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| Accounting |
The systematic recording, reporting, and analysis of financial transactions of a business. First of all to introduce the Tally software, accounting knowledge about the journal, ledger, trial balance, final account is necessary for every accountant. So, for this purpose some important term related to journal which are explained in below.
Some important terms:
· Assets: Anything of use which is owned by the business is called assets. Assets are the following types.
- Fixed assets: It refers to those assets which have been purchased by the enterprise for long term use and not for resale in the ordinary course of business. The benefit from fixed assets is derived over a long period. E.g. land, building, and machinery etc.
- Current assets: current assets are those assets which are held:
- In the form of cash.
- For their conversion into cash, as early as possible.
- For their consumption in the production of goods. e.g. Stock, cash, debtors, bank.
- Fictitious assets: it refers to those assets which do not have any physical form and have no realizable value. Such assets cannot be converted into cash. These are shown as assets because of their non-recurring nature. All non-recurring payments are shown as assets. E.g. preliminary expenses, underwriting commission.
Liabilities: amount payable by the business to outsider is called liabilities. E.g. bank loan, creditors, capital.
Capital: amount invested by the owner in the business is called capital. Capital is increases with the amount of profit. Capital is decreases with the amount of losses and drawing.
Goods: things which are used in the manufacture process or which are purchased for the purpose of sale are called goods.
Debtors: customer from home money is due on account of credit sale of goods are called debtors.
Creditors: the supplier to whom money is payable on account of credit purchase of good are called creditors.
Proprietor: person who invest money in the business and who takes the risks of business is called proprietor.
Drawing: money or thing with drawn by proprietor for personal use are called drawing.
Book keeping: book keeping is the art and science of recording financial transaction of the business in a systematic manner.
Journal: in journal, when any businessman purchase and sale of any good then make entry in journal account.
Ruling of journal:
- Personal account:
- debit --> the receiver
- Credit --> the giver
- Real account :
- debit --> what comes in
- Credit --> what goes out.
- Nominal account: debit expenses and losses
- Credit --> incomes and gains.
Meaning of ledger: ledger is the most important book in accounting system. It is prepared after journal. It contains accounts related to assets, liabilities, capital, revenue, and expenses. It is the basis of preparing trial balance and final account.
Trial balance: after the ledger account trial balance is maintained. Two sides are debit and credit. When both sides are equal then it means all entries related to purchase and sale is correct.
Final account: Accounts which are prepared at the end of year are called final account. It includes the following statements:
- Trading account.
- Profit and loss a/c
- Balance sheet
In Trading: all the direct expenses shown on the left hand side and direct income are shown on the right hand side. Left side known as debit side. right side known as credit side. Direct expenses like octroi, carriage inward, manufacturing expenses, etc. Difference in both side shown as gross profit and gross loss. If the credit is more than debit side than balance is called gross profit. If debit is more than credit side then balance is called gross loss.
In profit and loss account: this account is prepared to find net profit and net loss. All the indirect expenses shown on debit side and indirect income shown on credit side to find the profit and loss. Indirect expenses like salary, telephone expenses, computer maintains carriage outward, electricity bill, etc. indirect income like rent received, discount received, etc. Difference in both side shown as net profit
and net loss. If the credit is more than debit side than balance is called net profit. If debit is gross more than credit side then balance is called net loss.
In balance sheet: In Balance sheet contains two sides:
- Assets
- Liabilities
When both sides are equal then it means all the items which are shown in trading, P&L, is correct. And our business is running successfully.