Found 96 Articles for Academic Content

Ledger is a summary of all transactions in a journal. A ledger is a record of all business transactions made by a firm. This is often called as chart of accounts.General ledger has three account types namely assets, liabilities and equity accounts. Most of the firms have almost same accounts like cash, account payable and retained earnings, but some may have specialised accounts for specific projects.Types of ledgers are −Sales ledger −Maintains sales transactions (service or goods sold) of a firmPurchase ledger −Maintain purchase transactions (services, goods purchased) of a firmGeneral ledger −Records expenses, income, depreciation etc. in nominal ledger ... Read More

Accounting is a process of making a financial report which consists of business transactions and preparing income statements, profit and loss accounts and balance sheets. The system which maintain these financial records are known as accounting system.There are different types of accounting systems, each has its own functionality. The main aim is to manage the financial activities (revenue, expenses and liabilities).Accounting systems can be maintained manually and are computerised. Manually accounting is difficult to maintain and chances for miscalculations and errors are high, whereas computerised accounting is easier to maintain, is accurate and saves lot of time.Types of accounting systems ... Read More

Matching concepts tells about expenses incurred during a period to be recorded in the same period in which revenues are earned. Revenues and expenses in income statement are matched for a period of time. Investors get a better idea about economics of the business.Product cost − These are tied directly to products and in turn revenues.Period cost − These don’t have corresponding revenues.Commission − If an employee earned x% of commission on sales in current month and that commission is paid in next month, then that transaction is recorded in present month.Depreciation − If a company buys a machine and ... Read More

Accounting period is a time frame in which, business financial activities are summarised. It can be yearly, mid-year or quarterly.Accounting period is useful to analyse company performance through its financial statements. A public held company must report to Securities and Exchange Commission (SEC) on quarterly basis.If the 12-month accounting period ends other on December 31st then, that period is called fiscal year. Accounting period only limited to income statement and statement of cash flows.Advantages of accounting period are −Preparation of financial statements.Maintains business records.Valuation of business.Decision making.Evidence in legal matters.Limitations of accounting period are −It measures only things/events that have ... Read More

In accrual concept, the transactions are recorded in the given time frame (accounting time). In this, transactions are recorded irrespective of payment made or not. Main idea is to recognise economic events by matching revenue and expenses.In this, some may pay for the goods to be delivered for the seller. In this type, the transactions are recorded in liability account for the seller. When the goods are delivered, the payment is then transferred into revenue account. Generally accepted accounting principles (GAAP) and International financial reporting standards (IFRS) supports accrual concept.Reasons to use accrual concept are explained below −Complexity of business ... Read More

Every transaction of a firm is recorded in two different accounts. This relates to double entry bookkeeping. That means dual aspects concept tells every transaction affects the business in at least two aspects which are equal and opposite in nature.In a single entry system, only one side of transaction are made. For example, if a sale is made to the customer only sale revenue is recorded, other side is not recorded (receipt/credit to the customer is not recorded). But, in double entry, both sale revenue and receipt/credit to the customer are recorded.Accounting equation −assets = liabilities + EquityAuditors will accept ... Read More

Payroll accounting deals with calculations and distributions of employee’s compensations like salaries, bonuses, commissions, overtime pay. It also helps higher level management to make decisions about labour cost.Type of payroll accounting includes −Initial recordings − Records gross wages, employment taxes which are owed to governmentAccrued wages − Records wages owned to employees which are paid later. Readjustments are made after payments.Manual payments − Records when company pays manually for pay adjustments or employee terminations.Steps for payroll accounting includes −To hire employees.Prepare paperwork regarding payments of employees.Pay checks.Record payroll.Steps to record payroll in general ledger are −Record payroll expenses.Record payroll liabilities.Transition ... Read More

The main difference between capital structure and financial structure is that financial structure consists of left hand side of a company’s balance sheet, whereas capital structure consists of long term debt and shareholder’s fund.Capital structure is a part of financial structure. Capital structure does not include short term liabilities, but financial structure does.Importance of capital structure includes −Increase in value of a firm.Utilisation of available funds.Maximisation of return.Minimisation of cost of capital.Solvency/liquidity position.Flexibility.Controlling.Financial risk minimises.Factors determining capital structure are given below −Trading on equity.Degree of control.Flexibility of financial plan.Choice of investors.Capital market condition.Period of financing.Cost of financing.Stability of sales.Size of ... Read More

Capitalisation is combination of owner’s capital and borrowed capital. That means, it tells about total fund invested in a company. Share capitals, debentures, loans etc.Capitalisation is generally classified as follows −Normal capitalisation.Over capitalisation.Under capitalisation.Over capitalisationIn this, profits are not enough to pay interest on debentures and dividends to shareholders over a period of time. That means, amount generated is used to raise capital than required capital, which results decline in rate of returns.Some of the causes for over capitalisation are as follows −High promotion cost.Purchase of assets at higher price.Liberal dividend policy.Over estimation.Inadequate provision for depreciation.Some of the effects of ... Read More

Accounting process is a process, which keeps recording and processing the financial transactions of a firm. It identifies, analyses and records day to day transactions of a firm. Earlier, it was entered manually which takes lots of time and chances of making errors is high.Computerisation helps to reduce the mathematical errors and save lots of time in preparing financial charts. Now-a-days new software are used, which reduce human efforts and errors are minimised.Accounting period starts from the first day of financial year and ends at the last day, if financial year, which generally called accounting period. Accounting period varies and ... Read More