Dual concept may be stated as "for every debit, there is a credit.

" Every transaction should have two sided effect to the extent of same amount. This concept has resulted in accounting equation which states that at any point of time the assets of any entity must be equal (in monetary terms) to the total of owner's equity and outsider's liabilities. This may be expressed in the form of equation: A-L=P Where A stands for assets of the entity. L stands for liabilities (outsider's claims) of the entity P stands for proprietor's claim (capital) on the entity. (The form of presentation of equation A - L = P is consistent with the legal interpretation of financial position.) The money measurement concept underlines the fact that in accounting, every recorded event or transaction is measured in terms of money. Using this principle, a fact or a happening which cannot be expressed in terms of money is not recorded in the accounting books.

Accrual Accounting
Definition: Accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged. The term "accrual" refers to any individual entry recording revenue or expense in the absence of a cash transaction

Most businesses typically use one of two basic accounting methods in their bookkeeping systems: cash basis or accrual basis. While most businesses use the accrual basis, the most appropriate method for your company depends on your sales volume, whether or not you sell on credit and your business structure. The cash method is the most simple in that the books are kept based on the actual flow of cash in and out of the business. Income is recorded when it's received, and expenses are reported when they're actually paid. The cash method is used by many sole proprietors and businesses with no inventory. From a tax standpoint, it is sometimes advantageous for a new business to use the cash method of accounting. That way, recording income can be put off until the next tax year, while expenses are counted right away. With the accrual method, income and expenses are recorded as they occur, regardless of whether or not cash has actually changed hands. An excellent example is a sale on credit. The sale is entered into the books when the invoice is generated rather than when the cash

These costs include all of the fees that a corporation incurs in order to register and issue bonds. The remaining $5.000 (one-sixth of $6. Likewise. Paying the insurance premium prior to the start of the coverage period gives rise to a deferred expense.is collected.) Beginning in January the insurance company will report premium revenue of $1. even though it has already been paid. This deferred expense of $6.000) as Insurance Expense. In each of the following five months the retailer will report $1. An example of a deferred charge is bond issue costs. the $6.000 on December 26. (On its December 31 balance sheet. The insurance company that receives the $6.000 will be reported on the retailer’s balance sheet of December 31 as the current asset.000 of deferred revenue in a current liability account. The fees are paid near the time that the bonds are issued but they will not be expensed at that time. A deferred charge is reported on the balance sheet in the long-term asset section other assets. 2007.000 in December 2006 will have deferred revenue until 2007. the insurance company will report the $6.000 of deferred expense will be reported on the January 31 balance sheet. if a retailer pays $6.000 per month. For example.000 is a deferred expense until the year 2007. Then in each year of the life of the bonds. the retailer’s January income statement should report $1. What is a deferred asset? I assume that the term deferred asset refers to a deferred charge or a deferred debit. 2006 for the cost of insurance from January 1 through June 30. a portion of the bond issue costs will be . the bond issue costs are initially deferred to the long-term asset section of the balance sheet. The deferred expense is reported on a company’s balance sheet until it becomes an expense in a future accounting period.000 as Insurance Expense. Prepaid Insurance.000 per month and it will reduce its deferred revenue by the same amount. Rather. The deferred expense on the balance sheet will decrease by $1. In January. when one month of the insurance premium expires (is used up). an expense occurs when materials are ordered or when a workday has been logged in by an employee What is a deferred expense? A deferred expense is not yet an expense.

hichever method we use to account for depreciation.000 and has a residual/salvage value of $10. Sum Of the Years Digits Method STRAIGHT LINE METHOD OR FIXED INSTALLMENT METHOD OR STRAIGHT LINE BASIS OR FIXED PERCENTAGE ON ORIGINAL COST METHOD Example: A machine has an estimated life of 10 years costing $40.000/10 years =$3.000=$30. Reducing Balance Method.000 Depreciation per year is : (Cost less Estimated residual value)/Estimated life =$40. Generally there are several methods of depreciation: • • • Straight Line Method.000-10.000 per year REDUCING OR DIMINISHING BALANCE METHOD OR FIXED PERCENTAGE ON DIMINISHING BALANCE METHOD . we must always consider the following: • • • The cost of asset. life The probable/estimated of the asset and The approximate residual or salvage value at the end of its life. The process of systematically reducing this deferred charge is known as amortizing the bond issue costs.systematically moved from the balance sheet and will appear as an expense on the income statement.

100 Year 3: Less Depreciation 10% $810 Reduced Balance $7.000 Less: Depreciation 10% $1.290 SUM OF THE YEARS DIGITS METHOD This method assumes that the depreciation charge should be the heaviest in the early years of the life of the fixed asset.000 Year 2: Less Depreciation 10% $900 Reduced Balance $8. Example: A machine cost $30. It allocates annual depreciation in proportion to the number of years of an asset’s useful life which remains at the commencement of an accounting year.Example: A machine was bought for $10.000 and a depreciation rate of 10% per annum is allowed. the depreciation is: Year 1: Cost of machine $10. Life-expectancy 1 st year 5 2 nd year 4 .000 which has an estimated life of 5 years.000 Reduced Balance $9.

000 Year 2: Depreciation is 4/15 x $30. pay for raw materials.000 Year 4: Depreciation is 2/15 x $30.000 Year 5: Depreciation is 1/15 x $30. pay bills and so on. However.000 Year 3: Depreciation is 3/15 x $30.000 =$10.3 rd year 3 4 th year 2 5 th year 1 Sum of digit 15 Hence.000 What is Working Capital? Firms need cash to pay for all their day-to-day activities. and is an important part of the top half of the firm's balance sheet. the firm also has current liabilities and so these have to be taken account of when working out how much working capital a firm has at its disposal. The main sources of working capital are the current assets as these are the short-term assets that the firm can use to generate cash.000 =$ 4.000= $ 2. It is vital to a business to have sufficient working capital . Working capital is therefore:WORKING CAPITAL = Current Assets || stock + debtors + cash .Current liabilities Thus working capital is the same as net current assets.000 =$ 8. The money available to them to do this is known as the firms working capital. They have to pay wages.000 =$ 6. the formula for annual depreciation is: (Number of years of life remaining/Total of digits of years of life) x Cost less residual value which is : Year 1: Depreciation is 5/15 x $30.

When a calculation is inserted into a cell. In business.html#ixzz148jUvR8V . A greater amount of the payment is applied to interest at the beginning of the amortization schedule.com/how_4814573_use-microsoft-excelaccounting. The amortization calculator formula is: . When you create an Excel document. that means the cell is located in row C and in the third column. Unlike other repayment models.com http://www. where: P is the principal amount borrowed. A cell is identified by its position in a row and column. making it the simplest repayment model. A is the periodic payment. numbers and calculations can be inserted into the individual cell. but because they suffered from shortages of working capital. while more money is applied to principal at the end. The remaining interest owed is added to the outstanding loan balance.to meet all its requirements. it resembles a grid comprised of individual cells.ehow. r is the periodic interest rate divided by 100 (annual interest rate also divided by 12 in case of monthly installments).and columns are identified by a letter. Many businesses have gone under. each repayment installment consists of both principal and interest. If a cell is C3. Microsoft Excel is a spreadsheet software application that can be used as an accounting tool. as determined by an amortization schedule. Amortization is chiefly used in loan repayments (a common example being a mortgage loan) and in sinking funds. Text. Rows are identified by number . not because they were unprofitable. making it larger than the original loan amount. Negative amortization (also called deferred interest) occurs if the payments made do not cover the interest due. amortization is the distribution of what would otherwise be a single lumpsum cash flow into many smaller cash flow installments. The answer will appear in the cell where you inserted the calculation Read more: How to Use Microsoft Excel for Accounting | eHow. you are instructing the program to make a calculation using numbers in cells you identify. and n is the total number of payments (for a 30-year loan with monthly payments n = 30 × 12 = 360). Payments are divided into equal amounts for the duration of the loan.

all other organisations that need to prepare accounting information for external users (e. since assets and liabilities are shown at "historical cost" and some intangible assets (e. A balance sheet does not necessary "value" a company. Once available in hard copy form only. Providing an easy way of keeping up with how much money is coming in and what bills are getting paid. the cashbook can be effectively utilized by just about anyone------------------ A balance sheet is a statement of the total assets and liabilities of an organisation at a particular date . current assets and the liabilities (sometimes referred to as "Net Assets") (2) A statement showing how the Net Assets have been financed.usually the last date of an accounting period.527 Current Assets 1.694 1. cash books are often included in different types of money management software. The Companies Act requires the balance sheet to be included in the published financial accounts of all limited companies.g.038 8. quality of management. Tesco plc: Balance Sheet (amounts shown in £' millions) 24 February 2001 26 February 2000 FIXED ASSETS 10. The balance sheet is split into two parts: (1) A statement of fixed assets. charities. for example through share capital and retained profits. brands. In reality. partnerships) will also product a balance sheet since it is an important statement of the financial affairs of the organisation.342 . market leadership) are not included.Cashbooks are simple accounting books that are used to record basic information about cash receipts and payments. Example Balance Sheet Set out below is a summarised balance sheet for Tesco plc to illustrate the main elements of the balance sheet.g. clubs.

The various amounts of money owed by a business are called its liabilities.798 Equity shareholders' funds Minority interests Total Capital Employed 5.798 Definition of Assets An asset is any right or thing that is owned by a business.487) NET CURRENT LIABILITIES (2. Definition of Liabilities To acquire its assets. equipment and anything else a business owns that can be given a value in money terms for the purpose of financial reporting.565) (19) TOTAL NET ASSETS 5. buildings. Long-term and Current To provide additional information to the user. . Assets include land.695 (2.343 6.145) Total Assets less Current Liabilities 7.382 Long-term creditors Provisions (1.389) (3.927) (24) (1.356 36 5.392 4.769 29 4. assets and liabilities are usually classified in the balance sheet as: .392 4.Short-term creditors (4.Current: those due to be repaid or converted into cash within 12 months of the balance sheet date. a business may have to obtain money from various sources in addition to its owners (shareholders) or from retained profits.

patents. A "fixed asset" is an asset which is intended to be of a permanent nature and which is used by the business to provide the capability to conduct its trade. "Intangible fixed assets" may include goodwill. trademarks and brands . equipment and the bank balance). land & buildings and motor vehicles. The statements .although they may only be included if they have been "acquired". undistributed profits are re-invested in company assets (such as stocks. At any time. the latter is referred to as the "capital" or "equity capital" of the company. Investments in other companies which are intended to be held for the long-term can also be shown under the fixed asset heading.Long-term: those due to be repaid or converted into cash more than 12 months after the balance sheet date. Simply put.icio. Fixed Assets A further classification other than long-term or current is also used for assets. To distinguish between the liabilities owed to third parties and to the business owners. Examples of "tangible fixed assets" include plant & machinery.and may be paid out as dividends as a future date . Definition of Capital As well as borrowing from banks and other sources. This money is generally available for the life of the business and is normally only repaid when the company is "wound up".us Facebook Fund Flow Statements summarize a firm’s inflow and outflow of funds. In addition. all companies receive finance from their owners. the capital of a business is equal to the assets (usually cash) received from the shareholders plus any profits made by the company through trading that remain undistributed. Although these "retained profits" may be available for distribution to shareholders .. therefore. it tells investors where funds have come from and where funds have gone. Fund Flow Statement • • • • • Print Stumble it Digg it del.they are added to the equity capital of the business in arriving at the total "equity shareholders' funds".

. www. It shows Closing Balance standing to an account on a particular date.html  financial statement of all the operations of a given period. www. The cash flow statement was originally known as the flow funds statement or statement of changes in financial position What is 'Trial Balance'? Trial Balance is the list of names & balances of all the accounts. The difference between income and expenses gives the amount of the company's profits or losses of the period. the Trial Balances is prepared for a particular period. also .edu/perl/webwn  Income statement. Trial Balance is a statement which can be prepared on a particular date or for a particular period. ------------------------------------------------------------- profit and loss: an account compiled at the end of an accounting period to show gross and net profit or loss wordnetweb.vodafone. Trial Balance is prepared to check the accuracy of the transactions entered and have a list of balances of all the accounts at one place.princeton. In AXBO. It ensures that all the transactions have been recorded with their proper debit and credit accounts and the balance of each account has been computed correctly. The cash flow is broken out into three reporting areas: (1) Operating.org/wiki/Profit_and_loss_account  An account compiled at the end of the financial year showing that year's turnover and expense items.. The cash flow statement shows a company's money flow in and out over a fixed period of time. and (3) Finance. operating statement or statement of operations. Most companies report their cash flow statement on a quarterly or monthly basis.wikipedia.com/en/node/7/p . It is a tool for checking and testing the accuracy. earnings statement. ie all income and expenses.com/start/investor_relations/shareholder_services/faq/glossary . It is not an account but list of balances of the accounts. is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken out.are often used to determine whether companies efficiently source and utilize funds available to them. (2) Investing. also referred as profit and loss statement (P&L). en. It helps in preparation of Final Account Statements.societegenerale.

foreign cash. all registered companies must keep.nic.com/Glossary%20of%20Financial%20Terms.net/glossary/4520160812  The P&L allows you to understand whether. 2.in/Glossary. An account held at a financial institution and administered by an investment dealer that the account holder uses to employ a trading strategy rather than a buy-and-hold investment strategy. Investopedia explains Trading Account 1. by law. another account may be a buy-and-hold account for their long-term stocks.org/dictionary/p. securities and a number of other types of investments. www. In other words.basicaccountancy. and each calendar year publish. holding cash and securities.html What Does Trading Account Mean? 1. Investors who use a number of trading strategies or have a number of brokerage accounts may separate their accounts in order to avoid confusion. . www. the income of an organisation has been greater than the expenditure. and is administered by an investment dealer. One account may be a registered account for their retirement savings.quarrying. it shows whether the organisation is making a profit/surplus or a loss/deficit. An account similar to a traditional bank account.book-keepers. a trading account can hold cash. Though trading accounts are traditionally thought to hold only stocks. 2. for the shareholders' information. (P/L Account) slbc. over a chosen period of time (often a month or year). It must give a true and fair view of the profit and loss of the company for the related financial year and be presented in one of four approved formats.bih.htm  An account which.html  a statement summarising a businesses revenues and expenses for a period www.

it is put to some other uses like for the preparation of final accounts etc. revenue and expense items.------------------------- A trial balance is prepared to check the mathematical/arithmetic accuracy of accounting. and whether those accounts are recorded in debit or credit side of accounts. is the main accounting record of a business which uses double-entry bookkeeping.. This gives a 'T' shape to each individual general ledger account. as they occur. Account is a unit to record and summarize accounting transactions. i.----------- . Ledger is a record that keeps accounting transactions by accounts. It will usually include accounts for such items as current assets.- The general ledger. gains and losses.e. Journal entry is an entry to the journal. fixed assets. This is the only (main) purpose of the "Trial Balance". liabilities. Each General Ledger is divided into two sections. Since it is anyhow prepared for a purpose. Purchase a/c Dr To Creditor a/c Buyer a/c dr. sometimes known as the nominal ledger. Journal is a record that keeps accounting transactions in chronological order. To Sales a/c. The left hand side lists debit transactions and the right hand side lists credit transactions. and another may be a trading account used for conducting day-trading activities.another may be a margin account. All accounting transactions are recorded through journal entries that show account names. amounts.

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