Tag: Ledgers and the Trial Balance
The Accounting Equation
We have often heard the expression “the books are in balance” in reference to the accounting records of a business. This relates to the use of the double-entry system of accounting, which says that every transaction will affect two accounts. Because the monetary values are equal we say the transaction is “in balance.” Accounting is…
Classification of Accounts
All accounts may be grouped in two broad categories or classifications. These are personal and impersonal. Personal Accounts: These are the accounts that have the names of debtors (customers) or creditors (suppliers). They are therefore personal to this extent. Impersonal Accounts: These non-personal accounts may be divided into Real Accounts and Nominal Accounts. -Real Accounts –…
Accounts Rules for Double Entry
-When increasing an asset account we make a debit entry. -When decreasing an asset account we make a credit entry. -When increasing a capital/liability account we make a credit entry. -When decreasing a capital/liability account we make a debit entry. Illustration of basic accounting entries 2009 June 1 Owner started business ‘ToyWare’ with $5,000 cash…
Asset of Stock
Stock refers to all items that a business normally engages in buying or selling to make a profit. Stock is an asset because it represents goods owned by the business .In accounting certain terms have specific or restricted meaning but these terms may have a different meaning outside the context of accounting. In Accounting the…
Expense and Revenue Accounts
Expenses These represent the daily cost to keep the business in effective operation. Expenses would include light , water bills, telephone charges, wages and salaries, cleaning, transportation, stationery used, and insurance. All expense accounts are debited. Revenues Revenues represent the monetary value of goods and services that have been delivered to customers. Revenues would include…
Capital and Revenue Expenditure
Capital Expenditure is directly related to fixed assets in that it is incurred when money is spent by a business to either: -Buy a fixed asset, or -Increase the value of a fixed asset in existence. Revenue Expenditure is not directly related to acquiring fixed assets, but relates to the everyday cost to operate a…
Balancing of Accounts
The respective accounts for most businesses are closed off at the last day of each month and reopened for the first day of the following month. The steps by which this is done is referred to as balancing off the accounts. An account balance is the difference between the totals on the debit side, and…
The Trial Balance
The double entry system of accounting states that every transaction will affect two accounts. If the first account is debited then the second one will be credited or vice versa. It means that every value that is placed on the debit side of a first account must be placed on the opposite credit side of…