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-This question was submitted by a user and answered by a volunteer of our choice. Accumulated Depreciation Depreciation is a wear and tear of an asset due to the efflux of time and various other factors. It’s basically an allocation of the cost of a tangible asset over its useful life. Accumulated depreciation is the […]

-This question was submitted by a user and answered by a volunteer of our choice. A question often asked is, “Is bad debt an asset or liability?”. Let us try to understand this concept in detail. What are Bad Debts? In layman’s language, a Bad Debt is a non-cash expense incurred by a business when […]

-This question was submitted by a user and answered by a volunteer of our choice. The term negative working capital is derived from the concept of working capital. To begin with, I would like to briefly explain the meaning of working capital. In simple terms, Working Capital refers to the total amount of current assets […]

Overview of Purchase Return When the buyer of goods returns the goods purchased back to the seller, the transaction is referred to as purchases return. The buyer may return the goods to the seller (the creditor) due to excessive purchases, defective goods, or any such reason. For recording this transaction, adjustments can be made to […]

-This question was submitted by a user and answered by a volunteer of our choice. Sales Return and Allowances When the goods or commodities are sold by the dealer or a manufacturer to the customer and the customer returns these goods or part thereof then such return made by the customer is called a sales […]

Overview of Income Income is the money received by a business in exchange for goods or services sold. It could be both, received or yet to be received. In other words, it is a monetary inflow received either in cash or kind. It includes the revenue from various sources like dividends and interest received, selling […]

-This question was submitted by a user and answered by a volunteer of our choice. What is Income Received in Advance? Income received in advance is the income received but not due. In other words, when a business receives an income for a service not yet rendered, it is considered as income received in advance. […]

-This question was submitted by a user and answered by a volunteer of our choice. Firstly, Nancy, the question put up by you is a bit vague. As in it is difficult to identify whether you have an issue in understanding an accounting concept regarding a loan given or loan taken. Moving ahead, I think […]

-This question was submitted by a user and answered by a volunteer of our choice. Before I give you the examples of deferred revenue I would first like to explain what deferred revenue means. Meaning of Deferred Revenue Deferred revenue is the amount received by an entity in advance before delivering the goods or transferring […]

What is Suspense account? A suspense account is a general ledger account prepared in the following situations; 1. Transactions are unidentified or unclassified at the time of occurrence, or 2. Differences arises between the total debit side & the credit side of the trial balance. When the right account is determined or the error is […]

-This question was submitted by a user and answered by a volunteer of our choice. Fixed Assets Fixed assets are those assets that can be in the firm for a long period and it is tangible. These assets provide benefits for more than one accounting period for the firm. These provide support for the production […]

Overview of Liabilities From a business perspective, a liability is defined as money owed to third parties. It may be external (3rd parties) or internal (promoters). It is a debt or financial obligation that is settled by an exchange of economic benefits at a future date. For example, long-term loans, bonds payable, trade payables, bills […]

-This question was submitted by a user and answered by a volunteer of our choice. Meaning of Income received in advance It refers to an income received in advance by the entity for goods or services which have not been rendered in the current accounting period. The advance income received relates to the future accounting […]

-This question was submitted by a user and answered by a volunteer of our choice. Objectives of Bank Reconciliation Statement Bank Reconciliation statement refers to the statement that reconciles the difference between the balances as per the bank column of cash-book and pass-book.  The following are the objectives of the bank reconciliation statement. BRS Stands […]

-This question was submitted by a user and answered by a volunteer of our choice. In layman’s language, a trade discount refers to a reduction/fall in the original price of a commodity being sold. This type of discount is usually granted on the list price of the products by the supplier or wholesaler to the […]

-This question was submitted by a user and answered by a volunteer of our choice. Posting Reference A posting reference column is used to indicate that the entry is posted in the respective ledger accounts and it links the journal with the respective ledger account. The abbreviation used for posting reference is “PR”. It is […]

-This question was submitted by a user and answered by a volunteer of our choice. In the business world, the terms “Debt” and “Liability” are used interchangeably and are understood to be the same. But in reality, they differ. Debt Debt refers to the money that a company borrows from external sources, typically in the […]

Meaning of Contra Assets The word contra means “opposite”. So, contra assets have a credit balance, whereas assets normally have a debit balance. A contra-asset account stores a reserve which reduces the balance of the paired account. The reason to show this information separately in a contra-asset account is to see the extent to which […]

Overview of Prepaid Insurance Prepaid Insurance is the amount of insurance premium which has been paid in advance in the current accounting period. However, the related benefits corresponding to the insurance amount prepaid will be received in the next accounting period. In other words, the insurance premium is paid before it is actually incurred. Prepaid […]

-This question was submitted by a user and answered by a volunteer of our choice. Balance Sheet is a statement showing the financial position of a business entity on a particular day. It shows the liabilities and assets of the business. It consists of items from the trial balance. Trial balance is the third step […]

Every year or after a certain period, the ledger accounts are balanced after posting the transactions. The difference in the totals of the two sides of an account is written on the side with the smaller total. The debit balance of a trading account means the company has incurred a gross loss for that period. […]

-This question was submitted by a user and answered by a volunteer of our choice. Meaning of Bad debts As we can see, the term ‘Bad Debt’ comprises of the word ‘bad’, which gives us a fair idea that it is something about the debtors who are not good for the business. So basically, Bad […]

What are Retained Earnings? Retained Earnings are the accumulated net income of an entity at the end of an accounting period that is retained by it to meet any future contingencies, invest in expansion activities, pay dividends to its shareholders, share buybacks, or issue bonus shares. Retained Earnings Calculation Opening Retained Earnings + or – […]

-This question was submitted by a user and answered by a volunteer of our choice. Direct and Indirect expenses- Direct expenses include all those expenses which have a direct connection with the manufacture of the goods (i.e., conversion of raw materials into finished products). Such expenses are direct expenses and are placed on the debit […]

-This question was submitted by a user and answered by a volunteer of our choice. Yes, the cash book is both a journal and a ledger.  To make the concept simpler, let us first be familiarized with the meaning of journals and ledgers, which shall help in determining the reasons for a cashbook to be […]