Category: Principles of Accounts

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Double-enty System for assets, liabilities & capital…

Role of Capital in Production

Capital refers to assets such as machinery, equipment, inventory and cash that are used to start and continuously operate a business. Fixed capital includes machinery, equipment and vehicles owned by the company. These assets are so called because they cannot easily be turned into cash. Circulating capital includes raw materials, finished and semi-finished, goods, bank…...

Reasons Businesses are Established

Starting a business is a lot of hard work. Therefore persons who decide to start a business must be ready to dedicate a lot of time and energy to its start-up. It is also very costly and therefore capital will have to be identified to inject into a new business. Reasons for starting a Business:…...

The Need for Control Systems

All accounting information systems have controls or checks in place to ensure accounting errors and irregularities are minimized. Given the division of the accounting function carried out by various persons these controls become very relevant to ensure the accounting system is working in harmony. Common control systems include: -Suspense Accounts -Control Accounts -Bank Reconciliation Statements...

Suspense Accounts

When the trial balance totals do not agree and the errors cannot be found immediately the difference is put to an interim account until the errors are located. Since the errors are put to suspense the account is refereed to as a Suspense Account. The suspense account balance is entered in the Trial Balance on…...

The Effect of Accounting Errors on Final Accounts

Where accounting errors represent items normally entered for Final Accounts then the original incorrect profit figure would need to be adjusted to calculate the correct figure for profit. A statement of Corrected Net Profit would be prepared to calculate the correct profit. A statement of corrected Net Profit for the above error is illustrated below…...

Control Accounts

A Trial Balance is said to be a statement of proof done arithmetically to prove that proper double was observed in making accounting entries. The assumption is that the Trial balance totals will not agree whenever there is an error. With the division of accounting records into different books of entries it becomes difficult to…...

Sales Ledger Control Accounts and Purchases Ledger Control accounts

Two of the most common Control Accounts are Sales Ledger Control Accounts and Purchases Ledger Control Accounts. After posting all transactions the balance of the Control Account and the sum of the detailed records in the Subsidiary Ledger should always be the same. In other words, a control account deals with summarized information while a subsidiary ledger…...