Accounting

Intangible assets are those identifiable assets which has no physical substance and is not a financial instrument. This means you can not touch it. Intangible assets are disclosed under the head non-current assets on the company's balance sheet as these are long-term resources of the organization. It's the opposite to tangible or physical assets such as plant, land, building, … [Read more...] about Understanding intangible assets on the balance sheet

Company's balance sheet has three major section: assets, liabilities and owner's equity. As a general accounting rule, assets must equals liabilities and owner's equity. It's known as balance sheet equation or basic accounting equation, which is the foundation of double-entry accounting system. The basic accounting equation given below is a simple algebraic formula which … [Read more...] about What is the basic accounting equation

Every transaction that has a economical impact on the business is recorded in minimum two accounts, once in the debit side of a account and once in the credit side of another account. Each line in it known as entry. Journals in manual accounting system is known as book of first entry. In journal, you enter the transaction first and from there, you take it to accounts by … [Read more...] about How Business transactions are recorded in account

When a business makes a purchase, depending on certain factors, its either considered as capital expenditure or revenue expenditure. To understand the concept, there are basically two areas where money is spent in an organization; To purchase items that are to be used for several years, orTo pay for items that will be used in day to day running of the business. In this … [Read more...] about Capital expenditure Vs. revenue expenditure – What is the difference

By posting adjusting entries to respective accounts, you prepare adjusted trial balance to derive income statement and balance sheet of the company. After preparing these reports, you need to post closing entries to zero out all temporary accounts and transfer their balances to permanent accounts. This entire process is known as closing of the books. In the closing process, … [Read more...] about What is closing entries in financial accounting system

Adjusting entries are part of accrual concept of accounting. In general, accounting transactions are recorded by following accrual basis of accounting except in few schools, government departments and non profit organisations. In accrual accounting, following rules are followed; Revenue is recognised when earned, regardless of when cash is actually collected, andExpenses are … [Read more...] about How to make adjusting entries in financial accounting

Total debit and total credit of every accounting transaction must tally while posting it to the accounting system. In an organisation, accountants across the world post transactions by debiting and crediting respective accounts. To check, the equality of all the transactions of an organisation, trial balance is prepared. This means, in a trial balance, total of all debit … [Read more...] about What is Trial balance and how it’s prepared

One of the basic principles of accrued accounting system is matching revenue with expenses. When a company buys assets such as building, plant and machinery, the cost is capitalized in an account. These assets are used over their useful life in the production of revenue. To match revenue with expenses for a period, management spread the cost of the assets over its useful life … [Read more...] about What is depreciation and How its calculated

A transaction is an event which has financial impact on the enterprise and requires recording. In other words, transactions are typically involve an exchange of resources between the company and other parties. It acts as the raw materials for the financial accounting process. For instance, purchasing goods with cash or on credit is a transaction to be recorded in financial … [Read more...] about How transactions are recorded in double-entry bookkeeping system

Debt to equity ratio shows you how debt is tied up in the owner's equity. Please note, for this calculation only long term debt/liabilities are considered. Debt is the amount of money company has borrowed from lenders to finance it’s large purchases or expansion. Lender has arranged finance for the company under the condition that its to be paid back at a later date, usually … [Read more...] about How to calculate debt to equity ratio – D/E