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What is the DOUBLE ENTRY SYSTEM ?

What is Double entry system? This is a system through which transactions in a business involving money and money’s worth are recorded in the nominal ledger from the books of prime entry. According to this system each business transactions will have two sides which will be equal and opposite of each other; Debit side and a credit side . Every debit must be balanced to its credit. Rules of double entry system There are generally two sets of rules. You can follow the ones which you understand and find easy to remember the most. 1. In this rule you need to keep in mind what a debit and a credit entry will do. A debit entry will :- n Increase an asset n Increase an expense n Decrease a liability A credit entry will :- n Decrease an asset n Increase a liability n Increase an income ...

Who are the STAKEHOLDERS ?

Who are stakeholders? They are various groups of people who need information about the activities of a business. They also effect or get affected by the organisations actions. According to the International Accounting Standard, IAS 1 Presentation of Financial Statements states: “ The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions ” The wide ranges of users mentioned in IAS 1 are these stakeholders. Different types of stakeholders There are mainly three types of stakeholders: 1. Internal stakeholders : - they are groups or individuals from inside the organisation. For example, directors, managers, employees. · Managers are appointed by the organisa...

What are the Types of Business organizations ?

What is abusiness organisation? A business organisation conducts activities to earn or maximise profits. Different types of business organisations Choosing the type of business is very important decision to make when starting or planning to start a business. There are commonly four types of business organisations. 1. Sole proprietorship · This is the oldest, simplest, straight forward business type of all. · It is a type of business owned and operated by an individual. · Sole traders operate in an area where start up cost and barrier to entry is very low. · Sole trader is the sole barer of all the risks and the recipient of all profits. · This type of busine...

What is ACCOUNTING ?

What is accounting? Accounting is the language through which we can understand a business. According to American Institute of Certified Public Accountants -- “ Accounting is an art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events, which are, in part at least, of a financial character, and interpreting the result thereof .” Recording: initial transactions recorded in the books of prime entry . Classifying: transactions in the books of prime entry are classified in similar groups called ledger accounts. Summarizing: summarizing the ledger accounts into trial balance and then to final accounts. Why do we need accounting? At the end of a financial year, businessmen and a companies stakeholders will want to know about the business. So for the purpose of understanding it, we need to accou...

What is ACCOUNTANCY and What is ACCCOUNTING ?

What is Accountancy? It is a body of knowledge prescribing certain rules or principles to be observed while recording, classifying and summarising transactions. According to Kohler— “ Accountancy refers to the entire body of theory and practice of accounting ” It tells us everything from recording our first transactions to preparing the books of accounts and summarising it. It also tells us how to communicate it to the interested parties (stakeholders). What is accounting? It is the process of creating the final accounts of an organisation to ascertain the net result and communicate it to the interested parties. Analysing and interpreting the result from the final accounts is a part of accounting. Different types of accounting These days an organisation requires various kind...

What are the Books Of Prime Entry ?

What are books of prime entry? Books of prime entry are books that are to be maintained to record transactions as and when they occur, so that we do not forget any transactions or post them twice. Books of prime are also known as special purpose subsidiary books or books of original entry . These are some of the main subsidiary books:- - Cash book - Petty cash book - Purchase day book - Sales day book - Purchase return day book - Sales return day book - Journal proper What is a cash book? Cash book is the book in which all the transactions rel...

What is The Trial Balance ?

What is a trial balance? Trial balance is a statement used to check the arithmetical accuracy of the books of prime entry and the ledger accounts . What is the purpose of a trial balance? · It checks the arithmetical accuracy of the ledger. · It checks whether the debit side tallies with the credit side. (The reason why the trial balance tallies is because, in the double entry system each transaction is posted twice, one on the debit side and the other one the credit side). · It helps to summarise the ledger accounts which helps in the preparations of the final accounts. How is a trial balance prepared? Before understanding how a trial balance is prepared, we need to understand when a trial balance is prepared. A trial balance is prepared at the end of an...

What is BUSINESS and What are its OBJECTIVES ?

What is a Business? A business is any activity done for the purpose for earning profit. It involves production or purchase and sale of goods and services to satisfy human needs and wants for earning profits. Objectives of business Even though the main objective of a business is to earn or maximise its profits, it needs to keep its stakeholders happy by meeting their expectations. 1) Economic objectives: n Profit maximisation- profit is very important for the growth and survival of the business. n A business must attain fair position in the market to use the full market potential. n The business must keep innovating new products. It must try to be the first mover, to bring new technology, products to the customer before their competitors. n It must use its resources optimally. Reduce wastage. It must efficiently use its resources. 2) ...

What are the ERRORS in Accounting and How to CORRECT them ?

Types of errors in accounting There are mainly five types of errors in accounting. These are the most frequent errors that you may come across while preparing your accounts. 1) Error of transposition : - this is the error when we record the amount figure the wrong way around. For example: - $5987 is recorded as $5897. 2) Error of omission :- failing to record the transaction in full or partially (partially means only the debit or the credit side of the transaction and not the corresponding entry is omitted) 3) Error of principle : - when some fundamental principle is violated of the double entry system while posting an entry. This happens when the double entry is posted on the belief that the entry made is correct for the transaction. And finding out later that the entry made is wrong. (this can happen due to lack of knowledge also) 4) Error of com...

What are LEDGER ACCOUNTS ?

What is a ledger? After the transactions are entered into the books of prime entry , the next step is to prepare the ledger accounts . Ledger accounts are where all the transactions taken place in the business are classified into separate accounts. Ledger accounts are prepared in equal intervals (maybe every – day, week, month, quarter, once in two quarters, or every year). It all depends on the type of business. The organisation can decide in which interval they decide to prepare their accounts, and they should follow their routine without breaking it. Pro forma Dr Name of the Account ...

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