Month: January 2019

Accounts Payable

Accounts Payable Definition Accounts payable are monies owed to the enterprise’s suppliers or vendors for the purchase of goods and services. Explanation Traders also receive the benefit of the discount by making payment to the Creditors/Accounts payable within the prescribed time. In other words, it is an anticipated income, which a trader estimates by way …

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Difference between Trial balance and balance Sheet

The following are the main points of difference between Trial Balance and Balance Sheet. Trial balance Balance Sheet It is prepared to check the arithmetical accuracy of the ledger accounts. It is prepared to show the financial position of the business on a particular date. It includes the balances of all the accounts appearing in the …

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Assets

Learning Objectives: What are assets in accounting? Types of Assets Classification of Assets Definition properties, things and receivables having certain value owned by the business are called assets. Examples Following are some examples of assets. Cash, Debtors, Stock, Accounts Receivable, Prepaid Expenses, Land, Building, plant, Machinery, Motor Vehicles, Furniture, Fixture, Goodwill, Patents, Copy Rights, Trade …

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Difference between Trading Account and Profit and Loss Account

Below is the difference between Trading Account and Profit and Loss Account. Trading Account Profit and Loss Account Trading Account is the first stage of Final Accounts. As it is prepared before preparing Profit & Loss Account. It is the second stage of Final Accounts, As it is prepared after preparing Trading Account. It shows gross …

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Trading Account

Definition Trading account shows the result of buying and selling of goods, It is prepared to determine the gross profit or the gross loss of a trader. It is prepared at the stage of final accounts preparation. The following items usually appear on the debit and credit side of Trading Account. On the debit side: …

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Final Accounts

Final Accounts – Definition The accounts which are prepared at the final stage of the accounting cycle to know the profit or loss and financial position of a business concern are called Final Accounts. Explanation Every businessman enters into business activities to earn profit. It is the accounting that shows profit or loss of a business …

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Explanation and treatment of direct expenses

All direct expenses are recorded on the debit side of Trading Account. The detailed explanation of some direct expenses is as under: Opening stock or opening inventory The opening stock consisted of different types of finished goods in case of trading business. Whereas in case of manufacturing business opening stock consisted of raw materials, work-in-progress …

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Rules for determining revenue expenditures

Revenue expenditures There is a difference between “Income” & “Revenue”. Income of any form is called Revenue, whereas, Revenue represents any income or expenditure. Revenue expenditures refer to the amount spent on routine expenses of the business e.g. salaries paid to employees, Rent of office paid etc. As revenue expenditure provides benefits for the current …

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Accounting treatment of some special items of Non-trading concerns

There are some special items which are used in the accounts of non-trading concerns or non-profit organizations. which are as under. 1. SUBSCRIPTIONS It is an amount paid by the members of non-trading concerns at regular intervals to keep their membership alive. It is the main and regular source of income of non-profit organizations. The …

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Petty Cash Book

Petty Cash Book – Definition Petty Cash Book is maintained to record small expenses such as postage, stationery, telegram. A separate column is allotted for each type of expenditure. The difference between the total of the debit items and that of the ‘total column’ on the credit represents the balance of the petty cash in …

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Accounting concepts and conventions

Accounting concepts These are the basic assumptions or ideas upon which the science of accounting is based. These are fundamentals to accounting practice. These include: Separate Entity Concept Going Concern Concept Money Measurement Concept Cost Concept Dual Aspect Concept Accounting Period Concept Matching Concept Realization concept Accounting Conventions The term “Accounting Conventions” includes those customs and …

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Credit Note

Definition If a buyer returns goods to the seller bought on credit, the buyer’s account will be credited by the seller and will be informed by the seller through a note. This note is called “Credit Note“.

Debit Note

Definition If a buyer returns goods to the seller which are bought on credit, the seller’s account must be debited by the buyer and send this information to the seller through a note. This note is known as “Debit Note”.

What is a source document?

An accounting entry is based on some document. This document is known as source document. Source Documents include the followings: Sales Order Purchase Order Invoices and Credit Notes Petty Cash Voucher Credit Card Sales Voucher

Accounting period

What is an accounting period? Definition The length of time for which separate business records (financial statements) are prepared is known as accounting period. Accounting period varies according to the nature of the business. It may consist of three months or six months but normally accounting period consists of one year. Example If a business maintains …

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Expense – Definition

Definition The cost required to run a business is called expense. These include the routine expenses like salaries, commission, utility bills, etc. OR An expenditure, whose benefit is finished or enjoyed immediately or within the period of one accounting year, is called expense. OR The dollar amount of the resources used up by the firm …

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Expenditure

Definition When a business spends some amount to acquire an asset, that benefited that business for a long period of time, it is called expenditure. Example Amount spent to purchase Building, Furniture, Plant etc.

Income or revenue

Definition The amount or value received by a business or organization against goods sold or services rendered to customers or buyers is known as income or revenue. OR “Revenue is the amount of goods or product sold and services rendered during a specific accounting period.” Example Sales. Commission earned etc.

Liabilities Definition

What are the liabilities? Those obligations or debts which are payable by business to its owner and others are called liabilities. Or Liabilities are the obligations of the enterprise. The amount owed to creditors, employees, the government, or others. Example Creditors, Loan, Capital, etc.

Creditors or accounts payable

Definition The persons or company from whom the goods or services are purchased on credit and to whom the amount is payable are called creditors. Creditors are also termed as Accounts Payable. Example John Sold goods to Harry on credit for $500, John is a Creditor of Harry.

Debtors or account receivable

Definition The persons to whom the goods or services have been sold on credit and from whom the amount is receivable are called “Debtors”. Debtors are also termed as Accounts Receivable. Example John Sold goods to Harry on credit for $500, Harry is a Debtor of John.

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