Accounting is used for business entities and it is a systematic process of identifying, recording of financial transactions, and also it indicates the process of summarising, analysing, and presenting various financial reports of a business.
The following three are the branches of accounting.
The following are the important accounting concepts
This is also known as the mercantile system of accounting. The expenses and revenues that have been incurred or earned during the month, but will be paid or received in the future has to be recorded in the books of accounts as per accrual base system of accounting.
Example: Telephone charges incurred for April is Rs.10,000 but the due date is 10th of the following month (May), in this case you have to make telephone charges provision entry at April month end.
A debit indicates that either increases of asset or expense account or decrease a liability.
A credit indicates that either increase of liability or decrease of expense account or asset.
Bookkeeping is recording of daily business financial transactions up to date and it is part of the process of accounting in business. Transactions include the recording of sales, purchase, payment from customers, payment to suppliers, staff salaries, journal entries and other adjustment entries and bookkeeper is the responsible person to record day to day transactions.
Prepaid expenses are future expenses that have been paid in advance for goods and services to be received. Prepaid expenses are shown on the balance sheet under current asset side.
Prepaid Insurance Account Dr
To Bank Account
Insurance Expenses Account Dr
To Prepaid Insurance Account
Expenses are incurred but not yet been paid called as accrued expenses such as wages, salaries, telephone expenses etc.
Telephone Expenses A/c Dr
Telephone Expenses Payable A/c
Salary A/c Dr
To Salary Payable A/c
Prepaid income also known as unearned income, which is received in advance before supply of goods or services. Prepaid income or advance received is treated as a liability.
Printing and stationary
Discount received and allowed
Rates and taxes
Provision for doubtful debts
Provision for tax
Interest on capital
Telephone expense A/c Dr
To Telephone charges payable A/c
Bad debt expense A/c
To Receivable A/c
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