Accounting Cycle: When complete sequence of accounting procedure is done which happens frequently and repeated in same directions during an accounting period, the same is called an accounting cycle. Accounting cycle starts from the recording of individual transactions and ends on the preparation of financial statements and closing entries. The accounting cycle is the name given to the collective […]
Balancing Ledger Accounts: Balancing of an account means the process of equalizing the two sides of an account by putting the difference on the side where amount is short. After Ledger Posting is completed the various accounts are balanced in order to know the exact position of a particular kind of transaction. Where the debit side of an account […]
Steps to Locate Errors: Even if there is only a very small difference in the trial balance, the errors leading to it must be located and rectified. A small difference may be the result of a number of errors. The following steps will be useful in locating errors: Whenever there is a difference in the trial […]
Rectification of Errors: Every concern is interested in ascertaining its true profit and financial position at the close of the trading year. But inspite of the best efforts of the book-keeper and the accountant certain errors are committed in the recording of the transactions which affect the final accounts of the concern. It, therefore, becomes utmost […]
Suspense Account: When a trial balance does not agree, efforts are made to locate errors and rectify them. However, if reason for disagreement of trail balance cannot be found, a new account called suspense account is opened in order to give trial balance an appearance of agreement. Then final accounts are prepared. Debit balance in suspense […]
Contingent Assets and Contingent Liabilities: A contingent asset is a potential asset associated with a contingent gain. Unlike contingent liabilities and contingent losses, contingent assets and contingent gains are not recorded in accounts, even when they are probable and the amount can be estimated. and A contingent liability is defined as a liability which may arise depending on the outcome of a specific event. It is a possible obligation which may or may […]
Accounts and its Classification (Accounts Classification): The business transactions are recorded in accounts. An account is an individual record of a person, firm, or thing, an item of income or an expense. An account is prepared for each type of asset, liability, owner(s) equity, revenue and expense. For example, the account of cash would show the […]
Accounting Equation: The accounting equation that is the foundation of double entry accounting. The accounting equation displays that all assets are either financed by borrowing money or paying with the money of the company’s shareholders. Thus, the accounting equation is: Assets = Liabilities + Shareholder Equity. All business transactions are recorded as having a dual aspect. At any point of time, a firm […]
Journal: A journal is often referred to as Book of Prime Entry or the book of original entry. In this book transactions are recorded in their chronological order. The process of recording transaction in a journal is called as ‘Journalisation’. The entry made in this book is called a ‘journal entry’. Journal is the book of […]
Features of the Ledger Account: After recording the transactions in the journal, recorded entries are classified and grouped into by preparation of accounts. The book which contains all set of accounts (viz. personal, real and nominal accounts), is known as Ledger. It is known as principal books of account in which account-wise balance of each […]