What is the basic accounting equation

Basic Accounting Equation:-

The basic accounting equation is

Asset = Liabilities + Owners Equity

For every journal entry the equation should always be in a balanced situation. Broadly every transaction in a business entity must affect Assets, liabilities or owners equity.

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What are Cash dividend and stock dividend

Cash Dividend:-

If the dividend is paid in the form of cash to the shareholders, it is called cash dividend. It is paid periodically from earnings available to common stockholders. Cash dividends are common and popular types of dividend.

Stock Dividend:-

Stock dividend is paid in the form of the company stock. Under this type, cash is retained by the business concern. Stock dividend is bonus issue. This issue is given only to the existing shareholders of the company at a certain percentage. For example if a person have 200 no. of shares of a company and the company declares a 10% stock dividend then the person will get additional (200 * 10% = 20) 20 shares as a stock dividend.

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What are over absorption and under absorption of overheads

Over absorption of overheads: - When applied factory overhead is greater than the actual factory overhead then it is called over absorption or over applied factory overhead. It is also called favorable overhead.

Under absorption of overheads:- When actual factory overhead is greater than the applied factory overhead then it is called under absorption or under applied factory overhead. It is also called unfavorable overhead.

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What are Gross Profit and Net Profit

Gross Profit: - Gross profit is the difference between sales and cost of goods sold. That means when we deduct cost of goods sold from sales we will get gross profit. We can calculate cost of goods sold by using the following formula.

Cost of goods sold = Opening stock + Purchase – Closing Stock.

Net Profit: - When we deduct all operating, non operating expenses and income tax from gross profit we will get Net profit or net income.

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What are agency problem and agency Cost

Agency problem: - Corporate managers are hired to act for well being of the company, but sometimes they act for their own interest. This leads to a conflict between managers and shareholders. This is called agency problem.

Agency Cost: - The cost associated with minimizing agency problem is known as agency costs.

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What are direct costs and indirect costs

Direct costs: - Direct costs are directly associated with manufacturing.  Direct costs are generally variable costs and direct costs can include:

• Direct materials
• Direct labor
• Direct expense

Indirect Costs: - Indirect costs are those costs that are incurred in the factory but that cannot be directly associated with manufacturing the product. Indirect Costs are classified according to the three elements of cost, materials labor and overheads.

• Indirect materials
• Indirect labor
• Indirect expenses

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