.for ex.purchases made we 
write the entry pur a/c dr
                    To creditor/cash

1)The debit is what you got
 and
 The credit is the source of the item you received.

deferred tax means it is a timing difference between the 
companies and income tax act. 

Deferred tax liability arise when the It act Depreciation 
higher than the companies act depreciation. 

Deferred tax Asset arise when the It act Depreciation 
lesser than the companies act depreciation.

Revenue expense are costs in the for day to day running of 
the business for example servicing a machine, spare parts 
etc. Revenue expenditure is normally charged against profit 
in the Income statement in the year it is expensed. 

Capital expenditure is on an item that will help generate 
profits over the longer term (12 months or more) so a 
purchase of a machine or van etc. The item is depreciated 
over the items useful life and each depreciateable amount 
is charged to the Income statement in the year the item has 
help generate profit

Auditor's liability

 On 3 November 2005 the government issued the Company Law 
Reform Bill.  This contains important amendments to the law 
on limitation of liability by auditors and introduces a new 
criminal offence in relation to audit reports.  This part 
of the Bill responds to the audit profession's call for the 
ability to limit their liability to prevent the 
next "Andersen".  It derives from a consultation process 
that has been ongoing for several years and builds on part 
of a White Paper issued in March 2005 and draft clauses 
published in July 2005. 

The key points in relation to auditors are as follows:

• The Bill allows auditors to limit their liability. 
 Auditors will for the first time be free to agree limits 
on their liability to companies in respect of statutory 
audits.  Any limit on liability must be agreed with the 
company.  It must also be approved by shareholders each 
year.  
 An agreement limiting the liability of an auditor will 
not be effective to limit liability to less than what is 
fair and reasonable in all circumstances having regard to 
the auditors' responsibilities, professional standards and 
contractual obligations. 
 The Bill expressly provides that the effect of failing 
this "fair and reasonable" test will not be that the clause 
is invalid. Instead the limit set will be what is 
considered fair and reasonable.  This gives auditors a 
significant advantage as they will not run the risk of 
having no protection if the original agreement went too far 
in limiting liability.  Generally if a clause limiting 
liability is considered unreasonable it will fail 
altogether and the court will not rewrite the parties' 
agreements to make it effective.  This is a change from the 
earlier draft clauses.
 The draft Bill gives auditors the freedom to set limits 
on their liability by reference to a fixed amount (a cap) 
or by whatever other criteria they think appropriate.  This 
gives auditors much more freedom than was suggested by the 
White Paper, which had said that the legislation would only 
permit auditors to agree proportionate liability with 
companies.  Introducing proportionate liability would have 
allowed auditors to limit the amount for which they are 
liable to a level that the court determines to be just and 
equitable in the light of the relative responsibility of 
the auditor and any other defendants.  Although it would 
still be open to auditors to agree proportionate liability 
with the company, the Bill does not restrict them to this 
and allows monetary caps.   

• A new criminal offence
 The bill introduces a new criminal offence for auditors 
of knowingly or recklessly causing an auditor's report on 
company accounts to include any matter that is misleading, 
false or deceptive in a material particular.  This will 
apply to individuals only, not firms.   In a change from 
earlier draft clauses, the penalty for the offence has 
been  reduced to a fine.  As a result, the risk of auditors 
being imprisoned for this  offence has been removed.
 Auditors will remain concerned that the offence can be 
committed through "reckless" behaviour.  The concept of 
recklessness potentially causes difficulty when applied in 
the context of an audit, which always involves an element 
of risk.  If the same definition of recklessness is applied 
by the courts to this offence as to others, this will be a 
worryingly low threshold and could amount to a judgment on 
whether the auditor acted "reasonably".  The concern is 
that an honest mistake could attract a criminal penalty. 

• Shareholders (100 together or holding 5% of the voting 
rights) have been given the right to require the company to 
publish on its website statements on any matter relating to 
the audit or the circumstances of an auditor leaving 
office.  The company must pass these to the auditor but 
there is no obligation on the auditor to answer any 
questions put. 

• A company audit must be signed (where the auditor is a 
firm) by a person authorised to sign on its behalf and the 
senior statutory auditor (pursuant to the relevant 
standards).  It is provided that the senior statutory 
auditor will not be subject to any additional civil 
liability as a result of doing so. 

• The position with regard to audit resignation statements 
is amended.  Previously (under s. 394 of the Companies Act 
1985) the court could only prevent the statement from being 
sent to the members if the auditor was seeking needless 
publicity for defamatory material.  Now it can do so in 
wider circumstances were the auditor is abusing the rights 
given to it.  Summary The clauses allowing auditors to 
limit their liability are a very helpful development for 
the audit profession.  They have also received the bonus of 
being allowed to cap their liability and not just agree 
proportionate liability. Moreover, by providing that 
agreements limiting liability below a fair and reasonable 
level do not fail, but are effective to limit liability to 
a fair and reasonable level,  auditors are put in a better 
position than all other professionals in relation to 
liability caps (and in a better position than accountants 
for their non-audit work).  Auditors will be disappointed 
that their intense lobbying over the wide scope of the new 
criminal offence has not changed the definition of the 
offence but will be relieved to see the potential penalty 
reduced from imprisonment to a fine.     

For further information or comment please contact:

John Trotter, Partner and head of Lovells professional 
negligence team 0207 296 2606/john.trotter@lovells.com

Nicholas Heaton, Partner, Lovells professional negligence 
team0202 296 5919/nicholas.heaton@lovells.com
 
Kate Horsfield, PR Manager, Lovells020 7296 
2675/kate.horsfield@lovells.com

Evey company will have its own accounting policy including
for costing ! The ways & means to be ascertained. Basic
things to arrive cost & cost sheet to be analyzed & to be
audited whether its in line with the policy & accounting
standard. For example a Landed Cost for imported
materials/components will be arrived as follows: viz., C I F
+local transport + loading & unloading charges + exchange
Loss. in fact erection & installation charges also to be
considered in the cost sheet.In case of Manufacturing
company a "Traveling Job Card/Cost" which gives various step
by step & stages the total expenses incurred to make a
complete product to be considered & audited. Cost sheet
which gives workings for all the above is the base one for
audit.

Audit Programme is the "Schedule" listed out by an Auditor
and drafted & given to his assistant that what are the areas
to be covered within the stipulated time. For example
"Inventory" has to be finalized in 10 days (ie. from date to
dt)like wise various areas viz.,
Purchase,Sales,Payroll,Accounts Receivable/Payable, Fixed
Assets (including physical verification)Cost audit etc.,
If  programed  &  charted out for (say) three months from
the account closing date ie after 31st March all the above
activities to go as per scheduled. Its called audit program me

Facrory over heads means the expenses which is occured in 
factory for producing a good/product that is called as 
factory overheads. This is also called as the one type of 
indirect expenses. Over heads are three types 1.Factory 
over heads 2.Office overheads 3. selling and distribution 
over heads.

factory overhead example:- wages or labor charge

The Reasons for Giving Credit Notes to Customers is in the 
Form of Target Reached by Customer by Selling the Products 
to Customers, and we will issue the Credit Notes in the 
form of Incentives (or Perks).


The Reasons for Sales Return to customers is as Follows:

1) Due to OverStock of that Product
2) Due to Leakage of that Product
3) Due to Damage of that Product.

Credit note will issue to customers for their rejection of 
goods delivered by company before raising any invoice.

Sales return will raise to customers  for their return of 
goods delivered by company after raising an invoice.

When we receives payment in advance from the customers or 
payment received but invoice or bill not entered or booked

Inthe Books Of B Entry will be
   Rent A/c .... Dr
       To A A/c
(as rent paid by A co in behalf of B Co )

Inthe Books Of A Entry will be

   B A/c ..... Dr
       To Cash/ bank A/c
(payment of exp behalf of b a/c )