Introduction to Accounting

There are 3 important documents

1. Balance Sheet
2. Income Statement aka Profit and Loss
3. Cash flow statement

Balance Sheet: gives point is time snapshot reflects what the company owns, owes and what the shareholders put in as equity.

Assets (own) = Liability (owe) + Equity (shareholders contributed)

Equity = Owners money [remember each shareholder is also owns part of business]       

There is a link between the income statement and the balance sheet. The connection is that at the end of the year the Profit of the year is transferred to the Equity portion of the balance sheet.

Net income from the income statement is not the Cash on the balance sheet.

Since accountants know that not all Accounts Receivable will be collected, the accountants: set up an “Allowance for Doubtful Accounts" account

Account Receivable -  Allowance for Doubtful Accounts = Net Receivable

Inventory is an asset that the company plans to sell as a regular part of their business.

Current assets = Cash + AR + Inventory

Inventory valuation is 4 types LIFO, FIFO, Average, Identification

Identification for large like Aircraft, Yacht etc

current assets are things we plan to sell or move through our company within 1 year.

Long Term Assets - You do not plan to sell or liquidate, that is Property, Plant , Equipment. we plant to use them to make money.

Property, Plant and Equipment are often summarized into a total called fixed assets on the Balance Sheet

Fixed assets on the Balance Sheet are sometimes referred to as capital assets .

In accounting language chairs in a restaurant could be considered Long Term Assets and it is not inventory. Whereas chairs in a furniture store could be considered inventory.

Amortization or depreciation is used, to make sure fixed asset values are not overstated on the Balance Sheet

Intangible Assets are trademarks, Patents, buying out somebody else's rights.

Intangible assets are tremendously important to technology firms.

Goodwill when companies buys another company  example

If a company buys another company that has total assets at $750,000 and they pay $950,000 for that company, the accountants would record $200,000 as Goodwill

Amortization is an expense that is always a non-cash item.

One method of calculating amortization is called straight-line. Under this method the cost (purchase price) of the asset is divided by the estimated life, in years, of the asset to determine the amount to be charged to each year.

If you have an asset such as a delivery truck the best amortization approach is to consider the life of the truck in terms of kilometres travelled. This is called the “units of production” methodology.

Liabilities:

Current liabilities = Wages payable + Interest payable + Dividend payable

Accounts payable represent amounts that a company owes and that is typically due within in one year

Long Term Liability = Bank loan + Bond

Bonds are a type of long-term debt and bonds create interest charges. On the Balance Sheet these two items are categorized in this manner

interest is recorded as a current liability and the bond as a long-term debt.

Long Term Debt is the most significant part in Liabilities.

There is a very strong connection between bankruptcies and the level of long -term debt in a given corporation. It is not common to file for bankruptcy if you have no long-term debt and if your current liabilities are at a reasonable level.

Equity:
A = L + EQ

EQ Equity = Common stock + Retained Earnings + Dividends

Common Stock is the cash given by people who bought the stock directly from the company like IPO, stock issuance

Issuing shares, equity financing, is very common when you start a business because, banks will not lend you money.

All items on the balance sheet are cumulative by nature, whereas all figures on the income statement are for a period of time and then begin at zero when the next period commences.

retained earning is not CASH

Dividends for a given year get deducted from the retained earnings balance and thus dividends can reduce the value of retained earnings.

liquidity is measure of how quickly an asset can be converted to cash

In balance sheet most liquid assets start at top

Liquidity or current Ratio = Current Assets / Current Liability ideally should be between 1 or 2,

too much liquidity is also not optimal as it indicates you have lot of assets

Quick Ratio is exactly the same as the current ratio with the adjustment being that we remove the inventory from the numerator as Inventory is less liquid and harder to convert to cash.

‘Income Statement’

It has top line (Revenue/ Sales) and bottom line. Income statement  is over period of time, created for 1 year.

Revenue – [Cost or Expense] = Profit or Net Income

We use brackets to denote subtraction
Income statement is used for period of time. Companies need to report quarterly Income statement if it is listed on Stock exchange. It has start and end. At the end of period all accounts are closed out and next year start afresh. we can consider the balance sheet analogy as a photo and the income statement analogy as a video.

Sales or Revenue

<Cost of Goods Sold COGS> or <Cost of Revenue>

------------------

Gross Margin

<Selling and Admin>

----------------
Net Income

Gross Margin divided by sales gives gross margin ratio percent. This is useful as we can compare the ratio for one firm to that of another firm.

Sales or Revenue is Top Line

Net Income is Bottom Line.

When transaction for example buy of Truck is occurs, it is added in Sales of Income Statement and Assets section's Acccount Receivables of Balance Sheet and Inventory in balance sheet is reduced and final net income is flows to Equity section of Balance sheet.

Account Receivables, when it gets collected it transfers to CASH

Normal business to business transactions extend credit for 20-30 days.

SALES are recorded, triggered when it is EARNED (Revenue Recognition)

EXPENSES are recorded, triggered when it is CONSUMED

Revenue recognition is accounting language to explain that if work is complete and transaction physically done accountants will call it revenue

Inventory sold in Balance sheet becomes COGS on the income statement.

When you build inventory, the only costs included in the inventory total are Direct materials, Direct Labor and Manufacturing overhead.

Cash Flow statement:

Cash flow is over period of time of 1 year

cash flow statement highlights where cash is generated and where cash is consumed.

CASH is like the oxygen of the company and fundamentally very important to company and it has its own statement.

The three main categories on the Cash Flow Statement are operations, investing and financing.

Managing cash levels is a fundamental role of the finance department or CFO, but does not equate to a strategy

Investing can be thought of buying Fixed Assets. A negative number under investing may mean the company may bought assets such as Property, Plant and Equipment and positive means company might have sold either of PPE

If we had two balance sheets, from the same company, exactly one year apart in time, we could determine the change in cash for that year by comparing the two cash totals, with the difference equaling the net change in cash for that year.

A realistic reason as to why financing might be a negative number for Toyota is that they may have used cash to "pay down" debt.

The financing section of the Cash Flow Statement records the cash that comes into the company from the outside market and is split into two types: debt financing example Bonds and equity financing example common stock, Dividends

Essentially every accounting category in the Cash Flow Statement could be a source or use of funds except dividends. Dividends are always a use or consumption of funds as they decrease the equity account.

RATIOS:

A/R Turnover Rate:

Sales / AR

Accounts receivable turnover rate is: Sales / average accounts receivable.

A higher turnover rate indicates that a firm is "good" at collecting its receivables.

If a company always maintains a balance of about $100,000 in accounts receivable and has sales of $200,000 in a year, the number of days it takes to collect the receivables is about: 180 days

200,000/ 100,000 = 2

365/2 = 182.5 days

Inventory Turnover Rate:

COGS/ Inventory

Inventory turnover rate measures how quickly a company produces and sells inventory

Companies want to move inventory since it is an asset that does not by its sheer presence generate income, like a bank loan, until the inventory is sold.

purpose of calculating the Gross Margin ratio is profitability

Debt to equity is calculated as debt/equity and it is used to measure how much, in comparison, did owners put in relative to creditors.

Return on Equity

ROE :  Net Income / Equity

Return is another description for both net income and profit.

The investor would have trouble determining EPS since the number of shares outstanding changes frequently throughout the year.

When looking at the EPS you must be careful, since the number of total shares outstanding may have changed and this can distort what you thought was a trend upwards or downwards in the EPS.

Reference:
https://www.edx.org/course/introduction-accounting-ubcx-busacct1x
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/AccPrimer/accstate.htm

IT Return File and additional Tax Pay

To file IT return the website URL is  https://eportal.incometax.gov.in/ and PAN or Aadhaar no will be your user ID

Every year normally last date for filing IT returns is 31st July, and for this following pre-requisites are required.

• Form No.16 provide by the employer, (the file is password protected and it is PAN number in uppercase followed by date of birth that is PANDDMMYYYY  ) is required and additionally
• Form 26AS required and can be downloaded from https://www.incometax.gov.in/iec/foportal/ is needed,   and will also need 
• Bank statements showing interest, Banks usually credit Interest end every quarter in a financial year example June, Sep, Dec and March or any other income earned.

Financial Year : is the period between 1 April and 31 March in which you earn an income. 
Assessment Year : is the following year in which this income is assessed and taxed.
ITR : Income Tax Return

For instance, if your financial year is from 1 April 2020 to 31 March 2021, then it is known as FY 2020-21.
The assessment year for the money earned during this period would begin after the financial year ends – that is from 1 April 2021 to 31 March 2022. Hence, the assessment year would be AY 2022-22.

Nature of Employment : If you are an employee of Private Sector concern, tick 'Others'

Gross Salary: and other income details are  found in Form No.16

Income from Other Sources

Interest from Savings Account  :  enter the total amount of interest received from all the bank savings accounts and post office savings account

Interest from Deposit (Bank/Post office/Co-operative society) : If you have invested in fixed deposits (FDs), recurring deposits (RD) with bank/post office, enter the total amount of interest received by you from various deposits.

ITR1 is the simplest and in below section some information about ITR2 is listed 

Sheet TDS, Tax Payments (TDS1, TDS2, TDS3), details of Tax Deducted at Source on Income can be filled with reference to Form16 and Form 26AS

Sheet Salary, Schedule S, Details of Income from Salary can be filled with reference to Form16

Sheet OS, Schedule OS , Income from other sources
b Interest, Gross 
Interest from Fixed Deposit, Saving Bank Account are taxable and come under Income from Other Sources

Sheet 80G, Schedule 80G, Details of donation entitled for deduction under section 80G
There are 2 categories, Donations entitled for 100% deduction (without/with qualifying limit) and Donations entitled for 50% deduction (without/with qualifying limit)

for example donation to Prime Minister’s National Relief Fund http://pmnrf.gov.in is eligible for 100% deduction without any qualifying limit
and Donations to National Defence Fund https://ndf.gov.in/  with PAN AAAGN0009F is eligible for 100% deduction from Taxable Income

for example donation to Isha Vidhya are eligible for 80G tax benefits (50% eligible)

Sheet VIA, Schedule VIA, Deductions under chapter VI-A
it maps to 9. Deductions under Chapter VIA , Part B (Annexure) in Form No.16
Donations to Akshaya Patra are eligible for 50% deduction under Section 35 Ac / 80 GGA of the Indian Income Tax.

Sheet EI, Schedule EI , Details of Exempt Income (Income not to be included in Total Income)

1 Interest income
Income from PPF, Income From Tax Free Bonds comes here. Add all such income and show it here.
Please do not enter Savings bank account’s interest here. It should be entered in 80TTA. (not applicable in new tax regime)

Contribution routed through employer
NPS   Deduction in respect of contribution by Employer to pension scheme under section 80CCD (2). You can invest upto 10% of salary (Basic + DA)

Upper limit of tax benefit is 7.5 lac

Contribution is reflected in Form 16.

Contribution routed through employee
An additional deduction of ₹ 50,000 can be claimed under Section 80 CCD(1B) for self-contributions made to NPS or APY.

2 Dividend income

Any dividend received from Shares/Stocks or Mutual Funds etc needs to be added together and shown here. Dividend from Indian Companies is tax-free u/s 10(34) and does not fall under the purview of Income-Tax Act. Even dividend paid by the equity mutual funds is also tax-free. But it does not mean that you don’t need to show it. These types of tax-free incomes ought to be disclosed while filing tax return.
For example in HDFC Sec from menu select Portfolio -> Profit & Loss and check column Dividend/Interest 

Note: The Finance Act, 2020 has abolished the DDT and moved to the classical system of taxation wherein dividends are taxed in the hands of the investors. So now, dividend income will become taxable in the hands of taxpayers irrespective of the amount received at applicable income tax slab rates

To pay additional tax for Individual tax payee

Select link e-Pay Tax 

Select Challan No 280

In Tax Applicable ,Select (0021) and  Select (300) Self assessment tax, fill the address, PAN number and select the appropriate assessment year from the drop done list.

For Advance Tax (select appropriate Assessment Year) and select (100) Advance Tax

Proceed would direct to the bank website

BSR Code , Date of Deposit and Serial Number of Challan needs to be filled in 
Sheet IT, Tax Payments, Details of Advance Tax and Self Addessment Tax Payments of Income-tax

After paying tax, BSR code, Challan Serial No , Date of Receipt of Self Assessment Tax needs to be updated in Tax paid section.

Once the e-Filing of Income Tax Return has been successfully submitted. email from communication@cpc.incometax.gov.in is received with pdf file acknowledgment attached .
Subject : Confirmation on e-Verification of Income Tax Return

Status shows Successfully e-Verified to check Dashboard -> View Returns / Forms 

After successful assessment of tax returns by income tax department, issues Intimation u/s 143(1) through SMS and email from intimations@cpc.incometax.gov.in usually it takes 3 weeks after submission of IT return for email intimation.This Intimation u/s 143(1) should be treated as completion of assessment income tax returns for the year unless there is tax due from the tax payer.

Status shows ITR Processed to check Dashboard -> View Returns / Forms

Gratuity [Section 10(10)]
In the case of employees covered by the Payment of Gratuity Act, 1972 [Sec 10(10)(ii)]

Is exempt from tax to the extent as stated below:

i) 15 days salary (7 days in case of employees of a seasonal concern) for each years’ service (service for a period of more than 6 months is regarded as one year’s service) based on salary last drawn i.e., 15 days salary x length of service, or.

ii) 20,00,000 as maximum amount; or
iii) Actual amount of gratuity received, whichever is less Taxable gratuity = Actual gratuity received – Exempted gratuity
(Meaning of salary for purpose of computation of gratuity = Last drawn salary + D.A. last drawn by the employee but excluding all other payments)

Note: one month is regarded as 26 days.

I received the email from intimations@cpc.gov.in  for return for AY 20xx-xx bearing Ack. No. 91025xxxxxxx717 was taken up for processing and on verification it was found that it contains arithmetical errors/ incorrect claims/ inconsistencies with respect to Audit Report /Form 26AS and the same is indicated in the table annexed.

and the procedure to provide response is

a) Please log on to www://incometaxindiaefiling.gov.in/ with your user ID and password.

b) Go to E-proceeding tab -> E assessment/proceedings link

c) In order to submit your response, click on the submit hyperlink under Response column.

In case you face any difficulty while filing the response, please refer to the help document provided in the E-filing portal.
Help-> How to-> How to submit response to 143(1)(a) communication from CPC?-> Click here to view and download the User manual.

follow the given steps to submit the response through e-Proceeding option. Go to e-proceeding > Click e-Proceedings > Click the Proceeding Name hyperlink> Click Submit available under ‘Response’ column.

You may exercise your option of filing a revised return, so that the omissions in the return of income can be completely taken care of within the meaning of section 139(5)

Go to ‘PART A General Information’/’Personal Info’ tab > Select ‘Return filed’ as ‘Revised 139(5)’ > Select ‘Whether Original or Revised return?’ As ‘Revised’ > Enter Original acknowledgement number and date of filing of Original Return > Enter other required details > Click ‘Preview and Submit’ to submit the revised return Enter the electronic verification code or OTP (If e-verification mode is chosen)

Select option No for Are you filling u/s 119(2)(b)/92CD for submitting revised return e-File

Reference:
https://incometaxindiaefiling.gov.in/

http://freefincal.com/efile-itr-guide-itr2-and-itr4/
https://freefincal.com/handling-mismatch-between-salary-income-in-return-and-form-26as-adjustments-u-s-1431a/

http://www.bemoneyaware.com/blog/income-tax-challan-280/

http://www.bemoneyaware.com/blog/exempt-income-tax/https://www.bemoneyaware.com/blog/income-tax-notice-inconsistency-salary-form26as/
http://simpleinterest.in/filing-income-tax-return-online/
http://yourownadviser.com/articles/tax/intimation-us-1431-of-the-income-tax-act
https://cleartax.in
https://swayam.gov.in/

IBM

IBM is a very large company with five divisions:

1. IBM System and Technology Group (STG), the hardware arm of IBM
2. IBM Software Group (SWG), the second largest software company in the world after Microsoft;
3. IBM Global Financing (IGF)
4. IBM Global Technology Services (GTS) and
5. IBM Global Business Services (GBS)

Ref: http://www.answers.com/topic/international-business-machines-corporation

Disaster Recovery Plan (DRP)

In DR scenario operations are transferred to a remote facility to get the organization back online within recovery time objective (RTO) and recovery point objective (RPO) targets.That is how much risk business is willing to take.

Business case for having DR is Loss of revenue, competitive disadvantage, possible regulatory penalties,Legal costs.

Recovery-Time Objective (RTO): The time within which systems and applications must be recovered after an outage. It defines the amount of downtime that a business can endure and survive. Some examples of RTOs

RTO of 72 hours:Restore from tapes available at a cold site.

RTO of 12 hours:Restore from tapes available at a hot site.

RTO of few hours:Use disk-based backup technology, which gives faster restore than a tape backup.

RTO of a few seconds:Cluster production servers with bidirectional mirroring, enabling the applications to run at both sites simultaneously.

Recovery-Point Objective (RPO): This is the point-in-time to which systems and data must be recovered after an outage. It defines the amount of data loss that a business can endure.

Based on the RPO, organizations plan for the frequency with which a backup or replica must be made. Example

RPO of 24 hours:Backups are created at an offsite tape library every midnight. The corresponding recovery strategy is to restore data from the set of last backup tapes.

RPO of 1 hour: Shipping database logs to the remote site every hour. The corresponding recovery strategy is to recover the database to the point of the last log shipment.

RPO in the order of minutes: Mirroring data asynchronously to a remote site.

RPO of zero: Mirroring data synchronously to a remote site.

Return on Investment

Estimated disaster probability in a given years = 2%
Estimated cost for data loss and downtime per incident = $15 million
Probability ´ cost per incident = $300,000
Average cost of DR solution = $80,000 per year
Cost of Avoidance Savings = $220,000 per year

Ref on ROI:www.Libelle.com

  Important points to be considered for DR

• Plan , Implement and Test Disaster Recovery  - First and foremost is having Disaster Recovery plan and effective planning. Goals should be realistic for RTO, RPO and metrics.
• DR and testing should be done at application level not just individual components like Server , Storage and test DR plan at least twice in a year.
• Both failover and failback needs to defined 
     failover is how from primary site to secondary (DR site) the recovery happens
     failback :If Primary site is back to normal after disaster then how the the process of re-synchronizing that data back to the primary location from DR site , halting I/O and application activity once again and cutting back over to the original location.

• Clear defined roles , responsibilities and ownership and proper chain of command, the conditions, criteria which will triggers DR and logistics should be defined and in place before recovery process

• Focus on Business continuance and not just IT, ensuring that people and facilities are available and able to function from a business perspective. 
• Identify your most critical applications and data  and accordingly prioritize the recovery of critical applications and data.

• Perform Dry Run before actual test to provide additional information regarding any further steps that may need to be included to identify inconsistencies for correction and improvements and other appropriate adjustments and fine tuning the DR plan.

• Change management process needs to be in place to account for any changes in Production site are propagated to DR site as well.
  
  
• Automate the Recovery process as much as possible.
• Virtualise the applications and systems for simplifying the DR