Statement of Financial Accounting Concepts (SFAC)
Scope and subject matter of Conceptual Framework of Accounting The conceptual framework of accounting is the principles of the constitutional theory and application of accounting. It is primarily concerned with the preparation of financial statements, and the guiding principles of practice, which are considered to be the constitutive accounts of accounting. The objectives of financial […]
Reversing Entries
An adjusting entry is made at the end of a particular accounting period, then a reversing entry is made on the first date of the subsequent accounting period. Reversing entries are not required for all adjusting entries. Hermanson, Edward, Maher – “Reversing entries is journal entries made on the first day of the next accounting […]
Closing Entry
Closing entries are the journal entries that are given to transfer the balances of all nominal accounts to the final account to determine the financial results of the organization at the end of an accounting period. Transactions related to the nominal account which are completed during a specific accounting period, their balance has to be […]
Accounting Methods – Cash & Accrual
There are 2 methods of accounting. One is cash based and the other is accrual based. i) Cash Basis Accounting System: In this system, transactions are recorded only subject to receipt or payment of cash. The transaction is entered only when cash is received or cash is paid. In practice, outstanding income or expenditure cannot […]
Errors in Accounting
Classification of Errors 1. Errors Detected by Trial Balance. 2. Errors not Detected by Trial Balance. Errors those Detected by Trial Balance i) Posting Error: This type of error occurs while posting the accounting data. ii) Listing Error: While creating the trial balance making wrong ledger balance entries […]
Suspense Account
After preparing the trial balance at the end of the accounting period, it is found that the sum of both sides of the trial balance is not equal, it is assumed that there is one or more errors in the accounting entries. In this case, opening a suspense account and temporarily equalizing the trial balance. […]
Trial Balance – Determination of Debit and Credit
Determining the debits and credits in the trial balance is a matter of considerable importance.
Limitation of Trial Balance
Trial balance has some limitations that may limit its effectiveness. The purpose of trial balance is to verify the accounts mathematical correctness.
Capital and Revenue Income-Expense
Money spent on acquiring fixed assets is called capital expenditure. It’s not always easy to distinguish between capital and revenue expenditures.
Adjusting Entries and Procedure
Adjusting entries are journal entry that adjusts the balance of certain accounts to show the correct balance in the financial statements.