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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 […]

Financial Accounting VS Management Accounting The difference between financial accounting and management accounting is very important to understand as both of them serve different purposes and audiences. A person from the management may not find certain information relevant, and at the same time, a cost accountant can’t work without this information. A creditor and a manager would need […]

Closing Stock Not Shown in Trial Balance The reason why closing stock is not shown in trial balance takes into consideration whether or not the closing stock has been adjusted with purchases or not. It is important to understand and endure so that a correct trial balance is prepared and the ledger balances are accurately checked. […]

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. […]

Debit Note A debit note also known as a debit memo is a document sent by the seller to the buyer informing about the current debt obligations or it may be a document sent by the buyer to the seller at the time of returning goods as proof (return outwards). Depending on the purpose of […]

Accumulated Depreciation Total cumulative depreciation of a tangible asset up to a specific date is called Accumulated Depreciation. It is the total depreciation already charged as expense in different accounting periods. It is a contra-asset account which, unlike an asset account, has a credit balance. It is shown on the balance sheet as a deduction […]

Honorarium An honorarium is a voluntary payment given to a person for services delivered. These are generally acts or services for which customs and traditions disallow a price to be set. Payments are made just as a gesture to thank or appreciate the person for rendering the services. The honorarium is not legally required.   […]

Grouping and Marshalling Grouping In accounting, Grouping refers to presenting similar items with similar qualities together. They are shown under a common head inside financial statements. For example, let’s say a company has 200 different creditors that it deals with. All of them will not be shown separately in financial statements, only the net total of all […]

Inflation Accounting As the name suggests, accounting techniques that are used during the times of high inflation are called Inflation Accounting. It is widely used to counter the effect of historical cost accounting at the times of high inflation. It is also called price Level Accounting. Inflation has an effect on prices, but corporate finances also become vulnerable […]

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 […]

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 […]

Bank Reconciliation Statement (BRS) The word reconcile means “making one thing consistent with another”. In case of business, a Bank Reconciliation Statement or BRS refers to a statement which is made to reconcile bank balance shown on the bank statement or passbook with the bank balance shown in the cash book. This helps a business to keep control […]

Capex and Opex Expenses are costs incurred for a consideration. An expense may be capital or revenue in nature and usually incurred by disbursal of money. Capex and Opex refer to capital expenditure and operating expenditure respectively. They can also be recognized by agreeing to pay off an obligation e.g. paying rent, buying machinery, paying taxes, […]

Finance VS Accounting Accounting involves the creation, management, summation & communication of day-to-day transactions of a business ultimately leading to the preparation of financial statements. On the other hand, finance has a wider scope and is mainly responsible to support in decision-making such as investment, divestment, cash management, Working capital management etc. Difference between finance […]

Contra Entry In the dual entry accounting system, a contra entry is an entry which is recorded to reverse or offset an entry on the other side of an account. If a debit entry is recorded in an account, it will be recorded on the credit side and vice-versa. Debit and credit aspects of a single […]

Deferred Revenue Expenditure It will be easier to understand the meaning of deferred revenue expenditure if you know the word deferred, which means “Holding something back for a later time”, or “postpone”. Deferred Revenue Expenditure is an expenditure that is revenue in nature and incurred during an accounting period, however, related benefits are to be derived in multiple […]

Contingent Liabilities The word contingent or contingency means “possible, but not certain to occur”. So, according to the definition, contingent liabilities are those liabilities that may or may not be incurred by a business depending on the outcome of a future event. The existence of this kind of liability is completely dependent on the occurrence of a […]

Reserves Vs Provisions Reserves and provisions are somewhat alike but are created for different reasons and under distinct circumstances. Both are important for a business and one can’t reduce the importance of the other. This article covers major points of difference between reserves and provisions. Reserves are what a business would put away from its profits […]

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 […]