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Posted by Madhu Modi 6 years, 3 months ago
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Yogita Ingle 6 years, 3 months ago
Business Transaction: An Economic activity that affects financial position of the business and can be measured in terms of money e.g., expenses etc.
Account : Account refers to a summarized record of relevant transactions of particular head at one place. All accounts are divided into two sides. The left side of an account is called debit side and the right side of an account is called credit side.
Capital: Amount invested by the owner in the firm is known as capital. It may be brought in the form of cash or assets by the owner.
Drawings: The money or goods or both withdrawn by owner from business for personal use, is known as drawings. Example: Purchase of car for wife by withdrawing money from business.
Assets: Assets are valuable and economic resources of an enterprise useful in its operations. Assets can be broadly classified as:
1. Current Assets: Current Assets are those assets which are held for short period and can be converted into cash within one year. For example: Debtors, stock etc.
2. Non-Current Assets: Non-Current Assets are those assets which are hold for long period and used for normal business operation. For example: Land, Building, Machinery etc. They are further classified into:
(a) Tangible Assets: Tangible Assets are those assets which have physical existence and can be seen and touched. For Example: Furniture, Machinery etc.
(b) Intangible Assets: Intangible Assets are those assets which have no physical existence and can be felt by operation. For example: Goodwill, Patent, Trade mark etc.
Liabilities: Liabilities are obligations or debts that an enterprise has to pay after some time in the future.
Liabilities can be classified as:
1. Current Liabilities: Current Liabilities are obligations or debts that are payable within a period of one year. For Example: Creditors, Bill Payable etc.
2. Non-Current Liabilities: Non-Current Liabilities are those obligations or debts that are payable after a period of one year. Example: Bank Loan, Debentures etc.
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Sia ? 4 years, 7 months ago
While preparing an account if the debit side is greater than the credit side, the difference is called “Debit Balance”. So, if Debit Side > Credit Side, it is a debit balance.
When the credit side is greater than the debit side the difference is called “Credit Balance”. So, if Credit Side > Debit Side, it is a credit balance.
Posted by Madhu Modi 6 years, 3 months ago
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Yogita Ingle 6 years, 3 months ago
The Ledger is the main or Principal book of accounts in which all the business transactions would ultimately find thier place under various accounts in a duly classified form.
By this classification / collective effect we are able to know the following –
- How much amount is due from each customer and how much amount the firm has to pay to each supplier/ creditor.
- The amount of Purchase and Sales during a particular period.
- Amount paid or received on account of various items.
- Ultmate position of Assets and Capital.
- For the preparation of Trial Balance which helps in ascertaining the Arithmatic Accuracy of the Accounts.
Ledger is also called the Principal Book of Accounts
Posted by Madhu Modi 6 years, 3 months ago
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Yogita Ingle 6 years, 3 months ago
- To prepare a trial balance we need the closing balances of all the ledger accounts and the cash book as well as the bank book. So firstly every ledger account must be balanced. Balancing is the difference between the sum of all the debit entries and the sum of all the credit entries.
- Then prepare a three column worksheet. One column for the account name and the corresponding columns for debit and credit balances.
- Fill out the account name and the balance of such account in the appropriate debit or credit column
- Then we total both the debit column and the credit column. Ideally, in a balanced error-free Trial balance these totals should be the same
- Once you compare the totals and the totals are same you close the trial balance. If there is a difference we try and find and rectify errors. Here are some cases that cause errors in the trial balance
- A mistake in transferring the balances to the trial balance
- Error in balancing an account
- The wrong amount posted in the ledger
- Made the entry in the wrong column, debit instead of credit or vice versa
- Mistake made in the casting of the journal or subsidiary book
Posted by Madhu Modi 6 years, 3 months ago
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Yogita Ingle 6 years, 3 months ago
1Thank You