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Revenue Receipt Revenue receipts are funds received by a business as a result of its core business activities. It leads to an overall increase in the total revenue of the company. These funds are generated from a firm’s operating activities hence they are shown inside trading and profit and loss account and not in a balance sheet. They […]

Capital Receipts Capital receipts are funds received by a business which are not revenue in nature & lead to an overall increase in the total capital of a company. These are funds generated from non-operating activities of a business hence are not shown inside the income statement instead they are shown inside a balance sheet. They […]

Depreciation Vs Amortization One of the main principles of accrual accounting is that an asset’s cost is proportionally expensed based on the period over which it is used. Both depreciation and amortization (as well as depletion and obsolescence) are methods that are used to reduce the cost of a specific type of asset over its […]

Interest Coverage Ratio Interest Coverage ratio is a type of solvency ratio (long-term solvency) which is derived by dividing “Earnings before Interest and Taxes” of a company with its “Interest on Long-Term Debt“. Ideal number for this ratio is 1.5 or above, anything less than that shows the company doesn’t earn enough w.r.t its interest […]

Trade Discount in Purchase Book or Purchase Journal A discount granted by a seller of goods or services on the retail price is called a trade discount. It is provided as a business consideration such as trade practices, large quantity orders, etc. Trade discount in the purchase book is shown in a separate row as […]

Fixed Assets Ratio The fixed Assets ratio is a type of solvency ratio (long-term solvency) which is found by dividing the total fixed assets (net) of a company by its long-term funds. It shows the amount of fixed assets being financed by each unit of long-term funds. It helps to determine the capacity of a […]

Capital Receipts vs Revenue Receipts There are two types of amounts received by a firm during its regular course of business, Capital Receipts and Revenue Receipts. Difference between capital receipts and revenue receipts can be compiled as follows;   Capital Receipts 1. Capital receipts refer to amounts received by a business which lead to an […]

Steps to Prepare a Journal Entry Journalizing is the process of recording a business transaction in the accounting records (Journal Book). The process to prepare a journal entry or in other words make a journal entry from scratch is divided into 4 different steps.   Example and Explanation – Steps by Step Example – Unreal Corp. […]

Current Assets Vs Current Liabilities Assets and liabilities are classified in many ways such as fixed, current, tangible, intangible, long-term, short-term etc. While analyzing the balance sheet of a company it is important to know the difference between current assets and current liabilities. Here the distinction is related to the age of assets and liabilities.   […]

Balance B/D and Balance C/D In bookkeeping, Balance B/D and Balance C/D are terms used for balancing and closing of ledger accounts from the current period to the following period. Balance B/D – is the balance brought down as opening balance of a ledger pulled from the previous accounting period. Balance C/D – is the balance carried […]

Balance B/F and Balance C/F In bookkeeping, Balance B/F and Balance C/F are a couple of accounting jargon used while journalizing. They play a role in totalling and carrying forward balances from one page of the journal book to the next one. Balance B/F – Balance Brought Forward | Balance C/F – Balance Carried Forward To […]

Calculate Scrap Value of an Asset -SLM/WDV The scrap value of an asset may be defined as the maximum value that can be fetched by salvaging or selling it after its useful life. It is also known as salvage value, residual value or break-up value. To know how to calculate the scrap value of an asset it is important […]

Scrap Value of an Asset – Meaning Scrap value of an asset may be defined as the estimated price that can be collected by salvaging or selling the asset after its useful life. In other words, it is the approximated value at which an asset can be sold in the open market after the expiration […]

Profit and Loss Vs Profit and Loss Appropriation Account Profit and loss appropriation account is an extension of the profit and loss account itself, however, there is a fundamental difference between profit and loss & profit and loss appropriation account. By definition, a P&L account or Income statement is one of the three financial statements […]

Reclass Entry Accounting for business also means being responsible for adjustments and corrections. One such adjustment entry is ‘reclass’ or reclassification journal entry. The process of transferring an amount from one ledger account to another is termed as reclass entry. It is most often seen as a transfer journal entry & is a critical part […]

True-up Entry Concept in Accounting In its most generic form a true-up means to match, reconcile, tie-out two or more balances with the help of an adjustment. In accounting, this adjustment journal entry is called true-up entry. There are many reasons why a mismatch may exist between two balances; Budgeting – Some recurring expenses are estimated at […]

Meaning Assets which don’t have a physical existence and can not be touched and felt are called intangible assets. Unlike tangible assets which can be touched & felt intangible assets are nonphysical, invisible, long-term and difficult to quantify. This type of asset can either be definite i.e. it will expire after a certain time period […]

Meaning of Tangible Assets Assets that have a physical existence and can be touched and felt are called tangible assets. They consist of both fixed and current assets, they are always at risk of destruction from natural incidents, theft, accidents, etc. A business would usually insure them to safeguard themselves against unseen future events. Such […]

Finance and Accounting Interview Questions (FAQs) We have a collection of top finance and accounting interview questions compiled with real-life experiences and research with working professionals. They are a must-read for all job seekers especially freshers and intermediate-level candidates with an experience range of 0-4 years. These accounting questions for interviews can also act as […]

Revenue Expenditure During the normal course of business, any expenditure incurred of which benefit is received during the same accounting period is called revenue expenditure. These expenses help a business sustain its operations and may not result in an increase in revenue. Examples of such expenses are wages, rent, power, bad debts, depreciation, telephone, printing, cost […]

Different Types of Purchase Orders A purchase order (PO) is an official document generated by a buyer of goods/services as an offer for the seller. It becomes a “legal document of contract” once the seller accepts the purchase order. There are mainly 4 different types of purchase orders; Standard PO Contract PO Blanket PO Planned […]

Three-Way Matching Three-way matching is a procedure used in accounts payable to authenticate and verify the disbursal of payment to a creditor. This type of match involves matching Purchase Order (PO), Goods Receipt Note (GRN) & Invoice. Various departments work together to check things like price billed, quantity billed, quality & quantity of goods received etc. Three-way […]

Final Accounts As the name suggests they are the final accounts which are prepared at the last stage of an accounting cycle. Final accounts show both the financial position of a business along with the profitability, they are used by external and internal parties for various purposes. Trading account, Profit and Loss account and Balance […]

Trade Receivables It is the total amount receivable to a business for sale of goods or services provided as a part of their business operations. Trade receivables consist of Debtors and Bills Receivables. Trade receivables arise due to credit sales. They are treated as an asset to the company and can be found on the balance sheet. Trade […]

Journal Entry for Recovery of Bad Debts At times a debtor whose account had earlier been written off by a creditor as a bad debt may decide to make a payment. This is called “recovery of bad debts”. While posting the journal entry for bad debts recovered it is important to note that it is […]