• Golden rules of accounting

There are two types of accounts

 Personal account and
 Impersonal account
 
Impersonal account is divided into two types of accounts i.e. - real account and nominal account
 
Real account - assets of the firm such as land, buildings, cash etc.
 
The rule is - debit what comes in
- credit what goes out
 
Nominal account relates to expenses, losses, gains, revenue etc.
 
The rule is - debit all expenses and losses
- credit all incomes and gains
 
Personal account - relates to persons, trade receivables or trade payables
 
The rule is - debit the receiver
- credit the giver
 
• what is a trial balance
 The balance of all current/non-current assets , expenses, losses are placed in debit side of
the trial balance and
 The balances of all liabilities, incomes, profits and capital are placed in credit side of the trial
balance.
 
• what is a difference between trial balance and balance sheet?
 Trial balance is a list of all balances in a ledger account and is used to check arithmetical
accuracy in recording and posting.
 A balance sheet, on the other hand, is a statement that shows the assets, liabilities, and
equity of a company and is used to ascertain its financial position on a particular date.
 
Trial balance is a statement which is prepared to show separately all the debit and credit balances
for a particular period of time the totals of the two columns should agree
 
• what is direct cost and indirect cost
 Direct costs are expenses that can be connected to a specific product, e.g. - direct labour,
direct material
 Indirect costs are expenses involved with maintaining and running a company. e.g. -
administrative expenses, tax, rent
 
• what is fixed cost and variable cost
 
  Fixed cost Variable cost

meaning In accounting, fixed costs are expenses that Variable costs expenses that changes in
remain constant for a period of time business activity level or volume
irrespective of the level of outputs.
 Incurred Even if the output is nil, fixed costs are The cost increases/decreases based on
when incurred the output

Also Fixed costs are also known as overhead Variable costs are also known as prime
known as costs, period costs or supplementary costs costs or direct costs as they directly
affects the output levels

nature Fixed costs are time related. They remain Variable costs are volume-related and
constant for a period of time. Depreciation, change with the changes in output level
interest paid on capital

examples Rent, salary, taxes Wages, commission on sales, wages

• what is an invoice
 Invoice is a document which is prepared by a seller to a buyer relating to a sale transaction
indicating the products, quantities and prices
 An invoice is a document issued to customers by a seller asking for payment of goods or
services
 
• what is a receipt
 
 A payment receipt, also referred to as a receipt for payment, is an accounting document
that a business provides its customer as proof of full or partial payment toward a product or
service.
 
• the difference between debtor and creditor
 
  the creditor is the one who lends money in a credit relationship, and the
debtor is the one who borrows it.
 
• accounts payable
 
 Accounts payable is money owed by a business to its suppliers shown as a liability on a
company's balance sheet.
 
• accounts receivable
 
 Trade receivables are defined as the amount owed to a business by its customers
following the sale of goods or services on credit.
 

 
• what is a debit note and a credit note
 
particulars Debit note Credit note
Who issues The buyer of goods issues it. The seller of goods issues it.
it?
 meaning The buyer of goods issues a debit The seller of goods issues a
note to the seller to return the credit note to confirm that the
goods received due to quality purchase return is accepted.
issues or other reasons. A debit
note contains the reason for the
return of goods.
Can be It can be issued only in the event of It can be issued only in the
issued credit purchases from the buyer's event of credit sales.
perspective.
impact It reduces account receivables in It reduces accounts payables in
the books of seller the books of buyer
reflects A debit note reflects a positive A credit note reflects a negative
amount amount
form It is another form of purchase It is another form of sales return
return
accounting It leads to updating purchase It leads to updating sales return
return books goods
entry Debit supplier account Debit sales return account
Credit purchase return Credit customer account
 
 
• depreciation
 
 The term depreciation refers to an accounting method used to allocate the cost
of a tangible or physical asset
 
 
• fundamental principal of accounting
 
 Accrual concept
 Going concern concept
 Consistency
 
 
Accrual concept
- the accrual principle is an accounting concept that requires transactions to be
recorded in the time period in which they occur, regardless of when the actual cash
flows for the transactions are received.
 
 According to this concept, a transaction is recorded at the time, it takes place and not
at the time when settlement is done.
In other words, revenue is recorded when sales are made or services are rendered and it
is irrelevant as to when cash is received against such sales.
 
 
 
e.g. - accounts payable and accounts receivable/ credit sale/ credit purchase.
 
Going concern concept - the financial statements are normally prepared on the
assumptions that an enterprise is a going concern and will continue in operation for
the foreseeable future
 
Consistency - in order to achieve comparability of the financial statements of an
enterprise through time, the accounting policies should be followed consistently from
one period to another.
 
What is a bank reconciliation statement?
 A bank reconciliation statement is a summary of banking and business activity that
reconciles an entity’s bank account with its financial records. The statement outlines
the deposits, withdrawals, and other activities affecting a bank account for a specific period.
 

What is O2C process?

It is a process in which how a business receives, processes, manages and completes customer
orders. This means handling all the aspects of the sale including shipping the item, collecting the
payments, creating invoices and reporting on the end to end process.
 
What is working capital?
the capital of a business which is used in its day-to-day trading operations, calculated as the
current assets minus the current liabilities.
 
What is the difference between accounts payable and accounts receivable?
 
Accounts payable Accounts receivable

The amount a company owes because it The amount a company has right to collect
purchased goods or services on credit from a because it sold goods or services on credit
vendor or a supplier to a customer

Current liability Current asset

 
 
Steps in order to cash cycle?
 the cycle begins with the system receiving orders from customers.
 Company might even conduct a credit review of the customer before accepting the order,
 Then the order is documented and the company begins the task of fulfilling the order
 Once the order has been shipped and delivered, or the service has been fulfilled , the most
important stage of the cycle begins with regard to cash management. The invoice is created
and sent to the customer for payment
 After the customer has made the payment, the accountants note the entry in the general
ledger
 
Journal entry for credit sale
 Debit customer A/c
 Credit sales A/c
 
Journal entry for cash sales
  Debit cash A/c
 Credit sales A/c
 
Journal entry for sales return a/c
 Debit sales A/c
 Credit cash A/c
Or
 Debit sales A/c
 Credit receivables A/c
 
Journal entry for credit purchase
 Debit purchase a/c
 Credit accounts payable
 
Journal entry for cash purchase
 Debit purchase a/c
 Credit cash a/c
 
Journal entry for purchase return
 Debit cash A/c
 Credit purchase a/c
 
Journal entry for purchase return on credit
 
 Debit accounts payable
 Credit purchase a/c