Dual concept may be stated as "for every debit, there is a credit.

" Every transaction

should have two sided effect to the extent of same amount. This concept has resulted in
accounting equation which states that at any point of time the assets of any entity must be
equal (in monetary terms) to the total of owner's equity and outsider's liabilities. This may
be expressed in the form of equation:

A-L=P

Where A stands for assets of the entity.

L stands for liabilities (outsider's claims) of the entity

P stands for proprietor's claim (capital) on the entity.

(The form of presentation of equation A - L = P is consistent with the legal interpretation

of financial position.)

The money measurement concept underlines the fact that in accounting, every recorded
event or transaction is measured in terms of money. Using this principle, a fact or a
happening which cannot be expressed in terms of money is not recorded in the
accounting books.

Accrual Accounting
Definition: Accounting method that records revenues and expenses when
they are incurred, regardless of when cash is exchanged. The term "accrual"
refers to any individual entry recording revenue or expense in the absence of
a cash transaction

Most businesses typically use one of two basic accounting methods in their bookkeeping
systems: cash basis or accrual basis. While most businesses use the accrual basis, the
most appropriate method for your company depends on your sales volume, whether or
not you sell on credit and your business structure.

The cash method is the most simple in that the books are kept based on the actual flow of
cash in and out of the business. Income is recorded when it's received, and expenses are
reported when they're actually paid. The cash method is used by many sole proprietors
and businesses with no inventory. From a tax standpoint, it is sometimes advantageous
for a new business to use the cash method of accounting. That way, recording income can
be put off until the next tax year, while expenses are counted right away.

With the accrual method, income and expenses are recorded as they occur, regardless of
whether or not cash has actually changed hands. An excellent example is a sale on credit.
The sale is entered into the books when the invoice is generated rather than when the cash
is collected. Likewise, an expense occurs when materials are ordered or when a workday
has been logged in by an employee

What is a deferred expense?

A deferred expense is not yet an expense, even though it has already

been paid. The deferred expense is reported on a company’s balance sheet until it
becomes an expense in a future accounting period.

Paying the insurance premium prior to the start of the coverage period gives rise to a
deferred expense. For example, if a retailer pays $6,000 on December 26, 2006 for the
cost of insurance from January 1 through June 30, 2007, the $6,000 is a deferred expense
until the year 2007. This deferred expense of $6,000 will be reported on the retailer’s
balance sheet of December 31 as the current asset, Prepaid Insurance. In January, when
one month of the insurance premium expires (is used up), the retailer’s January income
statement should report $1,000 (one-sixth of $6,000) as Insurance Expense. The
remaining $5,000 of deferred expense will be reported on the January 31 balance sheet.
In each of the following five months the retailer will report $1,000 as Insurance Expense.
The deferred expense on the balance sheet will decrease by $1,000 per month.

The insurance company that receives the $6,000 in December 2006 will have deferred
revenue until 2007. (On its December 31 balance sheet, the insurance company will
report the $6,000 of deferred revenue in a current liability account.) Beginning in January
the insurance company will report premium revenue of $1,000 per month and it will
reduce its deferred revenue by the same amount.

What is a deferred asset?

I assume that the term deferred asset refers to a deferred charge or a

deferred debit. A deferred charge is reported on the balance sheet in the long-term asset
section other assets.

An example of a deferred charge is bond issue costs. These costs include all of the fees
that a corporation incurs in order to register and issue bonds. The fees are paid near the
time that the bonds are issued but they will not be expensed at that time. Rather, the bond
issue costs are initially deferred to the long-term asset section of the balance sheet. Then
in each year of the life of the bonds, a portion of the bond issue costs will be
systematically moved from the balance sheet and will appear as an expense on the
income statement. The process of systematically reducing this deferred charge is known
as amortizing the bond issue costs.

hichever method we use to account for depreciation, we must always

consider the following:

• The cost of asset,

• The probable/estimated life of the asset and

• The approximate residual or salvage value at the end of its life.

Generally there are several methods of depreciation:

• Straight Line Method,

• Reducing Balance Method,

• Sum Of the Years Digits Method

STRAIGHT LINE METHOD OR FIXED

INSTALLMENT METHOD OR STRAIGHT LINE
BASIS OR FIXED PERCENTAGE ON ORIGINAL
COST METHOD

Example:

A machine has an estimated life of 10 years costing

$40,000 and has a residual/salvage value of
$10,000

Depreciation per year is :

(Cost less Estimated residual value)/Estimated life

=$40,000-10,000=$30,000/10 years

=$3,000 per year

REDUCING OR DIMINISHING BALANCE METHOD

OR FIXED PERCENTAGE ON DIMINISHING
BALANCE METHOD
Example:

A machine was bought for $10,000 and a

depreciation rate of 10% per annum is allowed, the
depreciation is:

Year 1: Cost of machine $10,000

Less: Depreciation 10% $1,000

Reduced Balance $9,000

Year 2: Less Depreciation 10% $900

Reduced Balance $8,100

Year 3: Less Depreciation 10% $810

Reduced Balance $7,290

SUM OF THE YEARS DIGITS METHOD

This method assumes that the depreciation charge

should be the heaviest in the early years of the life
of the fixed asset.

It allocates annual depreciation in proportion to the

number of years of an asset’s useful life which
remains at the commencement of an accounting
year.

Example:

A machine cost $30,000 which has an estimated life

of 5 years.

Life-expectancy

1 st year 5

nd
2 year 4
3 rd year 3

4 th year 2

5 th year 1

Sum of digit 15

Hence, the formula for annual depreciation is:

(Number of years of life remaining/Total of digits of

years of life) x Cost less residual value which is :

Year 1: Depreciation is 5/15 x $30,000 =$10,000

Year 2: Depreciation is 4/15 x $30,000 =$ 8,000

Year 3: Depreciation is 3/15 x $30,000 =$ 6,000

Year 4: Depreciation is 2/15 x $30,000 =$ 4,000

Year 5: Depreciation is 1/15 x $30,000= $ 2,000

What is Working Capital?

Firms need cash to pay for all their day-to-day activities. They have to pay wages, pay for
raw materials, pay bills and so on. The money available to them to do this is known as the
firms working capital. The main sources of working capital are the current assets as these
are the short-term assets that the firm can use to generate cash. However, the firm also
has current liabilities and so these have to be taken account of when working out how
much working capital a firm has at its disposal.

Working capital is therefore:-

WORKING Current Assets - Current

CAPITAL = || liabilities
stock + debtors
+ cash

Thus working capital is the same as net current assets, and is an important part of the top
half of the firm's balance sheet. It is vital to a business to have sufficient working capital
to meet all its requirements. Many businesses have gone under, not because they were
unprofitable, but because they suffered from shortages of working capital.

In business, amortization is the distribution of what would otherwise be a single lump-

sum cash flow into many smaller cash flow installments, as determined by an
amortization schedule. Unlike other repayment models, each repayment installment
consists of both principal and interest. Amortization is chiefly used in loan repayments (a
common example being a mortgage loan) and in sinking funds. Payments are divided into
equal amounts for the duration of the loan, making it the simplest repayment model. A
greater amount of the payment is applied to interest at the beginning of the amortization
schedule, while more money is applied to principal at the end.

The amortization calculator formula is:

where: P is the principal amount borrowed, A is the periodic payment, r is the periodic
interest rate divided by 100 (annual interest rate also divided by 12 in case of monthly
installments), and n is the total number of payments (for a 30-year loan with monthly
payments n = 30 × 12 = 360).

Negative amortization (also called deferred interest) occurs if the payments made do not
cover the interest due. The remaining interest owed is added to the outstanding loan
balance, making it larger than the original loan amount.

Microsoft Excel is a spreadsheet software application that can be used as an

accounting tool. When you create an Excel document, it resembles a grid
comprised of individual cells. A cell is identified by its position in a row and
column. Rows are identified by number ,and columns are identified by a
letter. If a cell is C3, that means the cell is located in row C and in the third
column. Text, numbers and calculations can be inserted into the individual
cell. When a calculation is inserted into a cell, you are instructing the
program to make a calculation using numbers in cells you identify. The
answer will appear in the cell where you inserted the calculation

Read more: How to Use Microsoft Excel for Accounting | eHow.com

http://www.ehow.com/how_4814573_use-microsoft-excel-
accounting.html#ixzz148jUvR8V
Cashbooks are simple accounting books that are used to record basic
information about cash receipts and payments. Once available in hard copy
form only, cash books are often included in different types of money
management software. Providing an easy way of keeping up with how much
money is coming in and what bills are getting paid, the cashbook can be
effectively utilized by just about anyone------------------

A balance sheet is a statement of the total assets and liabilities of an organisation at a

particular date - usually the last date of an accounting period.

The balance sheet is split into two parts:

(1) A statement of fixed assets, current assets and the liabilities (sometimes referred to
as "Net Assets")

(2) A statement showing how the Net Assets have been financed, for example through
share capital and retained profits.

The Companies Act requires the balance sheet to be included in the published financial
accounts of all limited companies. In reality, all other organisations that need to prepare
accounting information for external users (e.g. charities, clubs, partnerships) will also
product a balance sheet since it is an important statement of the financial affairs of the
organisation.

A balance sheet does not necessary "value" a company, since assets and liabilities are
shown at "historical cost" and some intangible assets (e.g. brands, quality of
management, market leadership) are not included.

Example Balance Sheet

Set out below is a summarised balance sheet for Tesco plc to illustrate the main elements
of the balance sheet.

Tesco plc: Balance Sheet (amounts shown 24 February 26 February

in £' millions) 2001 2000

FIXED ASSETS 10,038 8,527

Current Assets 1,694 1,342

Short-term creditors (4,389) (3,487)

NET CURRENT LIABILITIES (2,695 (2,145)

Total Assets less Current Liabilities 7,343 6,382

Long-term creditors (1,927) (1,565)

Provisions (24) (19)

TOTAL NET ASSETS 5,392 4,798

Equity shareholders' funds 5,356 4,769

Minority interests 36 29

Total Capital Employed 5,392 4,798

Definition of Assets

An asset is any right or thing that is owned by a business. Assets include land, buildings,
equipment and anything else a business owns that can be given a value in money terms
for the purpose of financial reporting.

Definition of Liabilities

To acquire its assets, a business may have to obtain money from various sources in
addition to its owners (shareholders) or from retained profits. The various amounts of
money owed by a business are called its liabilities.

Long-term and Current

To provide additional information to the user, assets and liabilities are usually classified
in the balance sheet as:

- Current: those due to be repaid or converted into cash within 12 months of the balance
sheet date;
- Long-term: those due to be repaid or converted into cash more than 12 months after the
balance sheet date;

Fixed Assets

A further classification other than long-term or current is also used for assets. A "fixed
asset" is an asset which is intended to be of a permanent nature and which is used by the
business to provide the capability to conduct its trade. Examples of "tangible fixed
assets" include plant & machinery, land & buildings and motor vehicles. "Intangible
fixed assets" may include goodwill, patents, trademarks and brands - although they may
only be included if they have been "acquired". Investments in other companies which are
intended to be held for the long-term can also be shown under the fixed asset heading.

Definition of Capital

As well as borrowing from banks and other sources, all companies receive finance from
their owners. This money is generally available for the life of the business and is
normally only repaid when the company is "wound up". To distinguish between the
liabilities owed to third parties and to the business owners, the latter is referred to as the
"capital" or "equity capital" of the company.

In addition, undistributed profits are re-invested in company assets (such as stocks,

equipment and the bank balance). Although these "retained profits" may be available for
distribution to shareholders - and may be paid out as dividends as a future date - they are
added to the equity capital of the business in arriving at the total "equity shareholders'
funds".

At any time, therefore, the capital of a business is equal to the assets (usually cash)
received from the shareholders plus any profits made by the company through trading
that remain undistributed.

Fund Flow Statement

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Fund Flow Statements summarize a firm’s inflow and outflow of funds. Simply put, it
tells investors where funds have come from and where funds have gone. The statements
are often used to determine whether companies efficiently source and utilize funds
available to them.

The cash flow statement shows a company's money flow in and out over a
fixed period of time. Most companies report their cash flow statement on a
quarterly or monthly basis. The cash flow is broken out into three reporting
areas: (1) Operating, (2) Investing, and (3) Finance. The cash flow statement
was originally known as the flow funds statement or statement of changes in
financial position

What is 'Trial Balance'?

Trial Balance is the list of names & balances of all the accounts. It shows Closing
Balance standing to an account on a particular date. Trial Balance is prepared to
check the accuracy of the transactions entered and have a list of balances of all the
accounts at one place.
It helps in preparation of Final Account Statements. It ensures that all the
transactions have been recorded with their proper debit and credit accounts and the
balance of each account has been computed correctly.
Trial Balance is a statement which can be prepared on a particular date or for a
particular period. In AXBO, the Trial Balances is prepared for a particular period. It is
not an account but list of balances of the accounts. It is a tool for checking and
testing the accuracy.

--------------------------------------------------------------

 profit and loss: an account compiled at the end of an accounting period to

show gross and net profit or loss
wordnetweb.princeton.edu/perl/webwn

 Income statement, also referred as profit and loss statement (P&L),

earnings statement, operating statement or statement of operations, is a
company's financial statement that indicates how the revenue (money
received from the sale of products and services before expenses are taken
out, also ...
en.wikipedia.org/wiki/Profit_and_loss_account

 An account compiled at the end of the financial year showing that year's
turnover and expense items.
www.vodafone.com/start/investor_relations/shareholder_services/faq/glossary
.html

 financial statement of all the operations of a given period, ie all income

and expenses. The difference between income and expenses gives the
amount of the company's profits or losses of the period.
www.societegenerale.com/en/node/7/p
 (P/L Account)
slbc.bih.nic.in/Glossary.htm

 An account which, by law, all registered companies must keep, and each
calendar year publish, for the shareholders' information. It must give a true
and fair view of the profit and loss of the company for the related financial
year and be presented in one of four approved formats.
www.quarrying.org/dictionary/p.html

 a statement summarising a businesses revenues and expenses for a

period
www.book-keepers.net/glossary/4520160812

 The P&L allows you to understand whether, over a chosen period of time
(often a month or year), the income of an organisation has been greater than
the expenditure. In other words, it shows whether the organisation is making
a profit/surplus or a loss/deficit.
www.basicaccountancy.com/Glossary%20of%20Financial%20Terms.html

What Does Trading Account Mean?

1. An account similar to a traditional bank account, holding cash and
securities, and is administered by an investment dealer.

2. An account held at a financial institution and administered by an

investment dealer that the account holder uses to employ a trading strategy
rather than a buy-and-hold investment strategy.

Investopedia explains Trading Account

1. Though trading accounts are traditionally thought to hold only stocks, a
trading account can hold cash, foreign cash, securities and a number of other
types of investments.

2. Investors who use a number of trading strategies or have a number of

brokerage accounts may separate their accounts in order to avoid confusion.
One account may be a registered account for their retirement savings;
another account may be a buy-and-hold account for their long-term stocks;
another may be a margin account; and another may be a trading account
used for conducting day-trading activities.

Journal entry is an entry to the journal.

Journal is a record that keeps accounting transactions in chronological order, i.e.
as they occur.
Ledger is a record that keeps accounting transactions by accounts.
Account is a unit to record and summarize accounting transactions.

All accounting transactions are recorded through journal entries that show
account names, amounts, and whether those accounts are recorded in debit or credit
side of accounts.-

The general ledger, sometimes known as the nominal ledger, is the main
accounting record of a business which uses double-entry bookkeeping. It will
usually include accounts for such items as current assets, fixed assets,
liabilities, revenue and expense items, gains and losses. Each General Ledger
is divided into two sections. The left hand side lists debit transactions and
the right hand side lists credit transactions. This gives a 'T' shape to each
individual general ledger account.-------------------------

A trial balance is prepared to check the mathematical/arithmetic accuracy of

accounting.

This is the only (main) purpose of the "Trial Balance".

Since it is anyhow prepared for a purpose, it is put to some other uses like for the
preparation of final accounts etc.,

Purchase a/c Dr
To Creditor a/c
Buyer a/c dr.
To Sales a/c.-----------