Financial Accounting - Voyage Accounting

To know the financial results of a marine business, voyage accounting is prepared. Voyage account is similar to a Profit and Loss account; all expenses are debited to Voyage account and all incomes are credited to Voyage account. Voyage account is prepared to ascertain the profit or Loss of voyage. It covers both inward and outward travelling. It is very important that separate Voyage account should be prepared for each vessel.

Income

Following are the main sources of income of a Voyage −

• Freight − Freight charges are the main income collected against the transportation of the goods.

• Passage Money − Passage money is collected from the passengers, in case it is passengers’ vessel.

• Primage − Primage is an additional freight in the form of surcharge on the freight.

Expenses

Following are the various ways of expenses of a vessel −

• Brokerage & Commission − Brokerage and commission is calculated on the freight charges including primage and it is paid to the charters agent. Address commission is payable to the brokers on procurements of freight from the different parties.

• Insurance − The insurance charges on proportionate basis might be debited from the voyage account. For example, if insurance is for one year and journey of voyage is for three month, insurance charges will be debited from the voyage account on $\frac{1}{4^{th}}$ ratio.

• Stores − Stores, which are purchased for voyage are debited from the voyage account on consumption basis i.e. opening stock + purchases – closing stock.

• Depreciation − Depreciation on ship is charged from the voyage account in the proportion of the period of a journey.

• Bunker Cost − Cost of water, coal, diesel, fuel, etc. used for the purpose of voyage is called bunker cost and may debited from the voyage account.

• Port Charges − Port authorities charge fees for allowing ships to use port for the loading/unloading the cargo. This fee amount is debited from the voyage account.

• Stevedoring Charges − Loading and unloading of cargo called stevedoring charges and should be debited from the voyage account.

Voyage in Progress

At the end of the accounting year where voyage is not completed and is still in progress, following accounting treatments are required −

Freight Received

Total freight received credited to the voyage account and the provision for incomplete voyage is debited from the voyage account. Provision is created for the voyage-in-progress in proportion of the incomplete journey.

Expenses

To complete matching concept, an income as well as expenses related to the incomplete voyage might be carried forward to the next accounting year on the respective account. Provision for the income earned should be debited from the voyage account and provision for the expenses should also be credited to the voyage account.

Basis of the expenses to be carried forward is as hereunder −

• Expenses which are related to the freight, need to be carried forward in a proportion to return freight. For example, if total freight is Rs. 2,500,000 out of which return freight is Rs. 1,200,000 and total expenses are Rs. 500,000, then expenses to be carried forward to the next accounting year — will be Rs. 240,000.

  $$\small = \frac{1,200,000}{2,500,000} \times 500,000$$

• In case of the standing expenses, if return journey is incomplete, ½ of the standing charges to be carried forward.

• In case where return journey is halfway back and the total expenses of voyage given $\frac{1}{2}$ of the total expenses to be carried forward.

• When the return journey is halfway back and the expenses till date are given $\frac{1}{3^{rd}}$ of the expense are to be carried forward.

• When one round of the trip is completed and on his half way back for single way and total expenses of voyage are given, then $\frac{1}{3^{rd}}$ expenses are to be carried forward.

• When one round trip is completed and on his half way back for single way and expenses till date are given, then $\frac{1}{5^{th}}$ expenses are to be carried forward.

Pro-forma

In the books of M/s Titanic Shipping Company

Voyage Account

For the period ending 31-12-2014