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Tangible Assets Vs Intangible Assets An asset is a useful/valuable thing or person. Assets are divided in various ways depending on their physical existence, life expectancy, nature, etc. The difference between tangible assets and intangible assets is purely based on their physical existence in a business. In simpler words, an asset is a piece of property […]

Current Assets Definition Current assets are assets which are held by a business for a short period, mainly a year, or within an accounting cycle of a business. These are balance sheet accounts which can either be converted to cash or used to pay current liabilities within the same time frame. These are typically seen as […]

Depreciation Depreciation is a reduction in the value of a tangible fixed asset due to normal usage, wear and tear, new technology, or unfavourable market conditions. Unlike amortization, which is applied to intangible assets, depreciation is applicable to tangible assets. In Simple Terms – Depreciation is when an asset loses value over time. This can […]

Preliminary expenses – Meaning All expenses incurred before a company is formed i.e. cost incurred before the start of business operations is termed as preliminary expenses. They are a common example of fictitious assets and are written off every year from the profits earned by the business. Examples of such expenses suffered before the incorporation […]

Amortization Reduction in the value of an intangible asset by prorating its cost over a period of time (generally in multiple accounting periods) is called Amortization. Point worth remembering is that it can only be done for intangible assets such as copyrights, patents, trademarks, goodwill, etc. It is used for writing-off intangible assets whereas depreciation is […]

Meaning Examples Inside the Balance Sheet Is Goodwill a Fictitious Asset? Difference Between Fictitious Assets and Intangible Assets Quiz Revision Video Journal Entry Which Accounts are Fictitious Assets Transferred to? Conclusion   Meaning of Fictitious Assets The best way to understand this is to memorize the meaning of the word “fictitious” which means “not true” […]

Drawings In accounting, assets such as Cash or Goods which are withdrawn from a business by the owner(s) for their personal use are termed as drawings. It is also called a withdrawal account. It reduces the total capital invested by the proprietor(s). In the case of goods withdrawn by owners for personal use, purchases are reduced […]

Three Major Financial Statements Financial statements act as a report card for a business. The three major financial statements are prepared as a summary of figures and facts showing the financial condition of a business. They are not only used to show how a business uses its funds committed by the shareholders and the lenders, […]

Working Capital Also known as working assets, it is part of the total capital which is currently employed in a company’s day-to-day operations. Cash or liquid assets vital to run a company’s daily operations are collectively known as Working Capital. It is computed as the difference between current assets and current liabilities. Evaluation is done to […]

Definition and Use A suspense account is an account temporarily used in general ledger to carry doubtful amounts which can either be a payment or a receipt. Despite considerable efforts, if the reason(s) causing these questionable amounts are not found, the difference in the trial balance is temporarily transferred to a suspense account till it […]

Compound Journal Entry Compound means a thing that is composed of two or more separate components. Similarly, when used in accounting, a compound journal entry means a journal entry which includes multiple accounts that are either debited or credited, unlike a simple journal entry which only includes 1 debit and 1 credit. In other words, […]

Definition of Trial Balance in Accounting As per the accounting cycle, preparing a trial balance is the next step after posting and balancing ledger accounts. It is a statement of debit and credit balances that are extracted on a specific date. It is made as an attempt to prove that the total of ledger accounts […]

Subledger When a business is small there is only one general ledger that is maintained. As the size of the business increases, the number of accounts also grow along with that. New subledgers are created under the general ledger accounts, these subsets of the general ledger are called subledger. Similar types of accounts are grouped together and […]

Ledger in Accounting It is also known as the principal book of accounts as well as the book of final entry. It is a book in which all ledger accounts and related monetary transactions are maintained in a summarized and classified form. All accounts combined together make a ledger and form a permanent record of […]

Internal and External Liabilities Liabilities are obligations a business owes to external or internal parties. As per the accounting equation liabilities are equal to the difference between assets and capital. For example, if Business A sells goods to Business B on credit, the amount owed by B to A is treated as a liability. Internal […]

Journal in Accounting Journal is the primary book of accounting where daily records of business transactions are first recorded in chronological order, i.e. in the increasing order of dates. In case of a large business where the number of transactions is substantially more, it is divided into various subsidiary books; such as cashbook, sales book, purchase […]

Bookkeeping Vs Accounting Both bookkeeping and accounting are used interchangeably in the financial world, however, there is a notable difference between bookkeeping and accounting. Bookkeeping is a part of accounting whereas accounting itself is a wider concept. Definition of Bookkeeping – Literally, it means the activity of keeping (or maintaining) financial books, i.e. recording financial transactions […]

Meaning and Definition Petty Cash Book is an accounting book used for recording cash expenses which are small and of little value, for example, stamps, postage and handling, stationery, carriage, daily wages, etc. These are expenses which are incurred day after day; usually, petty expenses are large in quantity but insignificant in value. To record […]

Cash Book A Cash Book is a type of subsidiary book where cash (or) bank receipts and cash (or) bank payments made during a period are recorded in a chronological order. Receipts are recorded on the debit – the left hand side, and payments are recorded on the credit – right hand side. Entries are recorded […]

Bills Payable Book Also known as a B/P book, bills payable book is a subsidiary or secondary book of accounting where all bills of exchange, which are payable by the business, are recorded. The total value of all the bills payable for an accounting period is transferred to the books of accounts. In a mid […]

Bills Receivable Book Also known as a B/R book, bills receivable book is a subsidiary or secondary book of accounting, where all bills of exchange, which are receivable for the business, are recorded. The total value of all the bills receivable for an accounting period is transferred to the books of accounts. In a mid […]

Journal Proper or General Journal Journal Proper is mainly used for original records of a transaction which due to their importance or rareness of occurrence do not find a place in any of the subsidiary books of accounting. It is also known as a Miscellaneous Journal and it looks much like any other journal. Sample […]

Sales Return or Returns Inward Book When a business sends the ordered goods back to a vendor it is recorded in the sales return book. At times the buyer may return goods due to poor quality, inaccurate quantity, untimely delivery or other reasons. It is also called returns inwards and an appropriate sales return or […]

Purchase Returns or Returns Outward Book At times it may be necessary to return few goods back to a supplier when an order is received, this may be due to poor quality, inaccurate quantity, untimely delivery or other reasons. Purchase returns are also called returns outward and an appropriate purchase returns/returns outward book is maintained. All returns […]

Sales Book Sales book records all credit sales made by a business. It is one of the secondary book of accounts and unlike cash sales which are recorded in cash book, sales book is only to record credit sales. The amount entered in the sales book is on behalf of invoices supplied to purchasers, however, […]