Accounting As an Information System

Accounting As an Information System

It is true that accounting is an information system. It is system in which an accountant gets all financial reports .These reports can be received by accountant if he takes all the steps of accounting procedure. There are following in points which show that accounting is an perfect accounting system? Accounting gives us profit and loss account and balance sheet , on these two reports , we get the information of revenue position and our financial position? Because in accounting , there is the facility of calculate cash flow statement and fund flow statement , so it provides us the information about our inflow and out flow of funds and cash? Accounting is an equipment in the hand of accountant and manager , with this equipment they can make their all future plannings, future budget .With accounting , they can easily estimate , is there suitable to invest money or not under there accounting reports.

Difference between Loan and Advance
Many accountants think that loan and advance is almost same . Both means when a person borrows the money from other, it is called loan or advance . But , If you will deep study of this , then you found many differences between loan and advances .
Loan means debt for personal or business purposes in which loan taker is responsible to return his taken money with interest .
Advance is to get money from those , which have our mutual relationship .
Suppose

•Employee can get salary in advance from his employer
Advance transaction will arise due to relationship between employer and employee .
•Debtor can give advance money for purchasing any future goods from his supplier or creditor . or Supplier can demand
advance money for passing his order .
Rohan has to buy of Goods $ 50000 in 5/5/2009 but he pay to Sham $ 50000 in advance in 5/3/2009 .
Loan is just Contract between Lender and borrower in which they fix their terms and condition .
What is rate of interest on loan , what is the installment amount , when installment of loan will given , What penalty
will be levied if , installment is not given at proper time and many more conditions they can fix .
But in advance , term and condition is fix on their relationship , a good relationship with employer , you can get
advance salary with 0% interest rate .
Sometime Imprest cash and call in advance is also deemed advance but these are not loan items .
IASB publishes his new amendments .According to this now IASB will gets public comments to clarify the requirements in
IAS and IFRIC 9 reassessment of Financial Instruments.Now any one can also read Financial instruments project page
print-friendly version of the press release.
The proposals are set out in an exposure draft Embedded Derivatives, on which the IASB invites comments by 21 January
2009. The exposure draft is available on the Website www.iasb.org.
Accounting Education means that education which teaches recording and maintaining books of accounts . This education came in existence after mathematics and Economics science . In the point of facts , if It should be said that above education is the base of accounting education . Above Education are very helpful for getting accounting Education . In accounting education , we learn what is way of recording our different transactions. With this education , we can calculate our business's result relating to different transactions and events . It is not easy to find to reward or return on investment made by businessman .

Suppose , A company whose sale is 6 Billion $ ( 6 X 1000000000000 $ ) and it has spread in 120 countries and if you are said to calculate the profit or loss of a company . Then , you will feel giddy . But ,if you learn accounting education , you will feel reposal and easement to calculate above profit or loss. This accounting education is also helpful for determination of tax because , if we learn to record all transactions in the books and on this base we can calculate correct value of tax and become responsible businessman of this nation. All tax officers or assessing officers confess the accounts of professional accountants who are expert in accounting education. Success of business is fully under accounting's thumb . It is impossible to develop business without accounting data and effective use of them for business plannings . For analysis of different statement is also depend on cost and management accounting which are subbranches of accounting . One of magistral feature of accounting is that this education is encumbrance on brain . All work is done in this education with fully scientific method of accounting . After spending of time , all other educations forget but accounting education is always young and challenging position in the brain of accountant . Accountant does their work with new power . It is the reason that as accountant's experience increases , by the way amounts to higher posts of administration .
It is true that getting of any education is no so simple and you have to face several difficulties . Like other education accounting education is not so easy . It is the way of complexities and Complications but student should do hard practice and try to understand accounting terminology . After this student can solve every problem of accounting .

What are basic rules for making difference between capital and revenue expenditure

What are basic rules for making difference between capital and revenue expenditure

Ist Rule

All expenses which are done for getting any fixed asset must be capital expenditure. For example, expenses of carriage and freight for getting fixed assets are also capital expenditure and will include in the total cost of fixed assets.

2nd Rule

All expenses which are done for increasing the size or improvement in fixed assets must be capital expenditure.

3rd Rule

All expenses which are done for getting share capital or long term loan must be capital expenditure.

4th Rule

Look also nature of business , if business is relating to general goods sale -purchase transaction then above three rules will applicable but , if nature of business shows dealing in above transaction , then above transaction becomes revenue expenditure .

5th Rule

Legal judgments is also so important for taking decision , Like Income tax law 1961 has provided some rule regarding assessment of business and profession . These rules also give good guidance for making difference between revenue and capital expenditures.

What is deferred revenue expenditure?
As a matter of fact , deferred revenue expenditure is capital expenditure . Because , it has both quality of revenue
and capital items, so it is deemed as deferred revenue expenditure.
Example:
Heavy advertisement expenses , because this is for promotion of sale so, it is revenue expenses but because amount is too large so it is also capital expenditure. Now, it will include in deferred revenue expenditure. If we fix the target of getting benefit for this advertisement is 10 years and advertising cost $ 500000. Now $ 500000 is divided by 10 years and we get $ 50000 and it will show as revenue expenses in profit and loss account and balance amount of $ 450000 will show in balance sheet. Every year one tenth part of Original and total advertising expenses will go to profit and loss account. This deferred revenue account will close in 10th year when there will not be any balance for showing as asset in balance sheet .

There are also other deferred revenue expenditures like underwriting commission, discount on issue of shares and debentures , brokerage paid on purchase of shares and debentures, research expenses and development expenses

Definition of Drawing

We use drawing many times in financial accounting .Drawing here means any amount withdraw from business for personal use. Not only cash but if we withdraw any product from business or any asset of business for personal use that will be drawing.
It surely reduces the capital of any business. So business man must record drawing in his books so that accountant can calculate correct profit or loss of business man .Some accounting terms, Intangible assets
This is the asset which is not visible but we can feel them . The main examples of these assets are goodwill, patent, trade marks

Factitious Assets
If any asset which has no any market price that asset is called factitious assets .This is showed as expenses of capital expenditure . The main example of these factitious assets are Preliminary expenses , discount on issue of shares and debenture
calculations
1. cost of goods sold =opening stock + purchase +direct expenses - closing stock
2. Gross profit = sale price - cost of goods sold
3. Net profit = Gross profit - Indirect expenses
4. Commission on net profit before charging such commission
= Net profit before charging X Rate/100+Rate

Definition of Goodwill
Goodwill is an intangible asset which makes any organisation with his good name , by selling quality product , by selling product at less price .Goodwill can be earned by speaking sweat words to customer . An expert can tell about the correct value of Goodwill
but in general IT is the excess of super profit over general profit .or If any concern is gaining more profit than his general rate of return then it means it is generating Goodwill .Goodwill can not generate with in night but for generating goodwill any firm can take 10 to 20 years . Which is called long period is suitable for generating goodwill .
If you are selling your old firm you can also demand the value of goodwill with total cost of your asset . If you think that Firm or company name is sale-able in market .
Personal accounting means recording of domestic expenses and income . It is very necessary that to record your income and expenses. Because without recording your personal accounting , you can not make your domestic budget. If you are living in any noble family , it is you duty to complete your all expenses with your limited income , so make estimation of all monthly expenses . This estimation can be done if you have recorded early months expenses . So it is your duty to record your personal expenses. Recording of personal income and expenses is very easy . Just keep a Note book in you pocket and after spending any expenses you must record your expenses. After month you will see what is your total expenses and where did you expand it. On this base you can make you family budget. If you can not keep note book then you can record your expenses in excel sheet. In each night you can record full day expenses in different things like juice , ice-cream , wheat , petrol , dresses , fees , charity etc. After month total them you can get you monthly recorded expenses after one year you can your yearly real expenses . It is not necessary that all year we have to do same expenses but we can estimate our yearly expenses.

Reserves

Reserves
Reserves are accounting terms. In general, it is saving of money, but in accounting terminology , it has different meaning.
According to accounting technician, “ Reserves are that funds which withdraw from general or special profit of business and keep it in safe pocket of company. This sum is used when any loss happens in business. "
Accounting Experts always in favor to keep some money or retain some fund for future losses, because future is uncertain and for increasing working capital of business, accountant should retain some money out of total profit before distribution it to shareholders. It is shown in profit and loss appropriation account. Indian company law has fixed it and in other countries , their company laws fix it and from time to time change it due to changing businessenvironment.

Types of Reserves
There are two main types of reserves which I am explaining with following way :-
1. Open reserves
Open reserves may be defined all reserves which shows in the balance sheet. Every person or public can know such reserves of company. Those reserves provide full information to shareholders about which amount has gone to reserves or why they are not getting all amount of dividend. This type can also divide in sub parts

a) Capital reserves
Capital reserves are main type of open reserves. It is not created out of profit of company. This reserve is not used for distributing the dividend to shareholders of company. The main sources of these reserves are following:-

1. profit earned prior to incorporation
2. Premium on the issue of shares and debentures.
3. Profit on reissue of forfeited shares
4. Profit set aside for the purpose of redemption of preference shares.
5. Profit on sale of undertaking or part of it.
6. Surplus on revaluation of assets and liabilities.

b) Revenue reserves

Revenue reserves are that part of open reserves which are created out of profit of company. It is showed in profit and
loss appropriation account .It can be used for dividend to shareholders. There are following benefits of revenue reserves:

1. Extension of business
2. Set off unknown losses of business.
3. Used to create strength in the financial position of business.
4. To make stability in the dividend rate.

These revenue reserves can also divide into two parts.
i) general reserves
ii ) Specific reserves = Specific reserves includes dividend equalization reserve, debenture redemption reserve , staff reserve. Investment fluctuation reserve, taxation reserve and contingency reserves.
 

2. Secret Reserves

Secret reserves may be defined as that type of reserves which is not shown in final account of company. Means it has neither been shown in profit and loss appropriation account nor in balance sheet. These reserves can easy created by showing less value of assets and more value of liabilities in balance sheet. If a company has created such secret reserves for the benefits of company, it will be surely strong his financial position. These secrete reserves can be created by following ways:

• Showing heavy depreciation value
• Showing the less value of goodwill and closing stock of business.
• Secrete of sale value of business.
• Showing heavy liabilities which is not of company.
• Showing capital expenses as revenue expenses.
• Grouping of free reserves with creditors.
• Current asset not shown in balance sheet.

Calculation the credit purchase

1. Write creditor account on any excel sheet with making two sides one side is debit and other side is credit.
2. Write your business's creditors opening balance in credit side with giving by balance b/d name.
3. Write the amount that you have given to your creditors in the current year in the debit side of creditor account.
4. Write closing balance of your creditors in the end of this year ( this amount shows unpaid amount which is payable to your creditor at the end of this year ) in the debit side of this account
5. You will see that debit side is more than credit side of this account , the difference will be credit purchase and it should be written in the credit side of this account
6. Now you are seeing your credit purchase .

This credit purchase is very necessary when you will calculate the net consumption of your stock
because for calculating net consumption for stock , we always add purchase in the opening stock and deduct closing stock . This net consumption will show in profit and loss account or income and expenditure account .

Difference between revenue and capital items
Revenue item
If any item of business which does not create any asset of business that type of items are called revenue items, suppose we pay rent but rent can not create any fixed asset so this is revenue item and it must show in profit and loss account , but if we have a special fund for building , this fund create long term asset up to that period this will show as fixed liabilities . This is not revenue item .
There is also major difference is that revenue items benefit is related to current year but capital items' benefits are related more than one year. If advertisement's expense is 100 Rupees and its benefit can only related to current year then this is revenue item .
But if we expand Rs. 9000000 lakh on advertisement and its estimated benefit is for 10 years then this will be the capital item.
All revenue item will show in profit and loss account
And all capital items will shown in balance sheet or financial statement .
Capital loss
Capital loss may be defined as the loss relating to sale of any fixed asset or any other financial loss like premium given on repayment of debentures or bonds, or discount on issue of shares and debentures. Capital loss may explain with many other examples:
Ist Example
Suppose, if any machine’s book value is $ 50000 and sell it on $ 40000 and $ 10000 is loss on sale of machinery, this is called capital loss.
2nd Example
Suppose, if a company has 100 debentures of other company and each debenture is of $ 100 but these debentures are sold at $ 80 per debenture, so company is getting loss on sale of debenture of $ 2000. This is capital loss in profit and loss account of company, we can not show any capital loss. In other words these losses can not be debited in Profit and loss account of company. These all losses will show in assets side of balance sheet of company. After this, it is written off by dividing number of fixed years and transferring to profit and loss account. If you know what is mean of written off , then , I can also explain it , written off means that part of any expenses or loss which is transferred from balance sheet to profit and loss account for closing the account of loss or expenses , specially capital losses .

Revenue losses
Revenue losses include all losses which happen due to operating any business activity. It includes cash discount on sale, depreciation, loss due to falling of market prices. So, these losses will show in the debit side of profit and loss account of company. It is deemed that when we start the different activities of our business , many losses are happen , so it should be closed by transferring all these losses to profit and loss account .

Feature of revenue expenditures

There are following main features or characteristics of revenue expenditures . These features are very useful for your decision to adding any expenses in profit and loss account .
1. General operating expenses
Any expenses which is related general operation of business that all expenses will be revenue expenditures and will be debited in profit and loss account
2. Expenses related to short period
These type of expenses are related to short period, means benefit of these expenses is less than one year.
3. Expenses for maintaining the stability of fixed assets
These expenses’ main feature is that these expenses is useful for maintaining the stability or efficiency of fixed assets,
4. Recurring Nature
One of most important feature of these expenses that these expenses are recurring nature. In other words these expenses happen Again and again in general business activities. For example , expenses for giving refreshment is revenue expenditure because almost daily , these type of expenses is paid by company .
5. Helpful for maintaining the profit of business
These type of expenditure is useful for maintaining the profit of business , but also above features should include in the expenses which I have mentioned in above points because capital expenditure will also helpful for maintaining the
profit and you will then confused revenue and capital expenditure’s difference .

Provision of Depreciation Account

What is provision of depreciation account?
Provision of depreciation account is the account of provision of depreciation. First of all we should understand provision of depreciation .Provision of depreciation is the collected value of all depreciation .With making of this account we are not credited depreciation in asset account. But transfer every year depreciation to provision of depreciation account. Every year we adopt this procedure and when assets are sold we will transfer sold assets ‘total depreciation to credit side of asset account. For calculating correct profit or loss on fixed asset. This provision uses with any method of calculating depreciation.
There are following feature of provision for depreciation account
•Fixed asset is made on its original cost and every year depreciation is not transfer to fixed asset account.
•Provision of depreciation account is Conglomerated value of all old depreciation.
•Entry of depreciation will change also
Depreciation account Debit
Provision for depreciation account credit
•This system can be used both in straight line and diminishing method of providing depreciation.
•Calculation of loss on sale is very important where is provision of depreciation account is kept.
Which we can calculate with following way
Cost of sale of fixed asset XXXX
Less total depreciation up to the date
Of sale XXXX
____________________________________________
Written Down Value of sold asset XXXX
Less Sale price XXXX
___________________________________________
Loss on sale of Asset XXXX
___________________________________________
•This loss will show in the credit side of asset account
•At the sale total depreciation on of sold asset from its purchasing will transfer from provision of depreciation account to fixed asset account , its journal entry will Provision for depreciation account Debit
To fixed asset Account Credit
Diminishing balance method of providing depreciation
Diminishing balance method of providing depreciation is very important from accounting point of view. In this method,
accountant calculates depreciation on the asset from which he deducts all previous depreciation from asset. So, every year amount of depreciation will go down.
For example Suppose we purchase a machinery at $ 50000 and if we fix 10 % depreciation on machinery with diminishing balance method, then first year depreciation will $ 5000 , next year will calculate depreciation $ 50000 - $ 5000 = $ 45000 X 10 % =$ 4500
Third year depreciation will apply on $ 45000 - $ 4500 = $ 40500
So, we calculate depreciation on written down value of asset so , its other name is written down method or reducing
value method .
Now we are seeing the value of depreciation is decreasing
Ist year = $ 5000
2nd year = $4500
3rd year = $ 4050
Benefit or advantages of this method
1.This is also very easy method.
2.This is very scientific method and provides logic that which asset is abolish due to spending of time at that portion
of depreciation is not included in asset.
3.Income tax officer prefers this method for assessment of business and professional income.
If we buy any asset after first year, we need not to calculate depreciation from beginning.
Disadvantages of this method
1.In this method we also ignore interest on capital which is used for purchasing such asset.
2.All new and old assets are mixed with each other, for an auditor, it is so difficult to differ among them.
3.It is difficult to calculate optimum rate of depreciation
But we can use following formula for calculating depreciation in W.D.V. method.
R = 1 – ( S/C) 1/n
R = rate of depreciation
S = S is scrape value
n = n is the working life of an asset
c = c is cost of asset

Relationship of accounting with other field and Depreciation

Relationship of accounting with other field

Accounting is very close relationship with maths , economics ,statistics , business study and other area. Different formula used in financial , cost and management accounting can be satisfied on the basis of maths . In accounting , we records only economical transaction related to money or money's worth And our govt. policies effects on our financial accounts . Suppose if central govt. changes the rate of depreciation then our net profit and financial position will effect from this point . So we should necessary to understand the relationship of accounting with other field for better knowing accounting . Accounting , maths , economics and business study all makes good structure of a good economy . Because if one field is not fully developed , its side-effect surely
will be on other fields . Suppose if an statistics have to collect previous year market sales data but accounting of market is very poor so he will have to collect wrong data and different economic decision will be wrong . We can understand all field just as different parts of body , if one part is weak other surely effected from it .

Accounting cycle
Sometime , you read this term in any book about accounting cycle , But you would not research of this term . Actually accounting cycle is very simple term .It means that all the activities in accounting will absorb in first point and then it make accounting cycle .This term is very useful for an accountant because an accountant is man who maintain accounts .
Suppose Ram purchases goods from any company this transaction when comes in the front of an accountant , he records it after this he see its result on his final accounts but in last automatically it support to completing the whole accounting cycle . In other words any financial transaction is the beginning point of accounting cycle and an accountant must give importance to each transaction of business.

Depreciation and effect on final account
Depreciation is just decrease the value of any fixed asset.When you will use it ,then the value of fixed asset will be decreased . So calculating of net profit and correct financial position , it is the duty of accountant to show it in profit and loss account . Rates of depreciation may differ according to the nature of fixed asset some assets’ depreciation rate is low and other is high because high decreasing value due to expiry. In balance sheet ,we deduct depreciation from fixed asset .After deducting we can calculate net value of fixed asset which can be show in balance sheet .
Depreciation account can also be made by accountant but every year it must send to profit and loss account because this is nominal account . Different law like income tax law and corporate law fix this depreciation rate so we must see the reference of 
depreciation rate from these laws but calculating correct amount of depreciation . Also , account manager should decide when a fixed asset will buy . For replacement purpose , it is duty of accountant and account manager to calculate and transfer and written off depreciation every year from fixed asset .Some business entity makes also provision for depreciation .The Balance as per Bank is the Nett effect of your Book Balance offset by the amounts not reflected in the Bank – which should equal the balance in the Bank Statement. (Of course, some variation may persist due to entries made in the Bank Statement which you have not yet entered in your Books – but since you WILL definitely enter them, and only then print your reconciliation, it will ultimately reflect the correct balance). You will find, as you mark off the individual vouchers by setting the 'Bank Date', that the Reconciliation at the bottom of screen keeps reflecting those changes instantly. When you are finished, press Ctrl+A (or press Enter as many times as necessary to skip 

Depreciation

It is a gradual deterioration or decrease in the value of asset after using that asset in our day to day work or after spending of time. In this world, everything is perishable, so making true profit and calculates true value of any asset at present time, it is very necessary to depreciate on fixed asset and deduct from it.

Fluctuation

If you are doing business or linked with any business, you know that prices are always up and down due to changing in the condition of business environment. Fast changing in market prices is called fluctuation. It is not called depreciation because, it is not related to use of fixed asset. Fluctuation can also increase the price of fixed asset but after deducting depreciation, value of fixed assets will be decreased. Fluctuation is fully ignored and there is no accounting treatment. But we show depreciation as a loss of business.

Obsolescence

When new fixed assets’ quality, efficiency and capacity decrease the value and usability of old fixed assets, then it is called obsolescence of old fixed assets.The main example, we can look in different machines or technical equipment especially in medical field. Every new equipment decreases the value of previous equipment. Because of it is not related to the nature and use of fixed asset, so it is also not depreciation. Obsolescence is not important in field of accounting but it is important in technology research and marketing of product.

How to make fixed asset account under fixed installment method

Before making of fixed asset account, we must know following journal entries :-

1. For providing depreciation on asset at the end of the year

Depreciation account Debit
Fixed asset account credit

2nd For transferring of depreciation to profit and loss account

Profit and loss account debit
Depreciation account credit

In this method fixed asset account is very simple T shaped. There is not fixed Proforma for making fixed asset account

Methods of providing depreciation

There are many methods of calculation of depreciation . No one apply on the all assets , because , different assets have different nature and according to management policy and effect of laws specially tax laws , different methods are used for providing depreciation . There are 10 methods of calculation of depreciation . Out of which approximate 5 are the most important and it should be learned .
1st method of providing depreciation
Fixed installment method
Fixed installment method is that method , in which we calculate fixed rate of depreciation and then with this rate we
deduct every year from fixed asset .
Original cost of asset - scrape value of asset
Depreciation = ___________________________________
Effective working life of asset
For example Satifsan purchased an asset of $ 20000 and he can use it for 4 years and after four year its scrape value
will be $ 4000 . Calculate depreciation with fixed installment method
Depreciation = 20000- 4000/4 = $ 4000
Rate of depreciation = 4000/20000X 100 = 20%
every year we provide $ 4000 and deduct from original cost of fixed asset . So its other name is original cost method or straight line method of providing depreciation .
Benefits of this method
1. It is easy to calculate
2. It show zero value of fixed asset at the end of its life .
3. It divides all weight of total depreciation equally in all period of life of asset .
4. After providing depreciation , balance will shows correct value of fixed asset .
Disadvantage of this method
1. After showing zero value of expiry of fixed asset in books , but it is possible that asset is in good position .
Then what provision will show in books , this method does not tell to accountant .
2. Some assets ' value will increase after spending of time at there we can not use this on that assets .
3. There is no provision in this method for buying new asset after scrap of old assets .

Bank Reconciliation Statement

Bank Reconciliation Statement

Reconciliation of Bank accounts

Reconciling the Company's Bank Accounts with the Banker's Statement is a fundamental and regular task of Accounting. First, there should be the ability to 'check back' the correctness of the reconciliation. This has been done, by marking the 'Bank Date' against the voucher. For instance, if you have issued a cheque on 8th April, which was ultimately cleared by your Bank on 19th April, - you would set the 'Bank Date' for the voucher to be 19th April. This means, that when you next need to 'check back' whether the entry made by you is correct, you will only need to verify the Bank Statement of the 19th. Second, that you should be able to 'recover' the reconciliation as of any date. This is of crucial importance to Auditing. The Bank Reconciliation is one of the pre-requisites of Auditing and verification of the correctness of accounts at the year end. However, it is not a 'real-time' task – in the sense, that it is not done by the auditor's on the first day of the next year. This means, that the reconciliation made on 31st Mar, should be 'viewable' even in August, - by when almost all the cheques would have subsequently been marked as reconciled. This has again been achieved using the concept above.

Bank Accounts may have a different 'Starting Date' for reconciliation purposes. When you create a Bank Account, you are requested to give an 'Effective Date for Reconciliation' just before the Opening Balance. Normally, this would be the 'Books Beginning from' date itself. However, you could have imported data from a previous version of Tally or from any other system (where the reconciliation process was not available or was different. In that case, you may not wish to reconcile the bank account with your bank statements from the very beginning. Give the date from which you want the reconciliation facility to be activated. Then, previous entries will not appear for reconciliation, but will be taken as a reconciled Opening Balance. A quick experiment with Reconciliation will show you what is meant.

Here is how you go about it:

Bring up the monthly summary of any Bank Book. (You could do this from the Balance Sheet, Trial Balance, or Display/Account Books/Bank Books, and selecting a Bank). Bring you cursor to the first month (typically April), and press Enter. This brings up the Vouchers for the month of April. Since this is a Bank Account, an 'additional' button F5: Reconcile will be visible on the right. Press F5.

The display now becomes an 'Edit' screen in 'Reconciliation' mode. The primary components are:A column for the 'Bankers Date'

The 'Reconciliation' at the bottom of the screen, showing: Balance as per Company Books Amounts not reflected in Bank

Balance as per Bank The Balance as per Company Books reflects your Balance as on the last date (in our example case, 30- Apr). The Amounts not reflected in Bank is the debit and credit sums of all those vouchers whose Bank Date is either BLANK, or GREATER than 30-Apr (i.e. these vouchers have not yet been reflected in the Bank Statement).

The Balance as per Bank is the Nett effect of your Book Balance offset by the amounts not reflected in the Bank – which should equal the balance in the Bank Statement. (Of course, some variation may persist due to entries made in the Bank Statement which you have not yet entered in your Books – but since you WILL definitely enter them, and only then print your reconciliation, it will ultimately reflect the correct balance). You will find, as you mark off the individual vouchers by setting the 'Bank Date', that the Reconciliation at the bottom of screen keeps reflecting those changes instantly. When you are finished, press Ctrl+A (or press Enter as many times as necessary to skip over the unmarked vouchers), and accept the screen. (If your screen has a largish number of vouchers it may take some time to complete the acceptance – be patient).

The next time you come for reconciliation, you will be presented only with those vouchers which remain un-reconciled. Thus, the task keeps becoming simpler.

Making of Bank reconciliation statement by yourself Bank reconciliation statement tells the reason why your cash books bank column is not matching with your bank pass book .

Free accounting knowledge

It may be noted that the American institute of certified public accounts , in 1941 defined accounting as the
specialised art of recording , classifying and summarizing in a significant manner transaction terms of money which are of a financial character and interpreting the result . In the course of the time the definition has become broader to include imparting economic information to permit informed judgements and decisions .
Economic events have been defined as happenings of consequence to a business entity

Basic terms in accounting

•Financial Statements
Two basic financial statements are prepared by an enterprise one is profit and loss statement and other is balance sheet
•Accounting Equation
Three components of a balance sheet can be stated in the form of following basic accounting equation
Assets = liabilities + capital
This equation tells at the glance that the resources of this enterprise total and these assets are financed by two source
also known as outsiders claims and owner equity.
•Business Transactions
It can be a purchase of goods , collection of money , payment to creditors for goods and expenses . An event to be a
transaction must possess the quality of economic substance , relate to business and affect the economic results .
•Assets
These are economic resources of an enterprise
fixed assets are assets held on a long term basis , such as land , building , machinery and plant etc.
Current assets are assets held on a short term basis such as debtors bills receivables , stock , cash and bank etc.
•Liabilities
These are the obligations or debts that the enterprise must pay in money or services at sometime in the future . They
represent creditors , claims against assets of the firms.

Trial balance and steps for making trial balance

Trial balance and steps for making trial balance

Definition of Trial balance

Trial balance is the statement which shows the list of balance of all ledger accounts .It is made for checking mathematical error , making of final accounts and maintaining budget of company. Because of it is made on basis of company’s all ledger accounts , so we satisfy about mathematical correctness , if debit balance of this statement is equal to credit balance of this statement .
Steps for making trial balance
1st Step : Making all ledger accounts and the calculate their balance , if any account’s debit side is more than credit balance , its balance will be called debit balance , if the credit balance is more than debit side balance , it is called credit balance .
2nd Step : Make statement in vertical form in which you have show particular for making the list of account and right
side , you have to debit balance and credit balance .
Proforma of Trial balance
______________________________________________
S. No. ? Particular ? Debit Balance ? Credit balance ?
_______________________________________________

3rd Step : Debit balance
 

1. assets account’s balance
2. expenses account balance
3. loss account ‘s balance
4. investment account balance
5. drawing account’s balance
6. Purchase account
7. Sale return Account

4th Step : Credit balance
 

1.  Liabilities account’s balance
2. Provision account’s balance
3. Capital account’s balance
4. Reserve and surplus account’s balance
5. Sale account
6. Purchase return account

5th Step : If trial balance is not matched, the difference will be show as suspense account

Important notes

Closing Stock is not shown in trial balance because , it is adjusting item and we can give dual effect on final account. All other items whose account is not made in proper ledger will not shown in trial balance .

Different types of Expenses
In accounting, there are only revenue nature and capital nature expenses. Revenue nature expenses records in profit and loss account while capital nature expenses are recorded in balance sheet.

Revenue expenses are again subpart of direct expenses and indirect expenses
Direct expenses are the main type of expenses which are related to production and purchase of goods. These expenses are

incurred during the purchase of goods and transfer to trading account. I am giving the examples of

Direct expenses:-

• Wages
• Freight
• Carriage
• Carriage inward
• Octroi
• Royalty on production
• Factory expenses
• Factory depreciation
• Fuel , oil and power
• All other expenses related to purchase of goods
   

Indirect Expenses

• Office expenses
• Sales expenses
• Advertising
• Administrative expenses
• Bad debts
• Depreciation of office assets
• Interest on loan
• All other expenses relating to sale and marketing
   

Simple income statement
Sales (Net ) XXXX
Less cost of goods sold XXXX
( or merchandising cost) XXXX
______________________________
Gross profit XXXX
Less operating expenses XXXX
1.office and administrative expenses
2.selling and distribution expenses
3.Financial expenses
______________________________
Net Income XXXX
______________________________
Net sales refer to total sales less sales returns and are calculated as follows
Cash sales XXXX
credit sales XXXX
_________________________
total sales XXXX
less sales return XXXX
___________________________
Net sales
___________________________
Cost of goods sold means the cost price or cost of manufacture of the goods or commodities actually sold and is
calculated as follows.
Opening stock XXXX
add purchase less purchase returns XXXX
add direct expenses XXXX
less closing stock XXXX
__________________________
cost of goods sold XXXX
____________________________

Journal

Definition of Journal

Journal is a day books in which bookkeeper records all the transaction first time . Transaction must be record in this book date wise and journal applies the rules of double entry system . 

Suppose Ram takes loan of Rs.100000 from his friend. Then what come in is cash and so cash account will be debited and His friend is giver of loan, so his friend’s loan account will be credited in journal.Journal entry will be passed in the journal of Ram
Cash Account Dr. 100000 /
To Friend’s loan Account / 100000
In other words journal is the book of primary entry . Whenever any transaction or event occurs it is recorded in the
first instance in the journal . There are various types of journal.

1. Purchase day book ? to record transactions relating to credit purchases.
2. Sales day book ? to record transactions relating to credit sales.
3. Purchase return book ? to record transactions relating to purchase returns.
4. Cash book ? to record cash , bank and discount transactions .
5. Journal Proper ? to record other transactions for which no specific journal is maintained .

All transaction are first recorded in the journal as and when they occur , the record is chronological , as otherwise it would be difficult to maintain the record in an orderly manner. The form of journal is given below :
Journal
_________________________________________________________________________
Date ? particular ? L.F. ? Dr. Amount ? Cr. Amount ?
________________________________________________________________________

The columns have been numbered only to make clear the following explanations but otherwise they are not numbered . The

following point should be noted :

1. In the first column the date of the transaction is entered , the year is written at the top , then month and in the narrow part of the column the particular is entered .
2. In the second column , the names of the accounts involved are written , first the account to be debited , with the word Dr. written towards the end of the column. In the next line , after leaving little space , the name of the account to be credited is written preceded by the word To ( the modern practice shows inclination towards omitting Dr and To . Then in the next line the explanation for the entry together with necessary details is given , this is called narration.
3. In the third column the number of the page in the ledger on which the account is written up is entered
4. In the fourth column , the amounts to be debited to the various accounts concerned is entered .
5.  In fifth column , the amount to be credited to the various account is entered .

Before one can journalise transactions , one must think on the basis of the rules given above , the effect of the transactions on assets , liabilities , expenses , gains etc. of the firm . In accordance with the effect , the accounts to be debited or credited will be determined . Then the entry will be made in the journal as indicated above .

How can make the journal entries
In the accounting education, making of journal is very important. Because without making journal entries, we can not calculate the result of business in the form of profit and loss account and balance sheet. So please care fully get the education of making journal.

Journal accepts the rules of double entry system. Rule for making journal
Every rule has two parts
•First rule for personal accounts

1. Who is receiver = Debit
2. Who is giver = Credit

•2nd Rule for real accounts

1. What comes in business = Debit
2. What goes from business = Credit

•3rd Rule for nominal accounts

1.All the expenses and losses = Debit
2.All the incomes and gains = Credit


•Practical example for making journal ?

Suppose Ram purchase goods of Rs. 10000 from Sham @ 10% trade discount on credit. After 15 days. Ram pays full settlement of all money with @ 10% cash discount.
Journal Entries in the books of Ram
Because goods comes in Ram’s business so Purchase account will debit with Rule 2nd and its first part
Because Sham is giver of goods so he is giver and account with his name will be credit with rule 1st and its second
part after this we will pass the journal entry
Purchase account Dr. 9000
To Sham Account 90000
•After 15 days will pass second journal entry in ram books
Sham Account ( He is the receiver ) Dr. 9000
To Cash Account ( it goes out of business ) 8100
To Discount Received ( It is the income of business 900

Accounting Terminology

Definition of Accounting Terminology
"Accounting Terminology are such accounting words which are most suitable for describing its category. For example 'book of accounts' is general word and Ledger is proper accounting word for more suitable , so these accounting words are known as accounting terminology . "

It is very necessary for that person who is related to other field like technology or medicine . Suppose if a doctor or engineer want to know the term profitability ratio or know what is financial analysis . If you told them with explaining accounting terminology , he never understand . But if you will tell him basic accounting terms with explanation like what is asset and what is liabilities or what is capital , he easily understand if you give some guidance . Here I am giving some basic accounting terminology for this benefit.

1.Cash = Cash is that liquid part of money with this we can buy material goods .
2.Money = Money may be in cash , bank cheque or any bill of exchange
3.Material = Material means the goods which we use for production
4.Finished product = Finished product means goods which is produced after machining process.
5.Debit = It means , we write any amount on which have our some right ? suppose , Ram account is debit , it means ram gets some money or goods from us , so we have some right on ram means either we can get our money or price of goods . So accounts always given the name debit . In case of asset like furniture account debit means , we are the owner or purchases it from any other person. In case expenses , any expenses are debit because we take some service so we pay .
6.Credit = Credit means reduce some amount if we have to given to other . ? Suppose Bank has to given sham 5000 . This is the liability of Bank when bank paid to customer . Bank will credit the account of customer .
7.Entry = accounting of any transaction with systematical way is called entry
8.Owner's equity = Owner's equity means the claim of owner on the assets of business.
9.Creditor's equity = Creditor's equity means the claim of creditor on the assets of business.
10.Memorandum Account = This is the account which uses just as memory record but not formal account .
11.brought down ( b/d) = It means transfer from previous balance to new page or next day or next month .
12.carried forward = It means transfer of balance to new page or next day starting point of account or next month's starting point of account's balance .
13.Ledger folio= It is the specific number of each account in ledger , the book of accounts .
14.Contra = It is also show in the cash book in the form of C . When cash withdraw from bank or deposit to bank , it is known as contra , after this no need to show in ledger accounts because all dual process of accounting is completed in cash book .
15.goodwill= It means all profits which can count in money which comes from the reputation , quality products or name of company.

Concepts of FINANCIAL ACCOUNTING

Financial Accounting

Financial accounting is relating to record all financial activity. These activities are related to business. Because of area of business is increasing day by day so the area of financial accounting is also increasing. Every day a new type of business is started. So daily accountant invents a new journal entry. Accountant will take the help of financial accounting with new thinking of result. So a new chapter of financial accounting is included by us.

3rd Concept – Matching Concept

When I was doing graduate from my college, my respected teacher taught me that matching concept is very important for an accountant. It means we will compare all expenses with the incomes of business. After matching or compare, it will provide you the real result of performance of business. We can say it profit or loss . So If today you want to know profit or loss of your business, let us start match of your business incomes with your business expenses.

4th Concept – Conservatism Concept

This concept is made when accountant thought that it is very important to secure our business. The risk of business is called losses. So it is the basic duty of accountant to secure his business from different losses. For securing Loss he can make different provisions like provision for doubtful debts, provision for depreciation reserve for contingent liabilities.

Definition of Accounting Concept

Concepts are the different thoughts given by expert in respective field. Now we come on accounting concept topic. Accounting concepts are also given by different accounts professional for development of scientific accounting. There are following accounting Concepts:-

1. Accounting Period Concept

According to this concept, every business discloses their result after certain period. That period is called accounting period. The time of this accounting period is one year which started from 1 Jan to 31st Dec. But some companies prefer to adopt the accounting period according to income tax financial period which starts from 1st April and close to next year 31st march. The main motive of making accounting period is that it tells us whether business has given good result or not.

2. Business Entity Concept

According to this concept, every business is separate from his owner of business. If businessman takes some money from business. Then it is just loan given by business to businessman. So, it is very necessary to record all transactions between business and businessman. This concept is very useful in partnership type or company type business because in that type of business we can charge interest on all drawing by partner and get earning from drawing.

3. Cost Concept

According to this concept, every businessman or accountant will enter all assets on cost basis in their books. He has no right to record the assets on their market value because market value is changing day by day. So showing correct position of business, it is very necessary to show all assets on their original cost at which we purchase it but we can deduct depreciation if it is not new asset.

4. Matching Concept

According to this concept, an accountant can get net profit or loss for business after comparison of all incomes and expenses of that business. Without doing this he can not get real profit or loss. So it is duty of accountant to make profit and loss account and show expenses in debit side and incomes in credit side .After this he must compare both side if incomes are more than expenses, it will be net profit or if expenses are more than income then it will be net loss

Accounting Education

Accounting Education

Accounting education is an essential part of our education because without such education , we can not calculate our income , our saving and our financial strength . In general , every person of this world need accounting education for maintaining their personal record . This is also called personal book keeping . But when we study the theoretical concept of accounting education , we find different definitions and rules and regulation for proper accounting .


Now let us start What is Accounting Education ?


Accounting Education is combination of two words .


Accounting education = Accounting + Education


Accounting


Accounting is not counting but it is science which is helpful for hunting for the results of business. Accounting is recording , analysis and finalisation of large scale business transactions. Accounting introduces all tools and techniques to solve many or almost every problem of businessmen, factories, Corporations and firms relating to maintaining accounts and different financial reports .


Education


Education is way to get knowledge with scientific method .According to Swami Vivekananda the great philosopher said that it makes us self-confident .It is just use of person’s internal powers . After getting education, person gets moral and professional qualities. After getting education any body can do any professional work. All other persons respect because he is well educated.


Accounting Education


Mixer of both words makes accounting education. Accounting education may be defined as that part of education which provide us the knowledge about accounting terms , journal , ledger , final accounts , analysis and interpretation the result of business . Moreover , this education provide all knowledge of cost calculation and control and it gives different tools for analysis the financial statement . It is very helpful for making business planning . In single line , I say , Accounting is brain of Business , with it business becomes mad and there is no chance to develop it . If you are perfect in this field of education you can easily maintain not only your head office accounts but all the accounts of your all branches. You can maintain the accounts not only your business but you will understand every business like agricultural, industrial and any other service sectoral accounts .Here I want to explain service sector, service sector is a sector where services are being provided by service providers. So professional accountant can easily understand the terms subscription, fees, donation, fund, provident fund, allowance, and gratuity.






Objective of Accounting Education


Almighty has sent us on the earth. What is the objective of sending us on earth? If you do not know then you can not say that there is no any objective of sending us on the earth .Because your thinking of your brain is very limited but God is supreme power who knows the aim of your sending on earth. He wants that you will do any work and make whole world beautiful and wonderful. Like this there are so many objectives of accounting education.


•Accounting education helps you proper utilization of your money and capital.


•It will tell you that you are getting high rate of investment or not.


•What is your earning per share .


•It will help you to making planning, policies. Proper accounting education if you will get from our accounting expert , you will become not only accounts manager but also professional Scholar in the field of accounting education. Because today, different concepts, principals of different area are changing. In this changing environment, accountant will have to adjust.


•If you will not get these new and technical knowledge in the field of accounting, then you will fail in the field of accounting .These days duty of accountant is not limited up to voucher entries in computer. But they have to decide proper utilization of the capital and saving non useful expenditures.