Books and Accounts
There are two sides to accounting: debit and credit. Profits & incomes are placed on the credit side (right). This is because we gain money, and in accounting terms, this is credit. Similarly, the debit side (left) shows all the expenses & losses. Now, if we have a debit balance in the Profit and Loss […]
Meaning and Definition The income statement or Profit & Loss account is an essential financial statement that provides a summary of a firm’s expenses, losses, incomes, and gains for a specific accounting period. The credit side (right) of a profit and loss account deals with income and gains, whereas the debit side (left) deals with expenses […]
A petty cash book is just as its name suggests a book which is used for the purpose of recording small amounts of expenses in a business. Usually, the petty cashier maintains a petty cash book. It is like a petty cash account. A simple petty cash book looks like a cash book with two […]
Meaning, Example & Purpose Revaluation means “reassessing the value of something”. In the event of a change to the original partnership of a business, such a reassessment is done. Only assets & liabilities of a firm are revalued and a “Revaluation Account” is opened to determine profit/loss resulting from the exercise. Note: Revaluation is only […]
Meaning and Basics It is a financial statement prepared by all types of businesses (sole proprietors, partners, enterprise, etc.) at a given date. The balance sheet represents the financial position of a business at any given point in time. It shows the company’s assets along with how they are financed, which may be by debt, […]
Meaning, Example & Uses “Realisation Account” is mostly used to determine the profit or loss on the realisation of assets and settlement of liabilities. It is prepared in the event of the dissolution of a partnership firm. Example Suppose 3 partners P, Q & R with a profit-sharing ratio of 1:1:1 decide to dissolve their […]
Offset Account To understand an offset account it is important to understand the meaning of the word “Offset”. It means, to show a consideration or amount that reduces or balances the effect of an opposite amount, it has an equal and opposite effect. In simpler terms, offset means a counteracting or opposite force. Example – […]
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 […]
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 […]
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 […]
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 […]
Contra Liability A liability account would usually contain credit balance however at times to offset a liability a separate account is used which contains debit balance and is paired along with it, this account is called a contra liability account. Seldom used in practice a contra liability account is used for book value adjustments related to an […]
Income Statement or Profit and Loss Account An income statement is also known as a profit and loss account, statement of income or statement of operations. Besides balance sheet and statement of cash flows, income statement is also among important financial statements which measures the financial performance of a company over a certain period. After […]
Balance Sheet Balance sheet is a financial statement which shows the net worth of a company at the end of a financial period. A Balance sheet portrays the financial position of a company, disclosing what it owes and owns. It is an important document that needs to be prepared and submitted regularly like when submitting […]
Balance Sheet Accounts While looking at a company’s financials there are 2 types of general ledger accounts which are found, Income statement (a.k.a Profit and Loss accounts) and Balance sheet accounts. Balance sheet accounts are those which are related to assets, liabilities and capital. In other words all accounts which are related to balance sheet […]
Meaning and Definition As we know, final accounts are prepared at the end of an accounting period, by that time ledger balances also change due to day-to-day business transactions. Therefore, ledger balances are also required to be updated with relevant adjustments. Examples of such transactions are depreciation, closing stock, accruals, deposits, etc. Adjustment entries relating […]
Control Account An account which has a balance equal to the total of its underlying subsidiary ledger accounts is called a Control Account. These are accounts shown in the general ledger and they serve the purpose of checking if the total in the general ledger is equal to the total of its associated subledgers. It […]
Sales and Purchase Ledger Control Account Control accounts are the summarized form of their related subledgers. They are shown in the general ledger and act as a control to check if the total in the general ledger is in sync with the total of its associated subledgers. Sales Ledger Control Account (SLCA) Also known as […]
Contra Account Contra account is an account which is used to reduce or offset the value of an associated account. It holds opposite sign for a particular type of account. If an account has debit balance (e.g for an Asset a/c), then there will be a credit balance in its contra account. The opposite is […]
Chart of Accounts Also known as COA, chart of accounts is a list of all accounts in a company’s general ledger. They are the identified accounts which are available for a company to record transactions. ERPs such as Oracle, SAP, etc., can allow each account a unique number as defined. With this, it can be identified and modified […]
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 […]
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 […]
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 […]