Primarily, let me tell you the fundamental equation of accounting.
Assets = Liabilities + Owner’s Equity
Account is the discrete record of an asset, a liability, revenue, an expense or capital in a concise manner. For instance, the discrete record of the owner is known as Capital account, the individual record of sale is Sales account.
They are two types of changes that may take place in an Account. For example, either there will be increased or there will be decreased. Take the example of Cash that is an asset, either there is an inflow of cash or there is an outflow of cash. To record these two types of changes, every account (a page) is divided into sides. The increase is recorded on one side and decrease is recorded on the other side. The specimen of an account, a “T” form of an account is shown below:
When credit sales are made that is the cash isn’t waged at the time of sale of the business or the buyer, here the augmentation of debtors takes room. These buyers are called Debtors. The goods are sold to them but the cash or money is to be received from them in the nearby future rather than at the stage of the transaction. When accounts of such customers are made, they are recognized as “Accounts receivables”.
For example, we wholesaled properties to A for $6000, to be for $5000 and to see for $1000 on the base of credit. The receivable quantity from them (A, B and C) is known as "Debts". The 3 customers, A, B and C are our debtors or accounts receivable.
If the dealings are scarce, the trades in ‘general journal’ are quite suitable. It is worthwhile for a business man to record the transactions in special journals called as Bills payable book and Bills receivable book when abundant mandibles are acknowledged and drained by Him.
When a cheque is received from a debtor it is recorded in the cash book on the date when it is deposited with bank for collection but the bank will record it in the depositor’s account on the date when it is actually collected by the bank from the concerned (debtor) bank. So long the bank cannot collect the amount, the cash book balance and the pass book balance will disagree. Suppose on 10.1.2005, we receive a cheque for Rs.4000 from a debtor Mr. Harris and deposit into the bank for collection on the same day after recording it in the cash book but the bank has credited our account with the amount of the cheque when it is collected by it on 14.1.2005. So the cash book balance and the pass book balance will show a difference of Rs.4000 during 10th to 14th January 2005. Thus the cash book balance will be Rs.4000 more and the pass book balance Rs.4000 less.
Start free ReadyRatios
reporting tool now!
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
- Business Terms
- Financial education
- International Financial Reporting Standards (EU)
- IFRS Interpretations (EU)
- Financial software
Most WantedIFRS Terms
- Statement of Comprehensive Income
- Cost of Sales
- Finance Costs
- Shareholders Equity
- Earnings per Share (EPS)
- Capital Expenditure (CAPEX)
- Deferred Tax Assets (Deferred Tax Liabilities)
- Intercompany Eliminations
- Share Premium
- Distribution Cost
Have 10 minutes to relax?Play our unique
Play The Game