Accounts Payable: Money which a company owes to vendors for products and services purchased on credit.

This item appears on the company's balance sheet as a current liability, since the expectation is that the liability will be fulfilled in less than a year. When accounts payable are paid off, it represents a ne ative cash flow for the company. AP !ycle: 1) 2) 3) 4) 5) 6) 7) 8) "dentified the needs #e$uest to buy the oods Approval for #e$uest P% is issued to &endor '#( is received "nvoice "s received !omparison is to be carried out between "nvoice. To P% and '#( ) Way match is done.

) way *ormula : P% + '#( + "nvoice ,ow the AP process flow: All the expenditure re$uires P%. -nless it should not be processed. 9) .uyer #aise Po 10) .uyer will forward the P% for Approval 11) P% will authori/ed 12) P% will be sent to supplier. 13) #eceipt of '#( 14) "nvoice sent to AP Manchester for scannin alon with P% number. 15) Team enter invoice details into oracle system. 16) Matchin process will ta0e place. 17) "nvoice will be paid accordin to the terms. (ote : "f the invoice is not matched will be moved to 1iscrepancy Team. 2inds of P% : 18) 3tandard Purchase %rder 19) .lan0et Purchase A reement 20) !ontract Purchase A reement 21) Planned Purchase %rders

3tandard Purchase %rder : 3tandard Purchase %rders are created for one4time purchase of various items. when buyer 0nows the details of the oods or services, estimated costs, $uantities, delivery schedules and accountin distributions. .lan0et Purchase A reement: .lan0et purchase orders can also be raised when the actual amount involved in the transaction is not 0nown, when extra business is expected, etc. Blanket Purchase Order means one P% will be issued for entire year for the same vendor. "t will be processed month on month. Planned Purchase %rders A planned purchase order is a lon 4term a reement committin to buy items or services from a sin le source. .uyer must specify tentative delivery schedules and all details for oods or services that are to be purchased, includin char e account, $uantities and estimated cost. Non-PO invoice Invoices without Purchase Orders are referred to as a NonPO Invoice. A purchase order does not exist for certain invoices because the value of the service !annot be ascertained. "n such cases, there exists a difficulty in ascertainin the amount for which a P% has to be created for. *or example, rental bills, as and fuel payments, electricity bills, frei ht payments,. AP 5%-#(A6 7(T#"73 89At the time of #eceivin s Purchases A:c 1r To #eceipt !ontrol A:c ;9At the time of "nvoice < P% Matchin #eceipt !ontrol A:c 1r To AP 6iability A:c )9At the time of Payment

AP 6iability A:c 1r To !ash:.an0 A:c AP ACCRUAL JOURNAL ENTRIES 89Material in Transit Material in Transit A:c 1r To Accrued 6iability A:c ;9Material #ecd. but "nvoice (ot #ecd. #eceipt !ontrol A:c 1r To Accrued 6iability A:c )9Accrual for 7xpenses and !har es 6i0e #ent etc.. =sometimes estimates9 7xpense A:c 1r To Provision for 7xpenses A:c (%T7: 7(T#"73 T% .7 PA3371 AT T,7 M%(T, 7(1 A(1 T% .7 #7&7#371 AT .7'"(("(' %* (7>T M%(T,

Amorti/ation
Amorti/ation is the process of writin off intan ible assets such as oodwill,patents, trademar0s, license etc. The portion of oodwill=or any other intan ible asset9 to be amorti/ed in a particular accountin year is treated as revenue expense and is char ed to the Profit and 6oss Account of that year !apital 7xpenditure 7xpenditure incurred by a company to ac$uire fixed assets or lon term asset is called capital expenditure. for e. . purchase of land and buildin s. #evenue 7xpenditure Any expenditure that relates to the day to day runnin of the business, e wa es and salaries.

Accounts: Golden Rules of Accounting: Personal Account: 1ebit the #eceiver ? !redit the 'iver #eal Account: 1ebit what comes in ? !redit what oes out (ominal Account: 1ebit all 7xpenses ? 6osses, !redit all "ncomes ? 'ains
Analysis of Transaction Step Step "
3tep ) 1etermine the two accounts involved in the transaction. !lassify the accounts under personal, real or nominal. *ind out the rules of debit and credit "dentify which account is to be debited and credited.

Purchase Account Real Account #e$it %hat co&es in #e$it Purchase Account

!ash Account Real Account !redit %hat goes out !redit !ash A(c

Step '

#eferred revenue e)penditure 1eferred #evenue 7xpenditures are those expenditures which have been incurred in an accountin period and they do not create any assets but their benefit is spread in more then one accountin period *)+ Advertise&ent !ost
#e$it Note: A debit note is prepared by the buyer and it contains the date of

of the oods returned, name of the supplier, details of the oods returned and reasons for returnin the oods. 7ach debit note is serially numbered. A duplicate copy or counter foil of the debit note is retained by the buyer. %n the basis of debit note, the suppliers account is debited in the boo0s.
!redit Note: A credit note is prepared by the seller and it contains the date on

which oods are returned, name of the customer, details of the oods received bac0, amount of such oods and reasons for returnin the

oods. 7ach credit note is serially numbered. A duplicate copy of the credit note is retained for the record purpose. %n the basis of credit note, the customer@s account is credited in the boo0s.
Accrued ,nco&es

"ncome which has been earned but not received durin the accountin period is called as accrued inco&e. E a!"#e$ !redit side of Trial .alance =)8.).;AAB9 shows commission received #s.C,AAA. AdDustment: !ommission accrued but not yet received #s.;,AAA. Notes$ Accrued income will be shown i9 on the credit side of Profit and 6oss account by way of addition to particular income and ii9 on the assets side of the .alance 3heet Bad #e$ts: 1ebts which cannot be recovered are called $ad de$ts. "t is a loss for the business E a!"#e$ The trial balance as on )8st March ;AAB shows, 3undry debtors #s.E;,EAA. AdDustment: Write off #s. ;,EAA as bad debts. Ad-usting *ntry
.ad debts A:c 1r ;,EAA To 3undry debtors A:c ;,EAA =.ad debts written off9

To transfer bad debts to Profit and 6oss account the followin transfer entry is re$uired. Bank Reconciliation State&ent .an0 reconciliation statement is a list in which various items that cause a difference between ban0 balance as per cash boo0 and pass boo0 on any iven date are indicated. !auses of disa reement between the balance shown by the cash boo0 and the balance shown by the pass boo0. 8. !he$ues deposited in to ban0 but not yet collected.

;. !he$ues issued but not yet presented for payment. ). Amount credited by the ban0er in the pass boo0 without the immediate 0nowled e of the customer. B.Amount debited by the ban0er in the pass boo0 without the immediate 0nowled e of the customer. 5.#..atliboi 4 Trial .alance Trial .alance is a statement , prepared with the debit and credit balances of led er accounts to test the arthimetical accuracy of the boo0s. %bDectives The obDectives of preparin a trial balance are: 8.To chec0 the arthimetical accuracy of the led er accounts. ;.To locate the errors. ).To facilitate the preparation of final accounts.

*ixed Assets All assets whose benefit is derived for a lon period of time, usually more than one year period are called as *ixed Assets. These assets decrease in value year after year due to wear and tear or lapse of time.This reduction in value of fixed assets is called depreciation. 1epreciation !arter defines 1epreciation as F the radual and permanent decrease in the value of an asset from any causeF. (eed for providin depreciation 8. To ascertain correct profit or loss. ;. To present a true and fair view of the financial position. ). To ascertain the real cost of production. B. To comply with le al re$uirements. E. To replace assets. Methods of calculatin 1epreciation 8. 3trai ht 6ine Method or *ixed "nstalment Method 4 -nder this method, the same amount of depreciation is char ed every year throu hout the life of the asset.

;. Written down value method or diminishin balance method 4 -nder this method, depreciation is char ed at a fixed percenta e each year on the reducin balance 89. *or the amount of depreciation to be provided at the end of the year: 1epreciation a:c. 1r To Asset a:c. ;9. *or transferrin the amount of depreciation at the end of the year: Profit and 6oss a:c. 1r To 1epreciation a:c. Asset account will be shown at cost less depreciation i.e., written down value at the end of the year in the .alance 3heet. )9. 7ntry for sale: .an0 a:c. 1r To Asset a:c. B9. 7ntry for the transfer of profit on sale of asset: Asset a:c. 1r To Profit and 6oss a:c. E9. 7ntry for the transfer of loss on sale of asset: Profit and 6oss a:c. 1r To Asset a:c.

AdDustin 7ntry: 3ome important and common items, which need to be adDusted at the time of preparin the final

accounts are discussed below: 8. !losin 3toc0 The unsold oods in stoc0 at the end of the accountin period is called closin stoc0. This is to be valued at cost or mar0et price whichever is lower. 1ate Particulars 6.*. 1ebit !redit >>> >>>

>>:>>:>>>> !losin 3toc0 a:c. 1r To Tradin a:c. =!losin stoc0 recorded9

&alue of !losin 3toc0 will appear in a9 on the credit side of tradin account and b9 on the assets side of balance sheet. ;. %utstandin 7xpenses 7xpenses which have been incurred but not yet paid durin the accountin period for which the final accounts are bein prepared are called as outstandin expenses. 1ate Particulars 6.*. 1ebit !redit >>>

>>:>>:>>>> 7xpenses a:c. 1r >>> To 7xpenses %:s. a:c. =%utstandin 7xpenses recorded9

%utstandin expenses will be shown a9 on the debit side of Profit and 6oss Account by way of additions to the particular expenses and b9 on the liabilities side of .alance 3heet.

). Prepaid 7xpenses 7xpenses which have been paid in advance are called as prepaid =unexpired9 expenses. 1ate Particulars 6.*. 1ebit !redit

>>:>>:>>>> Prepaid 7xpenses a:c. 1r To 7xpenses a:c. >>> =7xpenses paid in advance9

>>>

Prepaid expenses will be shown a9 on the debit side of Profit and 6oss Account by way of deductions to the particular expenses and b9 on the assets side of .alance 3heet. B. Accrued "ncomes or %utstandin "ncomes "ncome which has been earned but not received durin the accountin period is called as accrued income. 1ate Particulars 6.*. 1ebit !redit >>> >>>

>>:>>:>>>> Accrued "ncome a:c. 1r To "ncome a:c. =Accrued "ncome recorded9

Accrued "ncome will be shown a9 on the credit side of Profit and 6oss Account by way of additions to the particular income and b9 on the assets side of .alance 3heet. E. "ncomes received in Advance "ncome received durin a particular accountin period for the wor0 to be done in future period is called as income received in advance. 1ate Particulars 6.*. 1ebit !redit >>> >>>

>>:>>:>>>> "ncome received a:c. 1r To "nc.#ec. in adv.a:c. ="ncome received in advance9

"ncomes received in advance will be shown a9 on the credit side of Profit and 6oss Account by way of deductin from the particular income and b9 on the liabilities side of .alance 3heet. G. "nterest on !apital "norder to see whether the business is really earnin profit or not, it is desirable to char e interest on capital at a certain rate.

1ate Particulars

6.*.

1ebit !redit >>>

>>:>>:>>>> "nterest on !apital a:c. 1r To !apital a:c. >>> ="nterest on !apital9

"nterest on !apital will be shown a9 on the debit side of Profit and 6oss Account and b9 on the liabilities side of .alance 3heet by way of addition to capital. H. "nterest on 1rawin s Amount withdrawn by the owner for his personal use is called as drawin s. When interest on capital is allowed, then interest on drawin s is char ed from the owner. "nterest on drawin s is an income for the business and will reduce the capital of the owner. 1ate Particulars 6.*. 1ebit !redit >>> >>> >>> >>>

>>:>>:>>>> !apital a:c. 1r To "nterest on 1rawin s a:c. ="nterest on 1rawin s9

>>:>>:>>>> "nterest on 1rawin s a:c. 1r To Profit and 6oss a:c. ="nterest on 1rawin s9

"nterest on 1rawin s will be shown a9 on the credit side of Profit and 6oss Account and b9 on the liabilities side of .alance 3heet by way of addition to the drawin s which are ultimately deducted from the capital. C. "nterest on 6oan=%utstandin 9 .orrowin s from ban0s, financial institutions and outsiders for business are called loans. Amount payable towards interest on loan is an expense for the business. 1ate Particulars 6.*. 1ebit !redit >>> >>>

>>:>>:>>>> "nt. on .an0 6oan a:c. 1r To "nterest %utstandin a:c.

="nterest on .an0 6oan9 "nterest on 6oan %utstandin will be shown a9 on the debit side of Profit and 6oss Account by way of addtion to the appropriate interest account and b9 on the liabilities side of .alance 3heet by way of addition to the particular loan account.

I. "nterest on "nvestment "nterest receivable on investments is an income for the business. 1ate Particulars 6.*. 1ebit !redit >>> >>>

>>:>>:>>>> Accrued "nt. on "nvt. a:c. 1r To "nterest #eceived a:c =Accrued "nterest on invt provided9

Accrued interest on investments =outstandin interest receivable9 will be shown a9 on the credit side of Profit and 6oss Account by way of addtion to the appropriate interest account and b9 on the assets side of .alance 3heet by way of addition to the investments account. 8A. 1epreciation 1epreciation is the reduction in the value of fixed assets due to its use or obsolescence. 'enerally depreciation is char ed at some percenta e on the value of fixed asset. 1ate Particulars 6.*. 1ebit !redit >>>

>>:>>:>>>> 1epreciation a:c. 1r To Asset a:c. >>> =1epreciation on *urniture9 >>:>>:>>>> Profit and 6oss a:c. 1r To 1epreciation a:c. =1epreciation on *urniture transferred to P?6 A:c.9 1epreciation will be shown

>>> >>>

a9 on the debit side of Profit and 6oss Account and b9 on the assets side of .alance 3heet by way of deduction from the value of concerned asset.

88. .ad 1ebts 1ebts which cannot be recovered are called bad debts. "t is a loss for the business. 1ate Particulars 6.*. 1ebit !redit >>> >>> >>>

>>:>>:>>>> .ad 1ebts a:c. 1r To 3undry 1ebtors a:c. =.ad 1ebts Written off9

>>:>>:>>>> Profit and 6oss a:c. 1r To .ad 1ebts a:c. >>> =.ad 1ebts transferred to P?6 A:c.

.ad 1ebts will be shown a9 on the debit side of Profit and 6oss Account and b9 on the assets side of .alance 3heet by way of deduction from sundry debtors. 8;. Provision for .ad and 1oubtful debts 7very business suffers a percenta e of bad debts over and above the debts definitely 0nown as irrecoverable and written off as .ad =.ad debts written off9. "f sundry debtors fi ure is to be shown as correctly in the .alance 3heet provision for bad and doubtful debts must be adDusted. This provision for bad and doubtful debts is enerally provided at a certain percenta e on 1ebtors, based on past experience. While preparin final accounts, the bad debts written off iven in adDustment is first deducted from the 3undry 1ebtors then on the balance amount =3undry 1ebtors 4 .ad debt written off9 provision for bad and doubtful debts calculated. 1ate Particulars 6.*. 1ebit !redit >>> >>>

>>:>>:>>>> P?6 a:c. 1r To P.1.1. a:c. =Provision for .ad and 1oubtful 1ebts9

Provision for bad and doubtful debts will be shown a9 on the debit side of Profit and 6oss Account and b9 on the assets side of .alance 3heet by way of deduction from sundry debtors =after .ad 1ebts written off if any9. 8). Provision for 1iscount on 1ebtors To motivate the debtors to ma0e prompt payments, cash discount may be allowed to them. After providin provision for bad and doubtful debts, the remainin debtors are called as ood debtors. They may pay their dues in time and avail themselves of the cash discount permissable. 3o a provision for discount on ood debtors at a certain percenta e may have to be created. 1ate Particulars 6.*. 1ebit !redit >>>

>>:>>:>>>> P?6 a:c. 1r >>> To P.1.1ebtors. a:c. =Provision for 1iscount on 1ebtors9

Provision for 1iscount on 1ebtors will be shown a9 on the debit side of Profit and 6oss Account and b9 on the assets side of .alance 3heet by way of deduction from sundry debtors =after deductin .ad 1ebts written off and provision for bad and doubtful debts9. 8B. Provision for 1iscount on !reditors 3imilar to cash discount allowed to debtors, the firm may have a chance to receive the cash discount from the creditors for prompt payment. Provision for discount on creditors is calculated at a certain percenta e on 3undry !reditors. 1ate Particulars 6.*. 1ebit !redit >>>

>>:>>:>>>> P.1.!reditors a:c.1r To P?6 a:c. >>> =Provision for 1iscount on !reditors9

Provision for 1iscount on !reditors will be shown a9 on the credit side of Profit and 6oss Account and b9 on the liabilities side of the .alance 3heet by way of deduction from sundry creditors.