Basic Accounting
Meaning & Explanation In accountancy, capitalization means recording a cash outflow as an asset in the balance sheet. Rather than recording it as a one-time expense on the income statement in the same year as it occurred. It is depreciated (expensed) over time. Why is capitalization done? The logic behind this approach is the matching […]
Meaning & Explanation In layman’s terms, write-off or expense-off simply means disregarding something as insignificant or eliminating something. The term write-off or expense-off refers to the “elimination of an asset from the financial books” when it is no longer valuable to the business. For example, if a debtor fails to pay his/her dues, then the […]
Meaning and Example Goodwill refers to an intangible asset that facilitates a company in making higher profits & is a result of a business’s consistent efforts over the past years. In other words, it is the advantageous outcome of the firm’s good name, reputation, prestige, connections, quality services or products, etc. It is an attractive […]
Net Profit and Net Loss A business may earn from various different operating and non-operating sources. Furthermore, it may pay for several different continuous and one-time events. The difference between indirect expenses and indirect incomes of business gives rise to net profit and net loss. In its adjective form, the word “Net” means the amount remaining after all deductions. In […]
Gross Profit and Gross Loss A business may earn money from various different operating and non-operating sources. Similarly, it may spend on several different ongoing and one-time items. The difference between direct expenses and direct revenues of business gives rise to gross profit and gross loss. In its noun form, the word “Gross” means an […]
Meaning and Overview Type of Account Trading Account Format (download PDF/Excel) How to Prepare a Trading Account? Items in a Trading A/c Purpose of preparation Trading Account vs Profit & Loss Account Quiz Meaning & Overview A trading account is used to record the sale and purchase of goods/services. This temporary account closes at […]
Management Accounting The word “management accounting” is a combination of two words “Management” & “Accounting”, in layman terms this means accounting for internal management. Also known as managerial accounting, it deals with generating financial information for business managers within the organization. Its main purpose is planning & decision making. In real-life scenarios, this is achieved with […]
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 […]
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 […]
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 […]
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 […]
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 […]
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. […]
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 […]
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 […]
Ratio Analysis Ratio analysis is a process of carefully studying the relationships between different data sets inside a company’s financial statements with the help of arithmetic ratios. It helps in a meaningful understanding of a firm’s performance and its financial position. All major financial statements can act as an input to the ratio analysis, ratios […]
Accounting Ratios – Definition Accounting ratios are mathematical expressions demonstrating a relationship between two independent or related accounting figures. Such ratios are calculated on the basis of accounting information. It is usually expressed as A:B, A to B, A/B, etc. With the help of accounting ratios, a comparative study becomes possible, for example, if you have […]
Users of Accounting Information Accounting is the language of business, it brings life to the otherwise lifeless business activities. It acts as a bridge between users of the information and the day to day transactions that occur inside a business. Users of accounting information may be inside or outside a business. Qualitative characteristics of accounting information such […]
Bookkeeping Bookkeeping is the process of recording all financial transactions of a business unit in a systematic way on a day-to-day basis. Most common examples of records are: Receipts from customers Payments to suppliers Billing for products supplied Recording invoices from suppliers Recording depreciation and other adjustments etc. Bookkeeping acts as a basis for the accounting […]
Posting From Journal to Ledger The procedure of transferring an entry from a journal to a ledger account is known as posting. It involves transferring of debits and credits from the journal book to the ledger accounts, if an account in a journal entry has been debited it will be posted in the ledger account […]
Authorized Capital Maximum value and amount of total shares that a company is authorized to issue legally is termed as authorized capital or authorized share capital. It is the maximum amount a company can raise as capital in the form of both equity shares and preference shares during its lifetime. This amount is decided during the […]
Reserves in Accounting At the end of a financial year when a company earns a profit certain portion of it is retained in the business to meet future contingencies, growth prospects, etc. This amount of money kept aside is termed as reserves. Reserves are a component of retained earnings. They help in fortifying the financial […]
Return Outwards Return outwards are goods returned by a customer to the seller. They are goods that were once purchased from external parties, however, because of being unsatisfactory they were returned back to them, they are also called Purchase returns. Outward returns reduce the total accounts payable for a business. It is a sales return and […]