Classification of assets and liabilities

What are assets and liabilities? A balance sheet is a statement that presents a financial position of an enterprise, it is necessary that it shows the assets and liabilities based on their characteristic features. If assets are the property and possessions of the business, liabilities are the legal obligations of the business, i.e., the claim …

Read more

Accounts Payable Ledger

What is Accounts Payable Ledger? Accounts Payable Ledger is a subsidiary ledger that lists the individual accounts of creditors; also referred to as the creditors’ ledger. What is a Subsidiary Ledger? A subsidiary ledger is a ledger that contains only one type of account, such as the accounts payable ledger. Explanation When a business has …

Read more

Company Final Acounts Practical Problems and Solutions

We have prepared Company Final Accounts Practical Problems and Solution paper for the ease of students to understand the concept of Final Accounts more clearly. Problem No. 1 For the year ended 31st December 2019 the profit of Krebs Ltd. before changing depreciation on fixed assets and Managerial commission amounted to $300,000. Depreciation for the …

Read more

Accounts Payable

Accounts Payable Definition The Accounts Payable is a liability account that represents debts owed to the creditors of a business. Most purchases take place on credit, and under the accrual basis of accounting, the liability must be recorded at the time title passes for the assets purchased or when the services are received, proper internal …

Read more

Provision for discount on debtors

At the end of the trading period, there is always number of outstanding debtors or accounts receivable. In order to motivate his debtors to pay their debts, the trader sometimes offers attraction in the form of ca ash discount. As he knows from experience that customers are always anxious to enjoy the benefits of cash discount. …

Read more

Marshalling of Balance Sheet

Definition The arrangement of assets and liabilities in balance Sheet is called “Marshalling“. Explanation The main purpose of Balance Sheet is to show the financial position of the business. Therefore, assets and liabilities in Balance Sheet should be shown in such an order which help to understand the financial position easily. To serve this purpose assets …

Read more

Difference between gross profit and net profit

Gross profit of any business determines through Trading Account and the net profit determines through Profit and Loss Account. Below is the difference between gross profit and net profit. Gross Profit Net Profit It is ascertained through Trading Account. It is ascertained through Profit and Loss Account. It is the gross result of the business activities. …

Read more

Profit and Loss Account

Profit and loss account – Definition The account that shows annual net profit or net loss of a business is called Profit and Loss Account. It is prepared to determine the net profit or net loss of a trader. P&L account is a component of final accounts. Explanation The purpose of preparing the profit and …

Read more

Trading Account

What is a trading account? The 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 …

Read more

Accounting treatment of closing stock

What is meant by Closing Stock? Closing stock consists of different types of finished goods in case of trading business. Whereas in case of manufacturing business closing stock is consisted of raw materials, work-in-progress and finished goods. The unsold closing stock of the current year is the opening stock of the next year. As the …

Read more

Revenue

Definition The amount a business earns by selling goods or providing services is called revenue. Explanation The remuneration of goods sold or services provided is called revenue. It includes both cash received for goods sold and services rendered and accounts receivable for goods sold and services rendered on credit. Revenues appear in trial balance are …

Read more

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 …

Read more

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 …

Read more

Adjusting entries and their purpose

Adjusting Entries An adjusting entry is an entry that brings the balance of an account up-to-date to find the correct balance and correct information at the end of an accounting period. Before explaining adjusting entries, let us know about accounting adjustments, why we need adjustments, and the effects of accounting adjustments. Accounting Adjustments: Introduction The …

Read more

Prepaid Expenses

What are Prepaid Expenses? – Definition Unexpired or prepaid expenses are the expenses for which payments have been made but full benefits or services have not been received during that period. Such payments can be divided into two portions. The portion for which benefits have been received is an expense and the portion for which …

Read more