Relationship of accounting with other field and Depreciation

Relationship of accounting with other field

Accounting is very close relationship with maths , economics ,statistics , business study and other area. Different formula used in financial , cost and management accounting can be satisfied on the basis of maths . In accounting , we records only economical transaction related to money or money's worth And our govt. policies effects on our financial accounts . Suppose if central govt. changes the rate of depreciation then our net profit and financial position will effect from this point . So we should necessary to understand the relationship of accounting with other field for better knowing accounting . Accounting , maths , economics and business study all makes good structure of a good economy . Because if one field is not fully developed , its side-effect surely
will be on other fields . Suppose if an statistics have to collect previous year market sales data but accounting of market is very poor so he will have to collect wrong data and different economic decision will be wrong . We can understand all field just as different parts of body , if one part is weak other surely effected from it .

Accounting cycle
Sometime , you read this term in any book about accounting cycle , But you would not research of this term . Actually accounting cycle is very simple term .It means that all the activities in accounting will absorb in first point and then it make accounting cycle .This term is very useful for an accountant because an accountant is man who maintain accounts .
Suppose Ram purchases goods from any company this transaction when comes in the front of an accountant , he records it after this he see its result on his final accounts but in last automatically it support to completing the whole accounting cycle . In other words any financial transaction is the beginning point of accounting cycle and an accountant must give importance to each transaction of business.

Depreciation and effect on final account
Depreciation is just decrease the value of any fixed asset.When you will use it ,then the value of fixed asset will be decreased . So calculating of net profit and correct financial position , it is the duty of accountant to show it in profit and loss account . Rates of depreciation may differ according to the nature of fixed asset some assets’ depreciation rate is low and other is high because high decreasing value due to expiry. In balance sheet ,we deduct depreciation from fixed asset .After deducting we can calculate net value of fixed asset which can be show in balance sheet .
Depreciation account can also be made by accountant but every year it must send to profit and loss account because this is nominal account . Different law like income tax law and corporate law fix this depreciation rate so we must see the reference of 
depreciation rate from these laws but calculating correct amount of depreciation . Also , account manager should decide when a fixed asset will buy . For replacement purpose , it is duty of accountant and account manager to calculate and transfer and written off depreciation every year from fixed asset .Some business entity makes also provision for depreciation .The Balance as per Bank is the Nett effect of your Book Balance offset by the amounts not reflected in the Bank – which should equal the balance in the Bank Statement. (Of course, some variation may persist due to entries made in the Bank Statement which you have not yet entered in your Books – but since you WILL definitely enter them, and only then print your reconciliation, it will ultimately reflect the correct balance). You will find, as you mark off the individual vouchers by setting the 'Bank Date', that the Reconciliation at the bottom of screen keeps reflecting those changes instantly. When you are finished, press Ctrl+A (or press Enter as many times as necessary to skip 

Depreciation

It is a gradual deterioration or decrease in the value of asset after using that asset in our day to day work or after spending of time. In this world, everything is perishable, so making true profit and calculates true value of any asset at present time, it is very necessary to depreciate on fixed asset and deduct from it.

Fluctuation

If you are doing business or linked with any business, you know that prices are always up and down due to changing in the condition of business environment. Fast changing in market prices is called fluctuation. It is not called depreciation because, it is not related to use of fixed asset. Fluctuation can also increase the price of fixed asset but after deducting depreciation, value of fixed assets will be decreased. Fluctuation is fully ignored and there is no accounting treatment. But we show depreciation as a loss of business.

Obsolescence

When new fixed assets’ quality, efficiency and capacity decrease the value and usability of old fixed assets, then it is called obsolescence of old fixed assets.The main example, we can look in different machines or technical equipment especially in medical field. Every new equipment decreases the value of previous equipment. Because of it is not related to the nature and use of fixed asset, so it is also not depreciation. Obsolescence is not important in field of accounting but it is important in technology research and marketing of product.

How to make fixed asset account under fixed installment method

Before making of fixed asset account, we must know following journal entries :-

1. For providing depreciation on asset at the end of the year

Depreciation account Debit
Fixed asset account credit

2nd For transferring of depreciation to profit and loss account

Profit and loss account debit
Depreciation account credit

In this method fixed asset account is very simple T shaped. There is not fixed Proforma for making fixed asset account

Methods of providing depreciation

There are many methods of calculation of depreciation . No one apply on the all assets , because , different assets have different nature and according to management policy and effect of laws specially tax laws , different methods are used for providing depreciation . There are 10 methods of calculation of depreciation . Out of which approximate 5 are the most important and it should be learned .
1st method of providing depreciation
Fixed installment method
Fixed installment method is that method , in which we calculate fixed rate of depreciation and then with this rate we
deduct every year from fixed asset .
Original cost of asset - scrape value of asset
Depreciation = ___________________________________
Effective working life of asset
For example Satifsan purchased an asset of $ 20000 and he can use it for 4 years and after four year its scrape value
will be $ 4000 . Calculate depreciation with fixed installment method
Depreciation = 20000- 4000/4 = $ 4000
Rate of depreciation = 4000/20000X 100 = 20%
every year we provide $ 4000 and deduct from original cost of fixed asset . So its other name is original cost method or straight line method of providing depreciation .
Benefits of this method
1. It is easy to calculate
2. It show zero value of fixed asset at the end of its life .
3. It divides all weight of total depreciation equally in all period of life of asset .
4. After providing depreciation , balance will shows correct value of fixed asset .
Disadvantage of this method
1. After showing zero value of expiry of fixed asset in books , but it is possible that asset is in good position .
Then what provision will show in books , this method does not tell to accountant .
2. Some assets ' value will increase after spending of time at there we can not use this on that assets .
3. There is no provision in this method for buying new asset after scrap of old assets .