Basic Accounting

Capital In its simplest form, capital means the funds brought in to start a business by the owner(s) of a company. It is an investment by the proprietor(s) or partner(s) in the business. Bringing equity into a business can mean money or assets as well. It is business’ liability towards the owner(s) also referred to […]

Return Inwards Return inwards are goods returned to a business by its customer(s). They are goods which were once sold to external third parties, however, because of being unsatisfactory, they were returned by the customer. They are also called “Sales Returns”. Inward returns reduce the total accounts receivable for the business. It is a sales […]

Debit Balance and Credit Balance A ledger account can have both debit or a credit balance which is determined by which side of the account is greater than the other. Debit balance and credit balance are terms often used in the accounting world hence it is important to understand the distinction and their exact meaning. […]

COGS – Cost of Goods Sold The Cost of Goods, also known as COGS or Cost of Sales, is the actual cost of the commodities sold to customers. It involves both costs of the material used for production and direct labour cost. The cost of goods sold (COGS) is shown in the income statement. Sales are […]

Definition To understand Accruals we need to understand the meaning of the word accrual, which is “The act of accumulating something”. Accruals are mainly related to prepayments and arrears. In accrual-based accounting, accruals refer to expenses and revenues that have been incurred or earned but have not been recorded in the books of accounts. Adjustment entries […]

Drawings In accounting, assets such as Cash or Goods which are withdrawn from a business by the owner(s) for their personal use are termed as drawings.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 In the case of goods withdrawn by owners for personal use, purchases are reduced […]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 […]

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, […]

Trade Discount A reduction granted by a supplier of goods/services on list or catalogue price is called a trade discount. This is done due to business consideration such as trade practices, large quantity orders, etc. It is not separately shown in the books of accounts; entries recorded in purchase book or sales book are recorded […]

Cash Discount A cash discount is a deduction allowed by the supplier of goods or by the provider of services to the buyer from the invoice price. This is done as an incentive in return for paying a bill within a specified time. Usually, the supplier will reduce the amount owed by a small percentage, […]

Voucher A document that serves as evidence for a business transaction is called a Voucher. Sometimes, mistakenly seen as just a bill or receipt; it can have many other forms. It is not the appearance of it that matters it just needs to act as evidence of a transaction. When a transaction is entered, the […]

Accounting Equation It wouldn’t be wrong to say that this equation is the basis of all accounting. The Accounting Equation is based on the dual aspect concept of accounting, which says that every transaction has two aspects, debit and credit, and for every debit, there is equal and opposite credit. This equation is also called the […]

Overview and Meaning Three Golden Rules Examples How to use Modern Approach Quiz Revision Video Practice PDF Download Conclusion   Overview and Meaning In the general sense of the English language, something described as “Golden” means prime quality. In the context of accounting, the golden rules are the main rules used to record financial transactions […]

Accounting Cycle or Accounting Trail The accounting cycle is a chronological order in which an accounting process flows. It is a step by step process followed to achieve the ultimate goals of accounting. Firstly, the information is recorded in a book or accounting software (in the modern scenario) called a Journal. Then it is adjusted and […]

Double Entry Accounting According to the dual aspect principle of accounting, business is a separate independent entity. Double-entry accounting system includes receiving benefits from some sources and giving it to some others. Benefits received and benefits provided should always match and balance out. Every transaction has two aspects debit and credit; two equal amounts. Every business […]

  What is the Principle of Income Recognition? What is the Dual Aspect Principle? What is the Principle of Expenses? What is the Modifying Principle? What is the Matching Principle? What is the Materiality Principle? What is the Historical Cost Principle? What is the Full Disclosure Principle? What is the Principle of Consistency? What is the […]

Bad Debts In a business scenario, amounts which are overdue to a business owner by the debtor(s) and declared irrecoverable are called bad debts. Few reasons for debtors to not pay their debts on time may be; filing for bankruptcy, experiencing hardship due to losses, etc.  This can either be the complete amount owed or a […]

  What is Business Separate Entity Concept? What is the Going Concern Concept? What is Money Measurement Concept? What is Periodicity Concept? What is the Accrual Concept? Accounting Concepts and Assumptions Accounting concepts are basic assumptions on the basis of which financial statements of a business are prepared. Accounting assumptions are broad concepts that develop […]

Accounting Process The word “Accounting” brings along with itself thousands of years of history and can be traced back to ancient times. There are proofs which suggest that accounting might be more than 7000 years old. Now, let’s just quickly get back to modern times and try to understand what really accounting and the accounting […]