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swapnilkabra
@caswapnilkabra 5 years, 3 months ago 1008 views

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While learning accountancy a student is taught to
👉Debit all expenses, credit all income.
👉Debit all assets, credit all liabilities.
👉Debit the receiver, credit the giver.
Why is it so?
Let us find out the rationale behind three golden rules of accounts. 👇🧵 (1/n)

'Balance Sheet' and 'Profit & Loss Account' are two important aspects to learn accountancy.
Let us first understand how to interpret a Balance Sheet. (2/n)

Balance sheet is a simple snapshot of ‘Sources of funds’ (‘Liabilities’) and ‘Application of funds’ (‘Assets’) as on a ‘particular’ day. (3/n)

It is important to note that the Balance sheet may change every day. That’s because the liabilities side and the assets side may change frequently.
Example: The customer from whom the amount was receivable (Debtor) will get converted into Cash the moment he pays money. (4/n)

Suppose a businessman starts a business with his own money (equity/owner’s fund) and uses this money to buy various assets. (5/n)

He earns good amount of profit from his business operations which is reinvested in the business (Profit/ Reserves and Surplus).
Also, the businessman decides to take loan (Outsider’s money) to expand his business. So, the Balance Sheet will look something like this, (6/n)

So, we now have a simple equation:
Equity + Reserves + Other liabilities = Assets
(7/n)

Also, 'Reserves' is nothing but profit and profit figure is taken from 'Profit and Loss Account'.
Profit is calculated as ‘Income – Expenses’.
So, we now have,
Equity + Income – Expenses + Other liabilities = Assets
(8/n)

Or, we can rearrange this as,
Equity + Income + Other liabilities = Assets + Expenses
This is a beautiful equation.
LHS shows us all the sources of money and RHS shows us its application. (9/n)

LHS shows us all the credits and RHS represents the debits. (10/n)

Hence, we
👉Debit all expenses, credit all income.
👉Debit all assets, credit all liabilities.
👉Debit the receiver, credit the giver. (11/n)

Accounts is super interesting when you know the rationale behind everything. (12/n)
Tagging @FincademyIn, @FI_InvestIndia, @abhiandniyu, @VidyaG88 for better reach 🙏

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swapnilkabra
@caswapnilkabra

Have you ever wondered why price of large cap cos like Reliance ind. Ltd. or Apple inc. fluctuates less in magnitude but share price of a small cap co witnesses huge volatility?
A simple thread to explain the economics behind stock fluctuations!👇🧵
#investing #financialliteracy

1. Penny stocks show huge volatility but on the other hand stock of large cap companies show little fluctuations.
Did you ever observe how ‘Foreign Exchange’ rates show little fluctuation and are range bound?
Let us understand the economics behind it.

2. In this thread we will learn two things,
👉Why large companies show quick change in their prices though the magnitude of change is less?
👉What causes huge jump in prices of penny stocks? Or why on a bad day they can easily fall with huge magnitude?

3. First things first. Let us understand who decides the price of goods? Is it the ‘Buyer(s)’ or the ‘Seller(s)’?
The answer to this basic question is that price is decided by both of them.

This is because,
👉 A ‘Buyer’ would always be willing to buy any commodity at lesser price.
👉 A ‘Seller’, on the other hand would try to sell his product at a greater price.

swapnilkabra
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Layman’s explanation to PE Ratio and how it works.
A long thread! Do Bookmark this for patient reading.

#investing #investors #PEratio

1/ PE (Price Earning) ratio is one of the most important metric used by investors to make decisions while picking up stocks. But, more often than not, it is grossly misunderstood.
Let us decode this metric.

2/ Table of contents
•How to decide what to buy?
oCase A: Case A: Fresh Apple vs Stale Apple
oCase B: Costlier Fresh Apple v/s Cheaper Fresh Apple
oCase C: Apple vs Orange
•How to read PE ratio
•How is PE Ratio misunderstood?
•When will PE Ratio not work?

3/ How do you decide, what to buy?
Case A: Fresh Apple vs Stale Apple

You go to a market and buy an apple. You have a choice to make.
Apple ‘A’ is fresh and juicy. Apple ‘B’ is clearly stale. Apple ‘A’ costs you ₹.20 while Apple ‘B’ costs you only ₹.10.

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@caswapnilkabra

A small thread to explain the tax implications of dividend of Rs.974 per share declared by #majesco Ltd which is winding up its business🧵👇

1. For starters, Majesco is declaring such huge dividend on account of it selling its US business. But, as an investor, should one think of buying the shares now? Let us find out.

2. The current market price per share of Majesco is Rs.980. This is almost at par with the dividend per share. Now, if you buy shares of Majesco, you will be entitled to dividend of Rs.974 per share.

3. Please keep in mind that dividend income is not exempt in the hands of the shareholders. It will be taxed as per regular slabs.

4. Say you are in highest slab of 30%, you will be taxed at that rate. To simplify you will be getting a net amount of Rs.681 per share (Rs.974- 30% tax).

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#fiscaldeficit #economics #financialliteracy

1. Let us understand everything bit by bit.
Say, Raju is a businessman. Now, like every businessman, Raju is ambitious and curious to know his profit. Hence, he keeps his accounts to calculate his profit.

2. Throughout the year, his total revenue was Rs.10 lakh and his total expenditure was Rs.8 lakh. Hence, Raju is having profit or surplus of Rs.2 lakh.

3. The next year, due to lack of demand, his revenue fell to Rs.7 lakh and his expenses increased to Rs.9 lakh. Hence, Raju is now having loss or deficit of Rs.2 lakh.

4. Now, let us replace ‘Raju’ with ‘Government’ and you get the concept of ‘Fiscal surplus/ deficit’.

swapnilkabra
@caswapnilkabra

In India, 'RBI' is responsible for 'Monetary Policy' through which it controls 'Inflation' and Economic Growth'.

In this thread, I am going to focus mainly on the role of RBI and how it uses ‘CRR’ and ‘SLR’ as two major tools to control economy. 🧵👇
(1/n)

Let us first understand few basics before we dig into the details. (2/n)

👉The Businesses:
They are the producers of the goods and services. Any business would be happy if it is growing and the prices of the goods and services sold are ever rising. They would be more interested in ‘Economic growth’. (3/n)

👉The Households:
These are the people who are consumers and they spend money to buy goods/ services which are sold by the businesses. Any consumer would be happy if the prices of goods/ services are low. Hence, they would be interested in ‘Less Inflation’. (4/n)

As the prices of goods and services rise, there will be economic growth in nominal sense but then there will also be inflation which is perceived as a problem in developing countries like India. (5/n)

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1/10

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2/10

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