Tag: Closing Entries

Bill Discounting is an important short-term financing service provided by banks and financial institutions. It enables businesses to obtain immediate funds against bills of exchange, trade bills, or promissory notes before their maturity date. In commercial transactions, sellers often allow credit to buyers and receive bills as evidence of debt. Instead of waiting until the due date for payment, the seller can approach a bank and get the bill discounted. This facility improves liquidity, supports working capital requirements, and ensures the smooth functioning of business operations.

Meaning of Bill Discounting

Bill Discounting is a financial arrangement in which a bank or financial institution purchases a bill of exchange before its maturity date and pays the holder the bill amount after deducting a discount or service charge.

The bank recovers the full amount from the acceptor of the bill on the maturity date.

Bill discounting is the fee or the ‘discount’ that a bank charges a seller of the bill in exchange of releasing the funds to him before the due date of the bill. Essentially, bill discounting is the exchange of the bill for money, either from a bank or any third party.

Present Value

To fully understand the concept of bill discounting, we need to learn about a few more important terms. One of these terms is present value (PV). Present Value is the current value of a sum of money in the future. So by discounting this future sum of money by a fixed discount rate, we arrive at its present value.

Hence, the higher the discount rate, lower the present value of the sum of money. It is an inverse proportion. Present Value indicates that an ‘x’ amount of money is worth more in the present than the same amount is in the future.

• r = rate of return
• n= number of years/periods

True Discount

This is also an important concept to learn in the discounting of bills. Now the total sum of money due at the end is known as the “Amount (A)”. The present worth or value of this sum is the PV.

The difference between the two is what we call the “True Discount (TD)”. Basically, the interest accrued on the Present Value of the sum is the True Discount. Let us learn its formula.

TD = Amount/Future Value – Present Value

Now while True Discount is the interest amount on the Present Value, there is another term known as the Bankers Discount. This is actually the Simple Interest on the face value of the sum from the date of the discounting to the due date of the bill.

Hence, the difference between the true discount and the bankers discount (fee for discounting the bill early) is known as the Bankers Gain.

Objectives of Bill Discounting

• Improving Cash Flow

One of the primary objectives of bill discounting is to improve the cash flow position of businesses. When goods are sold on credit, payment is received only after the credit period expires. This can create liquidity problems and affect daily operations. Bill discounting enables businesses to convert trade bills into immediate cash by obtaining funds from banks before the maturity date. The availability of cash helps businesses meet operational expenses and financial commitments without delay. Thus, bill discounting ensures a steady flow of funds and strengthens the overall financial health of an organization.

• Meeting Working Capital Requirements

Bill discounting aims to provide adequate working capital for business operations. Every business requires funds to purchase raw materials, pay wages, settle utility bills, and manage routine expenses. Waiting for customers to make payments can create shortages of working capital. Through bill discounting, businesses receive immediate funds against accepted bills of exchange. This financing facility helps maintain uninterrupted production and trading activities. As a result, organizations can operate efficiently and fulfill their short-term financial obligations without depending heavily on long-term borrowings or expensive sources of finance.

• Facilitating Credit Sales

Another important objective of bill discounting is to encourage and facilitate credit sales. In competitive markets, businesses often need to offer credit facilities to attract customers and increase sales. However, extending credit can delay cash inflows. Bill discounting solves this problem by allowing sellers to obtain immediate funds against bills arising from credit sales. This enables businesses to offer attractive credit terms while maintaining liquidity. Consequently, bill discounting promotes trade, improves customer relationships, and supports increased sales volume without creating financial strain on the seller.

• Reducing the Waiting Period for Payment

Bill discounting is designed to eliminate the need for businesses to wait until the maturity date of a bill for receiving payment. Normally, sellers must wait for the entire credit period before obtaining cash from buyers. This delay can affect business operations and growth plans. Through bill discounting, banks provide immediate payment after deducting a discount charge. This objective helps businesses access funds quickly and efficiently. By reducing the waiting period, bill discounting improves financial flexibility and enables firms to utilize funds productively without unnecessary delays.

• Enhancing Liquidity Position

Enhancing liquidity is a major objective of bill discounting. Liquidity refers to the ability of a business to meet its short-term financial obligations. Insufficient liquidity can result in delayed payments, operational disruptions, and loss of business opportunities. Bill discounting converts receivables into cash and improves the availability of liquid funds. This allows businesses to maintain adequate cash reserves and manage unforeseen expenses effectively. Improved liquidity also strengthens financial stability and enhances the confidence of suppliers, creditors, and investors in the organization.

• Supporting Business Expansion

Bill discounting aims to support business growth and expansion by providing timely financial assistance. Growing businesses often require additional funds to increase production, enter new markets, purchase inventory, or invest in business development activities. Delayed customer payments can restrict growth opportunities. By converting bills into immediate cash, bill discounting provides the financial resources needed for expansion. This objective enables businesses to seize market opportunities, improve competitiveness, and achieve sustainable growth without facing liquidity constraints caused by outstanding receivables.

• Promoting Smooth Trade and Commerce

An important objective of bill discounting is to promote smooth trade and commercial activities. Credit transactions play a vital role in business and industrial operations. Bill discounting supports these transactions by ensuring that sellers receive funds promptly while buyers continue to enjoy credit facilities. This arrangement benefits both parties and contributes to the efficient functioning of markets. By facilitating the movement of goods and services through easy financing, bill discounting encourages commercial development and strengthens the overall business environment.

• Providing a Safe and Reliable Financing Method

Bill discounting aims to provide businesses with a secure and reliable source of short-term finance. Since financing is backed by legally accepted trade bills arising from genuine transactions, the risk for financial institutions is relatively controlled. Businesses can obtain funds quickly without complex procedures associated with long-term loans. The systematic nature of bill discounting makes it a dependable financing option for managing temporary cash shortages. Therefore, it serves as a practical and trusted method of financing working capital requirements and maintaining financial stability.

Advantages of Bill Discounting

• Access Funds Quickly

No entrepreneur can avail conventional working capital loans without meeting the eligibility criteria set by the lending institutions. Many lending institutions even require additional time to process and disburse small business loans. Hence, many business owners opt for bill discounting to avail funds without lengthy approval process. A number of NBFCs even enables borrowers to avail cash in 72 hours by discounting their unpaid invoices.

• Improve Cash Flow Position

Often small businesses have to sell goods in credit to expand customer base. When they sell goods on credit, it becomes difficult for entrepreneurs to maintain positive cash flow. The invoice discounting services provided by lending institutions help entrepreneurs to improve cash flow quickly. They can even shorten the working capital cycles by converting unpaid invoices into cash.

• No Need to Incur Debt

As noted earlier, bill or invoice discounting enables business owners to fund working capital needs without increasing liabilities. The business owner can opt for this option to avail cash quickly by releasing the funds locked in unpaid invoices or bills. He can even meet working capital needs simply by converting current assets into liquid assets.

• Help Businesses to Sell Goods on Credit

Many enterprises explore ways to credit sales to maintain a positive cash flow position. But small businesses cannot acquire new customers and retain existing customers in the long run without combining cash and credit sales. The bill discounting services make it easier for enterprises to sell goods in credit by liquidating current assets and boosting cash flow.

Disadvantages of Bill Discounting 

• Reduces Profit Margin

The lending institutions discount bills or invoices by charging a fee. The fee normally includes interest charges, administrative expenses and maintenance expenses. The percentage of fee or discount also differs from one lender to another. Hence, the business owners have to sacrifice a percentage of the bill value. The fees charges by the lender will even impact the business’s profitability.

• All Bills Cannot Be Discounted

An entrepreneur cannot avail funds by discounting all his unpaid bills or invoices. Many lending institutions discount only commercial bill. Also, they evaluate the bills or invoices based on a number of parameters before providing funds. Hence, entrepreneur cannot rely on bill discounting as a consistent or long-term working capital funding solution.

• Not Available to New Businesses

Both banks and NBFCs provide bill discounting services only to existing customers or established enterprises. Some lending institutions even provide discount bills only if the business is generating profit. Hence, new business owners may not fund working capital needs through bill discounting service. Also, the fees charged by the lending institutions will impact their profitability in the short run.

• Reduce Available Collateral

Most banks do not provide collateral free business loans to small business owners. They require the borrowers to use their personal and business assets as collateral to avail credit. Each time a business owner discounts an invoice or bill, his working capital declines accordingly. Hence, the business owner may find it challenging to avail other working capital loans.

Not-for-Profit Organization (NPO) is an entity established for purposes other than making profits, such as promoting social, educational, cultural, religious, or charitable objectives. NPOs use their revenue to further their mission rather than distributing profits to members or shareholders. Examples include charities, foundations, and educational institutions. These organizations rely on donations, grants, and membership fees to fund their activities and may be exempt from certain taxes. Their financial statements often focus on accountability, with an emphasis on fund management and usage rather than profit generation.

Role of not-for-profit Organization:

• Addressing Social Issues

NPOs are often at the forefront of tackling social problems, such as poverty, healthcare, education, and homelessness. They play a key role in providing services and support to marginalized groups, ensuring their inclusion and empowerment. For instance, organizations like food banks or shelters provide immediate relief to those in need, contributing to a fairer society.

• Promoting Education and Awareness

Many NPOs are dedicated to promoting education, awareness, and advocacy. They provide scholarships, resources, and learning opportunities to underserved communities. Additionally, they create awareness campaigns on various issues, such as public health, environmental protection, and human rights. Through educational initiatives, NPOs help create a more informed and conscious society.

• Providing Essential Services

NPOs often provide essential services that are not adequately supplied by the government or private sectors. These include health services, legal aid, counseling, and mental health support. For example, organizations like Médecins Sans Frontières (Doctors Without Borders) deliver medical aid in conflict zones or underserved areas, helping save lives and mitigate suffering.

• Supporting Research and Innovation

Many not-for-profit organizations are involved in scientific research, particularly in fields like medicine, technology, and environmental sustainability. Their work can lead to significant advancements, such as new treatments for diseases or innovative solutions to combat climate change. By focusing on knowledge creation and problem-solving, they contribute to the public good rather than seeking financial gain.

• Community Development

NPOs are critical in the development of local communities. Through grassroots programs, they help build infrastructure, provide employment, and promote social cohesion. They may engage in projects like community centers, vocational training, and development programs that improve the standard of living and foster sustainable growth.

• Advocacy and Policy Change

NPOs are often instrumental in advocating for policy changes at local, national, and global levels. They use their platforms to influence government decisions and corporate practices on important issues, such as human rights, environmental sustainability, and animal welfare. Through lobbying, public campaigns, and legal action, they help drive legislative reforms that align with their causes.

• Fostering Volunteering and Civic Engagement

By providing opportunities for individuals to volunteer, NPOs foster a spirit of community service and civic responsibility. Volunteers contribute their time and skills, which not only supports the organization’s mission but also promotes social connections, empathy, and collective action.

• Encouraging Corporate Social Responsibility (CSR)

NPOs also collaborate with businesses to promote Corporate Social Responsibility (CSR). Through partnerships, businesses support NPOs financially or with resources, contributing to social and environmental causes. This collaboration fosters a culture of responsibility in the corporate world and strengthens the impact of NPO initiatives.

Accounting for Non-Profit Organisations

As we know that the not-for-profit organisations do not trade in goods or provide services with a profit motive. But, they also require to keep proper records of incomes, expenses, assets, and liabilities. Their major source of income is donations, subscriptions, grants, etc. Therefore, most of their transactions are in cash or through the bank account.

They need to keep proper books firstly because they are accountable to the members and the contributors and secondly because the law requires them to maintain proper books so that the government can keep proper control over the grants. Also, proper accounting reduces the risk of fraud and embezzlement. In addition to the ledgers and cash book, they are also required to maintain a stock register. Also, in a Stock register, a complete record of all fixed assets and consumables is maintained.

In accounting for non-profit organizations, instead of maintaining a Capital A/c, these organizations maintain Capital Fund or General Fund A/c. They credit this account with the surplus, life membership fees, donations, legacies, etc.

The not-for-profit organisations also require to prepare the final accounts or the financial statements at the end of the accounting year as per the accounting principles. The final accounts of these organisations consist of:

• Receipts and Payments A/c: It is the summary of the cash and bank transactions. It helps in the preparation of Income and Expenditure A/c and Balance Sheet. We also need to submit it to the Registrar of Societies along with Income and Expenditure A/c and Balance Sheet.
• Income and Expenditure A/c: It is similar to the Profit and Loss A/c and ascertains the surplus or deficit if any.

• Balance Sheet: We prepare it in the same manner as the Balance Sheet of concerns with a profit motive.

First In, First Out (FIFO) method is one of the most commonly used inventory valuation methods in accounting. Under FIFO, it is assumed that the earliest goods purchased (the first in) are the first to be sold or used (the first out). This method has significant implications for the financial statements, especially during times of fluctuating prices.

How FIFO Works?

Under FIFO, inventory is assumed to flow in the order in which goods are purchased. For instance, if a company purchases inventory in several batches at different prices, the first batch purchased is the first to be sold. The assumption behind FIFO is that goods purchased or produced first are the first to be sold or used in the production process.

Example of FIFO in Action:

Consider a company that buys 100 units of a product at $10 each in January, 150 units at $12 each in March, and 200 units at $14 each in June. If the company sells 200 units in July, the FIFO method dictates that the first 100 units sold will come from the January batch at $10, and the next 100 units sold will come from the March batch at $12.

In this example, the Cost of Goods Sold (COGS) would be calculated as:

• 100 units x $10 (January batch) = $1,000
• 100 units x $12 (March batch) = $1,200

Thus, the total COGS for the 200 units sold would be $2,200.

Inventory Valuation with FIFO:

After the sale, the remaining inventory would consist of:

• 50 units from the March batch at $12
• 200 units from the June batch at $14

Thus, the inventory remaining would be valued as:

• 50 units x $12 = $600
• 200 units x $14 = $2,800

The total value of remaining inventory is $3,400.

Advantages of FIFO

• Simplicity and Transparency:

FIFO is simple to apply and easy to understand. Since it assumes that the oldest items are sold first, businesses can easily track inventory and determine the cost of goods sold.

• Reflects Actual Flow of Goods:

For many businesses, FIFO aligns with the actual physical flow of goods. For instance, perishable items like food, medicine, or fresh produce are typically sold in the order they were received, making FIFO a natural fit.

• Higher Profit in Inflationary Times:

In an inflationary environment, FIFO results in lower COGS because older, cheaper items are being sold first. This leads to higher profits, as the cost of sales is based on older, less expensive inventory.

• Higher Inventory Value:

Since FIFO assigns the most recent, higher-priced goods to the ending inventory, the remaining inventory value tends to be higher during periods of rising prices. This makes the balance sheet more reflective of current market conditions.

• Compliance with Accounting Standards:

FIFO is widely accepted under both Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). This makes it a reliable method for companies that need to comply with regulations and present accurate financial statements.

Disadvantages of FIFO

• Overstated Profit in Inflationary Conditions:

While higher profits may seem beneficial, they can also result in higher tax liabilities because of the increased taxable income. In periods of rising prices, FIFO may not reflect the true profitability of a business, leading to an overestimation of profit.

• Less Matching of Revenue and Expenses:

Since FIFO assigns the oldest costs to COGS, it may not always provide the best matching of revenues and expenses. In periods of inflation, the more expensive goods purchased last may remain in inventory, causing the current COGS to be understated, and profits to be overstated.

• Not Suitable for Businesses with High Volatility:

FIFO may not be ideal for businesses that deal with inventory that fluctuates in price rapidly. In such cases, it may misrepresent the actual cost of sales and the value of remaining inventory, making it harder to forecast and plan.

• Inventory Loss Risk:

As FIFO assigns the oldest inventory first, businesses risk holding onto inventory for long periods before selling. This can be problematic for products that are subject to obsolescence or spoilage, as older inventory may become unsellable or lose value.

FIFO in Practice:

FIFO is commonly used in industries where goods have a natural expiration or where it is more cost-effective to sell older inventory first. Some examples of industries where FIFO is particularly useful:

• Retail:

Retail businesses dealing with non-perishable goods, such as clothing, electronics, and household items, can benefit from FIFO, as it allows them to sell older stock first, ensuring fresh inventory on the shelves.

• Food and Beverage:

In the food industry, FIFO is essential to ensure that perishable items such as dairy, meats, and vegetables are sold before they expire. This helps prevent waste and ensures products are always fresh.

• Pharmaceuticals:

The pharmaceutical industry uses FIFO to manage medications that have specific expiration dates. This helps ensure that older drugs are sold first to avoid selling expired products.

Weighted Average Method is a popular inventory valuation method that calculates the average cost of all goods available for sale during a period. This method is widely used in both cost accounting and financial accounting to determine the cost of goods sold (COGS) and the value of inventory on hand. The weighted average method assigns a single cost to all units of inventory, regardless of when the units were purchased. It works by averaging the cost of inventory items, taking into account both the number of units and the cost of each unit.

How the Weighted Average Method Works:

In the weighted average method, the total cost of all inventory items purchased during the period is divided by the total number of units available for sale. This gives the average cost per unit, which is then used to value both the cost of goods sold (COGS) and the ending inventory.

Formula:

Weighted Average Cost per Unit = Total Cost of Goods Available for Sale / Total Units Available for Sale​

Where:

• Total Cost of Goods Available for Sale = (Opening Inventory + Purchases during the period)
• Total Units Available for Sale = (Opening Inventory Quantity + Purchases during the period)

Once the weighted average cost per unit is calculated, it is applied to both the units sold and the units remaining in inventory at the end of the period.

Example:

Let’s take a simple example of a company that buys and sells a single product throughout a year.

1. Opening Inventory (January 1):
   • 100 units at $10 each.
2. Purchases:
   • January 15: 200 units at $12 each.
   • February 10: 300 units at $14 each.
3. Total Purchases and Sales:
   • Sales in February: 400 units.

Step 1: Calculate Total Cost of Goods Available for Sale

• Opening Inventory: 100 units × $10 = $1,000
• Purchases on January 15: 200 units × $12 = $2,400
• Purchases on February 10: 300 units × $14 = $4,200

Total Cost of Goods Available for Sale:

Total Cost = 1,000 + 2,400 + 4,200 = 7,600

Total Units Available for Sale:

Total Units = 100 + 200 + 300 = 600

Step 2: Calculate Weighted Average Cost per Unit

Weighted Average Cost per Unit = 7,600 / 600 = 12.67

Step 3: Apply the Weighted Average Cost to Sales

Since 400 units are sold in February, the cost of goods sold (COGS) will be:

COGS = 400 units × 12.67 = 5,068

Step 4: Calculate Ending Inventory

At the end of February, the company has 200 units left in inventory (600 units available for sale – 400 units sold). The value of the remaining inventory will be:

Ending Inventory = 200 units × 12.67 = 2,534

Advantages of the Weighted Average Method:

• Simplicity:

The weighted average method is relatively simple to use, especially for companies with large volumes of inventory transactions. It requires fewer calculations compared to other methods like FIFO and LIFO.

• Smoothens Price Fluctuations:

Since the weighted average method takes the average cost of all units, it smoothens out the effects of price fluctuations in the inventory. This can be particularly useful when prices are volatile.

• Prevents Manipulation:

The weighted average method provides a consistent and less manipulable approach to inventory valuation.

• Simplifies Record-Keeping:

The method simplifies record-keeping by reducing the need to track individual unit costs as is required under FIFO and LIFO. This can save time and reduce errors in accounting systems.

• Effective for Homogeneous Products:

The weighted average method works well for businesses that deal with large quantities of similar or identical items, such as retail or manufacturing companies.

Disadvantages of the Weighted Average Method:

• May Not Reflect Current Costs:

Since the weighted average method smooths out cost fluctuations, it may not reflect the most current costs of inventory. In periods of rising prices, it can underestimate the actual cost of goods sold and overstate inventory value.

• Lacks Detail in Cost Allocation:

The method aggregates all costs, so it doesn’t provide specific details about the cost of individual inventory purchases. In certain businesses, such as those dealing with customized goods or perishable products, this may not give an accurate representation of cost.

• Not Suitable for All Industries:

While it works well for industries with homogenous inventory, the weighted average method may not be suitable for industries dealing with diverse, high-value products (e.g., cars, real estate, etc.) where each item has a significantly different cost.

• May Not Align with Physical Flow:

The method assumes that all units are identical, but this may not reflect the physical movement of inventory. For instance, a company selling perishable items might sell older stock first, which may not align with the weighted average cost.

Applications of the Weighted Average Method:

The weighted average method is commonly used in industries where inventory items are indistinguishable or where inventory turnover is high. Some typical examples:

• Retail:

Retailers often use the weighted average method for products that are of similar nature, like clothing, food products, and electronics.

• Manufacturing:

Manufacturing companies dealing with raw materials, parts, and components often use this method to calculate the cost of goods sold, as raw material prices can fluctuate.

• Agriculture:

Agricultural businesses often use the weighted average method to account for inventory, especially if they are selling bulk crops or livestock with fluctuating costs.

• Commodity Trading:

Companies in the commodity trading business often use the weighted average method to calculate the cost of goods sold because commodity prices fluctuate significantly.

The act of a person who is a holder of a negotiable instrument in signing his or her name on the back of that instrument, thereby transferring title or ownership is an endorsement. An endorsement may be in favour of another individual or legal entity. An endorsement provides a transfer of the property to that other individual or legal entity. The person to whom the instrument is endorsed is called the endorsee. The person making the endorsement is the endorser.

Types of Endorsement:

1. Blank Endorsement or General Endorsement

An endorsement is blank or general where the endorser signs his name only, and it becomes payable to bearer. Thus, where a bill is payable to “Ram or order”, and he writes on its back “Ram”, it is an endorsement in blank by Ram and the property in the bill can pass by a mere presentation.

We can convert a blank endorsement into an endorsement in full. We can do so by writing above the endorser’s signature, a direction to pay the instrument to another person or his order.

2. Special or Full Endorsement

An endorsement “in full” or a special endorsement is one where the endorser puts his signature on the instrument as well as writes the name of a person to whom order the payment is to be made.

A bill made payable to Ram or order, and endorsed “pay to the order of Shyam” would be specially endorsed and Shyam endorses it further. We can turn a blank endorsement into a special one by adding an order making the bill payable to the transferee.

3. Restrictive Endorsement

An endorsement is restrictive which restricts the further negotiation of an instrument.

Example of restrictive endorsement: “Pay to Mrs. Geeta only” or “Pay to Mrs Geeta for my use” or “Pay to Mrs Geeta on account of Reeta” or “Pay to Mrs. Geeta or order for collection”.

4. Partial Endorsement

An endorsement partial is one which allows transferring to the endorsee a part only of the amount payable on the instrument. This does not operate as a negotiation of the instrument.

Example: Mr. Mohan holds a bill for Rs. 5,000 and endorses it as “Pay Sohan or order Rs. 2500”. The endorsement is partial and invalid.

5. Conditional or Qualified Endorsement

Where the endorser puts his signature under such writing which makes the transfer of title subject to fulfilment of some conditions of the happening of some events, it is a conditional endorsement.

Negotiation Back:

Where an endorser negotiates an instrument and again becomes its holder, we know it as negotiation back to that endorser. After negotiation back, none of the intermediary endorsees are then liable to him.

For example, Ram, the holder of a bill endorses it to Bala, Bala endorses to Kala, and Kala to Lala, and endorses it again to Ram. Ram, being a holder in due course of the bill by the second endorsement by Lala, can recover the amount thereof from Bala, Kala, or Lala and himself being a prior party is liable to all of them.

Therefore, Ram having been relegated by the second endorsement to his original position, cannot sue Bala, Kala, and Lala. Where an endorser so excludes his liability and afterwards becomes the holder of the instrument, all the intermediate endorsers are liable to him. “the italicized portion of the above Section is important”.

An illustration will make the point clear. Ram is the payee of a negotiable instrument. He endorses the instrument ‘sans recourse’ to Bala, Bala endorses to Kala, Kala to Lala, and Lala again endorses it to Ram.

In this case, Ram is not only reinstated in his former rights but has the right of an endorsee against Bala, Kala, and Lala.

Negotiation of Lost Instrument or that Obtained by Unlawful Means

When a negotiable instrument has been lost or has been obtained from a maker, acceptor or holder by means of fraud, or for an unlawful act, no possessor or endorsee, is entitled to receive the amount due thereon from such maker, acceptor, or holder from any party prior to such holder.

He cannot do so unless such possessor or endorsee is, or some person through whom he claims was, a holder in due course.

• Blank Endorsement: Where the endorser signs his name only, and it becomes payable to bearer.
• Special Endorsement: Where the endorser puts his sign and writes the name of the person who will receive the payment.
• Restrictive Endorsement: Which restricts further negotiation.
• Partial Endorsement: Which allows transferring to the endorsee a part only of the amount payable on the instrument.
• Conditional Endorsement: Where the fulfilment of some conditions is required.