Question

define grants, payroll, cash management, fixed assets  and how to process the transaction

Answer 1

Grants :

Grants are the financial support to the Institutions , who are promoting some specially designated activities in promotion of the Government policies for improvement of certain area or people . Generally, Grants are disbursed by the Government or the Government agencies for supporting the common cause of development of people or some innovation or improvement of certain , specified areas or activities. It is given in terms of finance , on completion of certain parameters and Investment.Generally, Grants are given to non-profit organizations as they don’t have any source of income and they might need it to run the noble cause like disaster management or helping out some life saving activities of the masses. Grants are granted on submission of the information in a prescribed format alongwith the detail of the work done and after checking the compliance of it with the regulations for availment of government grants.

Government Grants are Accounted for as per IAS 20 –Accounting for Government Grants and Disclosure of Government Assistance.

These Grants have to be duly recorded into Financial Statements and must be displayed in the manner prescribed by the respective agency. Grants are either shown as a credit to Profit & Loss Account in “ other income ”or deducted from the expense.

Non monetary Grants are recorded in the Assets of the Balance Sheet and charged to Profit & Loss account on a deferred revenue basis , over a period of years.

Payroll:

Payroll is the process by which the employees of the organization are paid and for that the working hours and working days are considered . The employees are paid on the rates , agreed by them , individually by the Employer . Payroll is generally processed at every month end and there is a set date or set of days, when this Payroll is processed and employees are paid Salaries for the last month.Payroll is processed after considering the number of hours worked , number of days worked, the rate per day of salary , the deductions like Income tax any loans taken etc and the net salary is credited to the Bank Accounts , directly or through some cheques.

Payroll is prepared for Gross monthly emoluments , then the deductions such as Income Tax , Professional Tax , any loans or expenses to be recovered are deducted from the Gross emoluments and then the Net payable amount is credited to the individual employee.

At every month end , this entry of Salary with all taxes payable is recorded so that in the next month the taxes could be paid as per the prescribed dates.

Cash Management :

Cash Management is the process of handling the Inflow as well as the Outflow of the cash for the financial transactions during the year. On routine basis there is a Cash book by the Cashier and it is verified , daily by the Accounts head so as to ensure that all the cash transactions have been duly recorded and the closing cash is matching with the Physical cash. Cash is a sensitive area and due Internal controls are required to handle this.

At the end of the year, every organization has to prepare a Cash flow statement , which shows the inflows as well as the outflows of the cash during the year.

Cash flow statement contains three major activities:

Cash from operating activities, Cash from financing activities and Cash from investing activities , where are different kind of cash handling is recorded into separate segments, as mentioned above. This method has been prescribed to display the proper movement of cash inflows as cash outflows with the purpose thereof.

Fixed Assets:

Fixed Assets are the long term piece of property , machinery and equipment which is used in day to day activities for running production activities. Fixed Assets are depreciated every year for its use as the useful life is decreasing day by day and for that the depreciation is   charged to each Fixed Asset. Fixed Assets are recorded into books at its cost plus any installation and commissioning expenses and any directly or indirectly incurred expenses which has contributed to Install the Fixed Asset.

Fixed Assets are shown in the Balance Sheet under the head – Property , Plant and Equipment . Fixed Assets are charged to Depreciation either by Straight line method or Reducing balance method.

Under Straight line method , a Fixed Asset is charged to depreciation on a Fix rate , based on useful life and the salvage value . Every year the depreciation is charged on a Fixed Amount .

Under Reducing balance method , the Depreciation is charged every year on the reduced balance of the Fixed Asset.

Depreciation is charged to Profit and Loss Account at the year end.

Any addition and disposal is duly accounted for and the pro-rata depreciation is charged on it.

Conclusion : We have discussed all the terms above and also the shown as how to process the transaction.