Crossing of Cheques..

A cheque is a negotiable financial instrument we use to settle payments. A cheque can be lost, stolen or the signature of payee can be done by someone else pretending him/her and that’s why the protection of cheques has increased according to an international standard that we must thoroughly consider when writing a cheque.

Crossing is a popular method of protecting the payer and payee of a cheque. Both bearer and order cheques can be crossed. It prevents fraud and wrong payments. Basically a crossing can be done by "Drawing Two Parallel Lines" across the face of the cheque. Crossed cheques cannot be paid at the counter and they must be presented through the bank only.

Different Types of Crossing 

General Crossing:-

1. Two parallel lines, drawn across the face of the cheque
2. An abbreviation "& Co." has written between the two parallel lines
3. "Not Negotiable" has written between the two parallel lines
4. The cheque bears the words "A/c. Payee" between the two parallel lines.

A crossed cheque can be made bearer cheque by cancelling the crossing and writing ‘Pay Cash’ with the full signature of drawer. This operation is called "opening the crossing”.

Special or Restrictive Crossing:-

Whenever a particular bank's name has written in between the two parallel lines the cheque is said to be specially crossed.

In addition to the mentioning of a bank’s name, the words "A/c. Payee Only", "Not Negotiable" may also can be seen. The effect of special crossing is that the bank makes payment only to the banker whose name is written in the crossing. Specially crossed cheques are much safer than generally crossed cheques.

Ratios...!

Capital Gearing Ratio

Capital gearing ratio is using to analyze the capital structure of a company.

Formula:
Capital Gearing Ratio = Equity Share Capital / Fixed Interest Bearing Funds

Dividend cover
This measures how many times a company can pay dividends over the profit. Ex: if dividend cover is 5, that means the company’s profit attributable to shareholders was 5 times the amount what the dividend cover exactly is.

Formula:
Dividend cover = Earnings per share / Dividend per share

Acid-Test Ratio
This indicates whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory.

Formula:
Acid Test Ratio = [Cash + Accounts Receivables + Short Term Investments] / Current Liabilities

Debtor’s Turnover Ratio
Debtor's turnover ratio indicates how long people normally take to pay a firm for their purchases on average.

Formula:
Debtors Turnover Ratio = Net Credit Sales / Average Accounts Receivables

Where; Average Accounts Receivables = [Opening Debtors and B/R + Closing Debtors and B/R] / 2
Net Credit Sales = Total Sales – Cash Sales

Return On Capital Employed - ROCE
This ratio indicates the efficiency and profitability of a company's capital investments. It should always be higher than the rate at which the company borrows; otherwise any increase in borrowing will reduce shareholders' earnings.

Formula:
ROCE = Earnings Before Interest and Taxes / [Total Assets – Current Liabilities]

Earnings Per Share
The portion of a firm's profit allocated to each outstanding share of common stock. Earnings per share ratio basically indicate a company's profitability.

Formula:
EPS = [Net Income – Dividends on Preferred Stock] / Average Outstanding Shares

Basics of Generally Accepted Accounting Principles (GAAP)

Basic objectives
Financial reporting should be rich with information that is;

• Useful to provide information to potential investors and creditors and other financial market users in making rational investment, credit, and other financial decisions.

• Helpful to assess the amounts, timing, and uncertainty of prospective cash receipts.

• About economic resources, the claims and the changes in those resources.

• Key to make financial decisions.

• Provide information to make long-term decisions.

• Improving the performance of the business

• Useful in maintaining records

Basic concepts
GAAP has four basic assumptions, four basic principles, and four basic constraints to achieve its basic objectives and implement fundamental qualities.

Assumptions

• Accounting Entity: Business has a separate existence from its owners and revenue and expense should be kept separate from personal expenses.

• Going Concern: Business will be in operation indefinitely.

• Monetary Unit principle: Assumes a stable currency is going to be the unit of record.

• Time-period principle: Economic activities of a business can be divided into artificial time periods.

Principles

• Historical cost principle - Companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities.

• Revenue recognition principle - Requires companies to record in accrual basis accounting.

• Matching principle - Expenses have to be matched with revenues.

• Full Disclosure principle - Information disclosed should be enough to make decisions.

Constraints

• Objectivity principle: The financial statements should be based on objective evidence.

• Materiality principle: The significance of an item should be reported when considering.

• Consistency principle: The company uses the same accounting principles and methods from year to year.

• Conservatism principle: When choosing between two solutions, the one that will be least likely to overstate assets and income should be picked.