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Liability – Accounting Definition In a business scenario, a liability is an obligation payable to a third party. It may or may not be a legal obligation and arises from transactions and events that occurred in the past. It is usually payable to an external party (e.g. lenders, long-term loans). There are mainly three types of […]

Liability A liability is an obligation payable by a business to either internal (e.g. owner) or an external party (e.g. lenders). There are mainly four types of liabilities in a business; current liabilities, non-current liabilities, contingent liabilities & capital. A liability may be part of a past transaction done by the firm, e.g. purchase of […]

Journal Entry for Manager’s Commission In addition to salaries, companies may offer a fixed percentage of their net profit to managers as commission. This is done to motivate and encourage them to generate more revenue for the company. Accounting and journal entry for manager’s commission involves the below 3 steps,   Step 1 – Manager’s […]

Working Capital Turnover Ratio Working Capital Turnover Ratio is used to determine the relationship between net sales and working capital of a business. It shows the number of net sales generated for every single unit of working capital employed in the business. Companies may perform different types of analysis such as trend analysis, cross-sectional analysis, etc. to find […]

Types of Ledgers A ledger is a book where all ledger accounts are maintained in a summarized way. All accounts combined together make a ledger book. Predominantly there are 3 different types of ledgers; Sales, Purchase and General ledger. A ledger is also known as the principal book of accounts and it forms a permanent record of […]

Qualitative Characteristics of Accounting Information There are some qualities of accounting that make it useful for both external and internal users of accounting. Without these qualities, accounting information wouldn’t be clear, and an orderly view of the business would not be visible. 4 qualitative characteristics of accounting information are;   Comparability Comparison is a very […]

Subsidiary Books of Account Also known as books of original entry, special purpose books, special purpose subsidiary books, and subsidiary books of accounts are various books recording financial transactions of a similar nature. They are the sub-division of the journal. During the lifecycle of a business, the volume of transactions in a business may rise […]

Source Documents or Source Vouchers Source documents are the first document to record a transaction which works as an evidence containing details of a transaction. They are external documents or documents related to external activities which are first input in the accounting source systems. Examples of source documents are invoice or bill, cash memo, cheque, sales order, purchase […]

Accounting Period Also known as a financial period, period of account, accounting year, financial year, etc. the period for which a business prepares its accounts is called the accounting period for that firm. As per the going concern concept, when a business is started, it is assumed that it will not be dissolved in the […]

Creditor’s Turnover Ratio or Payables Turnover Ratio Creditor’s turnover ratio is also known as Payables Turnover Ratio, Creditor’s Velocity and Trade Payables Ratio. It is an activity ratio that finds out the relationship between net credit purchases and average trade payables of a business. It finds out how efficiently the assets are employed by a firm and […]

Journal Entry for Credit Purchase and Cash Purchase To run successful operations a business needs to purchase raw material and manage its stock optimally throughout its operational cycle. Accounting and journal entry for credit purchase includes 2 accounts, Creditor and Purchase. In case of a journal entry for cash purchase, ‘Cash’ account and ‘Purchase‘ account are […]

Journal Entry for Credit Sales and Cash Sales Sales are a part of everyday business, they can either be made in cash or credit. In a dynamic environment, credit sales are promoted to keep up with the cutting edge competition. Accounting and journal entry for credit sales include 2 accounts, debtor and sales. In case […]

Bill of Exchange Vs Promissory Note To pay for credit sales a buyer may make a written promise in form of a promissory note or a bill of exchange. Below is a compilation of the major points of difference between a bill of exchange and a promissory note. Definition (Bill of Exchange) – It is a […]

Profit and Loss Appropriation Account In case of a sole proprietorship, there is a single owner and any addition in the capital in form of net profit or reduction in form of drawings is directly done from the firm’s capital account. However, in case of a partnership, “Profit and Loss Appropriation Account” is created to demonstrate the change in […]

American or Modern Rules of Accounting There are a couple of ways to approach the art of accounting, traditional and modern. Classification of accounts under both traditional and modern rules of accounting is done very differently. The UK or traditional style of accounting classifies all accounts of a business into 3 main types i.e. Real, Personal […]

Last updated on Jun 20th 2023 Tips to Follow for Freshers Before an Accounting Interview Initial finance and accounting interviews can be hard-hitting and you don’t want to be caught off-guard. Here, we’ve compiled top 11 tips to follow for freshers before an accounting interview. For obvious reasons we have not added the must-haves such […]

Debtor’s Turnover Ratio or Receivables Turnover Ratio Debtor’s turnover ratio is also known as Receivables Turnover Ratio, Debtor’s Velocity and Trade Receivables Ratio. It is an activity ratio that finds out the relationship between net credit sales and average trade receivables of a business. It helps in cash budgeting as cash flow from customers can be […]

Journal Entry for Bill of Exchange Bill of exchange is an instrument in writing signed by the maker which contains an order without any conditions. It directs another person to pay a specific sum of money to the bearer of the instrument (or) to a particular person (or) to the order of a particular person. […]

Journal Entry For Provident Fund (PF) Provident fund or PF is a compulsory retirement savings plan managed by the government where employees contribute a fixed percentage of their monthly pay-out and the same amount is contributed by the employer. Accounting and Journal entry for provident fund is a 3 step process. When salaries are paid […]

Meaning Bill of exchange is a financial instrument in writing containing an unconditional order signed by the maker, directing another person to pay a specific sum of money. The amount may be paid in any of the following ways; to the bearer of the instrument, (or) to the order of a particular person, (or) to […]

Stock Turnover Ratio The inventory turnover ratio or stock turnover ratio indicates the relationship between “cost of goods sold” and “average inventory”. It indicates how efficiently the firm’s investment in inventories is converted to sales and thus depicts the inventory management skills of the organization. It is both an activity and efficiency ratio. This ratio […]

Accounting and Journal Entry for Interest on Drawings Cash or Goods withdrawn by a proprietor from the business for their personal use is labelled as drawings. Interest may be charged by the business at a fixed rate when a business owner draws funds or assets. Journal entry for interest on drawings includes two accounts; Drawings A/C & Interest on […]

Accounting and Journal Entry for Interest on Capital Owners may seek a return on investment in the form of a fixed rate of interest to the extent of the amount employed by them in the business. In order to ascertain a true picture of the business’s profitability, it is a common practice to provide interest […]

Three Types of Personal Accounts Real, Personal and Nominal accounts are the traditional classification of account types in accounting, however, personal accounts are further distinguished under three categories such as Natural, Artificial, and Representative. Golden rule of accounting for personal accounts is – Debit the Receiver & Credit the Giver   Natural Personal Accounts These accounts […]

Journal Entry for Credit Card Sales Digitization and modernization have made credit cards a very common mode of payment. Credit cards allow customers to shop without cash and make swift hassle-free payments. Frequent credit card payments mean businesses have to deal with the aspect of accounting and posting journal entry for credit card sales. There […]