Accounting

Accounting 

This is a method of recording, reclassifying transactions in a particular way wherein, the organization works towards the area of identifying the clear financial picture at the end of the year. 

Double Entry Accounting 

This is a method in which accounting is being carried out by considering both aspects of accounting i.e. debit side as well as credit side of accounting. There are two parts in which entries are being composed. It is related to the fact that, for every debit, there is a credit transaction. 

Invention of Double Entry System of Accounting 

This system of accounting is a particular method which was being invented by Luca who was named as father of accounting. Incomplete accounting records are those kinds of records which are not being completed by making use of double entry system of accounting in the area of doing the tasks being assigned. 

Recording of Transactions in double entry system of accounting

• Purchase of Plant and Machinery in cash

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• Payment of Salary to employees

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• Interest received on bank deposit

•  Receipt of bank loan amount in cash

Account reconciliation 

This is a means which is being used for the purpose of ensuring that, balances of accounts are being checked. It helps in finding out whether the figures being mentioned in the accounts are accurate or not. 

Reconciliation Process 

This process helps in ensuring that, money shown in one account matches with the actual money being spent. The aim is to make sure that, consistency and accuracy is being ensured in the financial statements. There is no single formula for doing reconciliation. It occurs according to the procedures being adopted by the organisation in the course of doing the transactions. 

Meaning of Reconciliation Report 

It is a report which provides information regarding reconciliation of accounts. Trial balance is at the top and the balance which is to be identified comes at the bottom. The reconciliation items are being written in the middle. When the total value is being identified, reconciliation takes place appropriately. 

Principals of Double Entry accounting 

One of the principles of this kind of accounting is that, for every debit, there is a credit transaction. The double entry accounting system takes place on the basis of certain principles of double entry accounting being carried out at a particular point of time in the area of doing the working. 

Generally Accepted Accounting Principles 

The standard framework of guidelines in the course of doing the accounting activities are termed as generally accepted accounting principles. The short name of Debit is Dr and short name of credit is Cr. There are certain rules which are to be taken into consideration by the people at the time of doing the transactions in the area of working out the tasks. 

Personal Account 

These are the categories of accounts which include both natural as well as artificial persons. These are the accounts which are related to individual groups. In this particular area, the examples include individual, company, bank and any other organization. 

In this kind of account, the rule is to debit the receiver and credit the giver. Therefore, in any transaction, account of the benefit receiver is being debited and account of benefit giver is being credited.  Few of the examples of the same are being provided below.

1. Goods purchased from Mr. Rahim on credit $2000. Here, Rahim is the benefit giver of the goods therefore, his account will be credit and goods being purchases are expenditure therefore, the same would be debited.
2. Cash paid to Oliver: Here, Oliver is the benefit receiver therefore, his account will be debited and cash will be credited by the organization.

Real Accounts

Another category of accounts is in the name of real accounts. This account is related to the accounts which are tangible or intangible in nature. The tangible accounts include plant and machinery, furniture, computer, inventory and buildings. In case of intangibles, the accounts include goodwill, patents, copyrights and trademarks. The rule in case of real accounts is debit what comes in credit what goes out. There can be certain examples in the course of this kind of inventory.

1. Purchase of furniture for cash. Here, cash goes out therefore, cash will be credited and furniture comes in therefore, furniture will be debited. In this area, the organization will have impact on both the accounts which are being taken into consideration.
2. Cash paid to John: Here, cash is being going out therefore, cash will be credited and the amount of John would be debited as John is being obtaining the money. These two examples provide proper details regarding the manner in which double entry system is being carried out.

Nominal Accounts

These accounts are being termed as those accounts which are in the category of temporary income and expenditure accounts. The accounts include house rent, salary, discount and other kinds of activities. The examples of these kinds of accounts include the following:

1. Salary received: This includes salary account wherein, the individual has receipt of salary
2. Profit on sale of furniture: Here, profit is being considered to be the nominal account being taken into consideration
3. Interest paid: Here, interest is being the expenditure which is being incurred by the individual at a particular point.

The rule in these kinds of accounts is to debit all expenditures and credit all incomes and gains. There can be certain examples of these kinds of accounts being held by the organization at a particular point of time.

As per this transaction, salaries (Expenditure- Nominal A/c) is an item of expenditure for a

Business and cash (Asset- Real A/c) is going out of business. Hence, Salaries A/c will be debited and Cash A/c will be credited.

Rent Received $200

As per this transaction, Cash (Asset- Real A/c) received is an asset and rent received is an income for a business. Hence Rent A/c will be credited and Cash A/c will be debited.

Goods purchased for $1000

As per this transaction, goods purchased (Expenditure- Nominal A/c) is an expenditure for a business and cash (asset- Real A/c) paid is a real A/c. Hence, Goods purchased account will be debited and cash A/c will be credited.

Book Keeping

Bookkeeping is a part of accounting which is being related to the activities of maintenance of books of accounts of an organization. There are four activities which are being covered under the head of book keeping.

1. Identification of transactions and events of an organization in a particular period.
2. Measurement of identified transactions and events
3. Ensuring that, these identified transactions are being recorded in books of accounts
4. Classification of recorded transactions.

Accounting software

            Accounting software is a particular kind of software which works towards recording various kinds of accounting transactions in the organization. This is a kind of computer program which records all the transactions and accordingly ensures that all the transactions are being recorded well without any kind of trouble or issue arising at a particular point of time. The accounting software being identified at various organizations include software in the name of GnuCash, Money Manager Ex, TurboCASH, Wave and VT Cash Book.

Sage MAS 500

This is a complete business management software solution which works towards the area of development of streamlined operations of the organization at a particular point of time. There are certain categories of accounting software which can be downloaded for free. On the other hand, there are certain other categories of accounting software which can be downloaded in a different way.

Double Entry Accounting Cycle

1. Analysis of business transactions: The first step in the course of accounting cycle is the step regarding analysis of business transactions. The purpose is to make sure that the organization looks at the business transactions and identifies the effect of the same for the purpose of making sure that, positive results are being generated. This identifies the manner in which accounts of the organization are being prepared.
2. Make Journal Entries: The next step is to make sure that, the accounting transactions are being moved into journal entries. In the case of journal entry, double entry rule is being used. For every transaction, there is a debit and a credit. The total of debits in a transaction should always be equal to the total of credits in a transaction. In case of journal entries, debits are being considered to be equal to the total credits of the organization.
3. Posting to ledger accounts: Once the journal entries are being made, posting of the same is required to be made in the ledger accounts. In this area, the organization creates ledger accounts for all the transactions and accordingly posts the same. All the information is being transferred from ledger accounts to journal entries. In case of ledger accounts, each of the entries is being written of left side and credit items are being written on the right side.
4. Preparation of Trial Balance: Trial balance is a statement which includes summary of all account balances. The debit balances of accounts and credit balances of the accounts are being shown separately in trial balance of the organization. Trial balance of an organization is being prepared for finding out whether debits and credits of the transactions are equal or not. This is being used for the purpose of preparation of financial statements of the organization.
5. Making adjustment entries: These entries are being considered to be those entries which are being carried out after the financial statements of the organization are being prepared. The entries are being made after preparation of unadjusted trial balance of the organization.
6. Adjusted trial balance: On making adjustment entries, another trial balance is being prepared by the organization. In this trial balance, the balances are being shown after making the necessary adjustments. This particular thing is going to help the organization to ensure that, clear information is being provided.
7. Preparation of Financial Statements: after making adjustments in the trial balance, the organization makes preparation of its financial statements. The financial statements of the organization include statements in the name of balance sheet and profit and loss statement. These statements do help the organization to ensure that, proper results are being generated in a proper and appropriate way so that, best results are being generated at a particular point of time.
8. Close accounts: The income statement accounts of the organization are being closed for the preparation of financial statements of the next year.
9. Post-closing trial balance: the financial step in this process is to make sure that, that the organization is being doing preparation of post-closing trial balance.

Cash and Accrual Basis of Accounting

Cash basis of accounting is a particular method wherein, transaction recording is being carried out by the organization. In the course of transaction recording, the organization works towards the activities regarding identification of revenues, assets, liabilities and costs. In this method, the organization makes calculation of income on the basis of cash transactions. In this method, credit transactions carried out by the organization are not being identified. The credit transactions are not being taken into consideration in the course of cash basis of accounting being carried out.

Accrual method of accounting: In this method, the income and expenditure of the organization are being recorded as and when these are being incurred by it. This is also termed as mercantile system of accounting. In this system, the organization works towards the area of ensuring that, best results are being generated in the course of doing the tasks being assigned at a particular point of time.

Difference in Cash and Accrual Accounting