Thursday, December 31, 2009

(65)-THE MONEY MEASURMENT CONCEPT

The Money Measurement Concept The money measurement concept states that accounts will only deal with those items to which a monetary value can be attributed. For example, in the balance sheet of a business monetary values can be attributed to such assets as machinery and stocks of goods. The money measurement concept introduces limitations to the subject matter of accounts. A business may have intangible...

WELCOME 2010

WE WISH TO OUR READERS FOR GREAT SUCCESS IN 2010We are providing free theoretical management details for businessmen, students and investorsrelated toFinancial accountingCost accountingManagement accountingFinancial managementTaxationBusiness managementAs our valuable visitor you are welcome in 2010 and we continue our service in 2010 also........

Wednesday, December 30, 2009

(64)-THE CONSISTENCY CONCEPT

The Consistency Concept The consistency concept states that similar items should be accorded similar accounting treatments. Accounting is not an exact science. There are many areas in which judgment must be exercised in attributing money values to items appearing in accounts. Over the years certain procedures and principles have come to be recognized as good accounting practice, but within these limits...

Sunday, December 27, 2009

(63)-THE PRUDENCE CONCEPT

The Prudence Concept The prudence concept states that where alternative procedures, or alternative valuations, are possible, the one selected should be the one which gives the most cautions presentation of the business’s financial position or result. The importance of prudence has diminished over time. Prudence is a desirable quality of financial statements but not bedrock. The key reason for this...

Saturday, December 26, 2009

(62)-THE ACCRUALS CONCEPT OR MATCHING CONCEPT

The Accruals Concept or Matching Concept The accruals concept states that revenue and costs must be recognized as they are earned or incurred, not as money is received or paid. They must be matched with one another so far as their relationship can be established or justifiably assumed, and debit with in the profit and loss account of the period to which they relate. Financial Reporting Standards also...

Friday, December 25, 2009

(61)-THE GOING CONCERN CONCEPT

The Going Concern Concept The going concern concept implies that the business will continue in operational existence for the foreseeable future, and that there is no intention to put the company into liquidation or to make drastic cutbacks to the scale of operations. Financial reporting standards 18 stats that the financial statements must be prepared under the going concern basis unless the entity...

Thursday, December 24, 2009

(60)-ACCOUNTING CONVENTIONS

Accounting Conventions Accounting Practice has developed gradually over a matter of centuries. Many of its procedures are operated automatically by people who have never questioned whether alternative methods exits which are just as valid. However, the procedures in common use imply the acceptance of certain concepts which are by no means self evident; nor are they the only possible concepts. These...

Wednesday, December 23, 2009

(59)-SUSPENSE ACCOUNT

Suspense Accounts Suspense accounts, as well as being used to correct some errors, are also opened when it is not known immediately where to post an amount. When the mystery is solved, the suspense account is closed and the amount correctly posted using a journal entry. Suspense accounts might contain several items If more than one error or unidentifiable posting to a ledger accounts arises during...

Tuesday, December 22, 2009

(58)-A SUSPENSE ACCOUNT

A Suspense Account A suspense account is an account showing a balance equal to the difference in a trial balance.A suspense account is a temporary account which can be opened for a number of reasons. The most common reasons are as follows. A trial balance is drawn up which does not balance, means total debits do not equal total credits. The bookkeeper of the business knows where to post the credit...

Monday, December 21, 2009

(57)-DETAILS ABOUT ERRORS IN ACCOUNTING

Details about Errors in Accounting Errors of transposition An error of transposition is when two digits in an amount are accidentally recorded the wrong way round. For example, suppose that a sale is recorded in the sales account as 10560$, but it has been incorrectly recorded in the total debtors account as 10650$. The error is the transposition of the 6 and 5. Errors of omission An error of omission...

Sunday, December 20, 2009

(56)-TYPES OF ERRORS IN ACCOUNTING

Types of Errors in Accounting It is not really possible to draw up a complete list of all the errors which might be made by bookkeepers and accountants. Even if you tried, it is more than likely that as soon as you finished, someone would commit a completely new error that you had never even dreamed of,However it is possible to describe five types of error which cover most of the errors which might...

Friday, December 18, 2009

(55)-THE OPERATION OF CONTROL ACCOUNTS

The Operation of Control Accounts The two most important control accounts are those for debtors and creditors control accounts. They are part of the double entry system. Cash books and day books are totally periodically and the appropriate totals are posted to the control accounts. The individual entries in cash and day books will have been entered one by one in the appropriate personal accounts contained...

Thursday, December 17, 2009

(54)-BALANCING AND AGREEING CONTROL ACCOUNTS

Balancing and Agreeing control Accounts The control account should be balanced regularly (at least monthly) and the balance on the account agreed with the sum of the individual debtors or creditors balances extracted from the sales or bought ledger respectively. It is one of the sad facts of an accountant’s life that more often than not the balance on the control account does not agree with the sum...

Wednesday, December 16, 2009

(53)-THE PURPOSE OF CONTROL ACCOUNTS

The Purpose of Control Accounts The reasons for having control accounts are as follows. (1)-Check on the accuracy They provide a check on the accuracy of entries made in the personal accounts in the sales ledger and purchase ledger. It is very easy to make a mistake in posting entries, because there might be hundreds of entries to make. Figures might get transposed. Some entries might be omitted altogether,...

Tuesday, December 15, 2009

(52)-CONTROL ACCOUNTS

Control Accounts A control account is an account in the nominal ledger in which a record is kept of the total value of a number of similar but individual items. Control accounts are used chiefly for debtors and creditors. A Debtors Control Account A debtor’s control account is an account in which records are kept of transactions involving all debtors in total. The balance on the debtors control account...

Monday, December 14, 2009

(51)-BANK RECONCILIATION

Bank Reconciliation Bank reconciliation is a comparison of a bank statement with the cash book. Differences between the balance on the bank statement and the balance in the cash book will be errors or timing differences, and they should be identified and satisfactorily explained. The differences fall into three categories, Errors Bank charges or interest Time differences Bank reconciliation is needed...

Sunday, December 13, 2009

(50)-THE BANK STATEMENT

The Bank Statement It is common practice for a business to issue a monthly statement to each credit customer, terming, The balance he owed on his account at the beginning of the month New debts incurred by the customer during the month Payments made by him during the month The balance he owes on his account at the end of the month In the same way, a bank statement is sent by a bank to its short term...

Saturday, December 12, 2009

(49)-BANK STATEMENT AND CASH BOOK

Bank Statement and Cash Book The cash book of a business is the record of how much cash the business believes that it has in the bank. In the same way, you yourself might keep a private record of how much money you think you have in your own personal account at your bank, perhaps by making a note in your cheque book of income received and the cheques you write. If you do keep such a record you will...

Friday, December 11, 2009

(48)-WHAT IS BANK RECONCILIATION

What is Bank Reconciliation Bank reconciliation is a comparison of a bank statement with the cask book. Differences between the balances on the bank statement and the balance in the cask book will be errors or timing differences, and they should be identified and satisfactorily explained. We will discuss...

Thursday, December 10, 2009

(47)-THE FIXED ASSET REGISTER AND THE NOMINAL LEDGER

The Fixed Asset Register and the Nominal Ledger The fixed assets register is not part of the double entry and is there for memorandum and control purposes. The fixed assets register must be reconciled to the nominal ledger to make sure that all additions, disposals and depreciation charges have been posted. For example, the total of all the cost figures in the register for motor vehicles should equal...

Wednesday, December 9, 2009

(46)-THE FIXED ASSET REGISTER

The Fixed Asset Register Nearly all organization keeps fixed assets register. This is a listing of all fixed assets owned by the organization, broken down perhaps by department, location or asset type. A fixed assets register is maintained primarily for internal purposes. It shows organizations investment in capital equipment. A fixed asset register is also part of the internal control system. Fixed...

Tuesday, December 8, 2009

(45)-VALUATION BASIS OF FIXED ASSETS

Valuation Basis of Fixed Assets The following valuation basis should be used for properties that are not impaired. Specialized properties should be valued on the basis of depreciated replacement cost.Specialized properties are those which, due to their specialized nature, are rarely, if ever, sold on the open market for single occupation for a continuation of their existing use, except as part of...

Monday, December 7, 2009

(44)-FINANCIAL REPORTING STANDARDS RULES FOR FIXED ASSET REVALUATION

Financial Reporting Standards Rules for Fixed Asset Revaluation An entity may adopt a policy of revaluation tangible fixed assets. Where this policy is adopted it must be applied consistently to all assets of the same class. A class of fixed assets is a category of tangible fixed assets having a similar nature function of use in the business of an entity. Where an asset is revalued its carrying amount...

Sunday, December 6, 2009

(43)-TANGIBLE FIXED ASSETS

Tangible Fixed Assets A tangible fixed asset should initial measured at cost. Cost is purchase price and any cost directly attributable to bringing the asset into working condition for its intended use.For example of directly attributable costs are; Acquisition costs such as stamp duty Cost of site preparation and clearance Initial delivery and handling costs Installing costs Professional fees like...

Saturday, December 5, 2009

(42)-DISCLOSURES FOR FIXED ASSETS IN FINANCIAL STATEMENTS

Disclosures for Fixed Assets in Financial Statements Notes to the accounts must show, for each class of fixed assets, an analysis of the movements on both cost and depreciation provisions. Where any fixed assets of a company other than listed investments are included in the accounts at an alternative accounting valuation, the following information must also be given. The years so far as they are known...

Friday, December 4, 2009

(41)-REVALUATION RESERVES FOR FIXED ASSETS

Revaluation Reserves for Fixed Assets Where the value of any fixed asset is determined by using the alternative accounting rules the amount of profit or loss arising must be credited or as the case may be debited to a separate reserve, the revaluation reserve. The calculation of the relevant amounts should be based on the written down values of the assets prior to revaluation.The revaluation reserve...

Wednesday, December 2, 2009

(40)-VALUATION OF FIXED ASSETS

Valuation of Fixed Assets Where an asset is purchased, its cost is simply the purchase price plus any expenses incidental to its acquisition. Where an asset is produced by a company for its own use, its production cost must include the cost of row materials, consumables and other attribute direct costs such as labour cost. Production cost may additionally include a reasonable proportion of indirect...

Tuesday, December 1, 2009

(39)-LEDGER ACCOUNTING ENTRIES FOR THE FIXED ASSET DISPOSALS

Ledger Accounting entries for the Fixed Asset Disposals A profit on disposal is an item of other income in the profit and loss account, and a loss on disposal is an item of expense in the profit and loss account. It is customary in ledger accounting to record the disposal of fixed assets in a disposal of fixed asset account. The profit or loss on disposal is the difference between, The sale price...

Monday, November 30, 2009

(38)-ACCOUNTING FOR FIXED ASSET DISPOSALS

Accounting For Fixed Asset Disposals Fixed assets are not purchased by a business with the intention of reselling them in the normal course of trade. However they might be sold off at some stage for example a business may sell fixed assets when their useful life is over. Whenever a business sells something it makes a profit or loss. So when fixed assets are disposed of there is a profit or loss on...

Sunday, November 29, 2009

(37)-PROVISION FOR DEPRECIATION

Provision for Depreciation A provision for depreciation is the amount written off for the wearing out of fixed assets.There are two basic aspects of the provision for depreciation to remember, A depreciation charge (provision) is made in the profit and loss account in each accounting period for every depreciable fixed asset. Nearly all fixed assets are depreciable, the most important exceptions being...

Saturday, November 28, 2009

(36)-APPLYING A DEPRECIATION METHOD CONSISTENTLY

Applying a depreciation method consistently It is up to the business concerned to decide which method of depreciation to apply to its fixed assets. Once that decision has been made, however it should not be charged the chosen method of depreciation should be applied consistently from year to year. Similarly it is up to the business to decide what a sensible life span for a fixed asset should be. Again...

Friday, November 27, 2009

(35)-METHODS OF DEPRECIATION

Methods of Depreciation There are several different methods of depreciation. Of these the ones are, Straight line method. Reducing balance method. Sum of the digits method. Straight line method The total depreciable amount is charged in equal installments to each accounting period over the expected useful life of the asset. So the net book value of the fixed declines at a steady rate, or in a straight...

Thursday, November 26, 2009

(34)-DEPRECIATION IN THE ACCOUNTS OF A BUSINESS

Depreciation in the accounts of a business When a fixed asset is depreciated, two things must be accounted for, The charge for depreciation is a cost or expense of the accounting period. Depreciation is an expense in the profit and loss account. At a same time the fixed asset is wearing out and diminishing in value. So the value of the fixed asset in the balance sheet must be reduced by the amount...

(33)-FIXED ASSETS DEPRECIATION

Fixed Assets Depreciation Depreciation can be described as a means of spreading the cost of a fixed asset over its useful life, and so matching the cost against the full period during which it earns profits for the business. Depreciation charges are an example of the application of the matching concept to calculate profits. Depreciation has two important aspects. Depreciation is a measure of the wearing...

Sunday, November 22, 2009

(32)-ACCOUNTING FOR STOCKS (SUMMARY)

Accounting for Stocks (Summary) The quantity of stocks held at the year end is established by means of a physical count of stock in an annual stocktaking exercise, or by a continuous stock take. The value of these stocks is then calculated, taking the lower of cost and net realizable value for each separate item or group of stock items. In order to value the stocks, some rule of thumb must be adopted....

Saturday, November 21, 2009

(31)-REPORTING REGULATIONS FOR STOCKS

Statutory Regulations and Accounting Standards Requirements for Stocks In the most businesses the value put on stock is an important factor in the determination of profit. Stock valuation is however, a highly subjective exercise and consequently there is a wide variety of different methods used in practice. The statutory regulations and accounting standards requirements have been developed to achieve...

Friday, November 20, 2009

(30)-VALUING STOCKS

Valuing Stocks Determining the purchase cost Stock may be raw materials or components bought from suppliers, finished goods which have been made by the business but not yet sold, or work in the process of production, but only part completed. It will simplify matters however if we think about the historical cost of purchased raw materials and components which ought to be their purchase price. When...

Thursday, November 19, 2009

(29)-VALUING STOCKS

Valuing Stocks There are several methods which in theory might be used for the valuation of stock items. Stocks might be valued at their historical cost – The cost at which they were originally bought. Stock might be valued at net realizable value – Valued at their selling price less any costs still to be incurred in getting them ready for sale and then selling them. Stock might be valued at their...

Wednesday, November 18, 2009

(28)-STOCKTAKING

Stocktaking Business trading is continuous activity, but accounting statements must be drawn up at a particular date. In preparing a balance sheet it is necessary to summarize the activity of a business so as to determine its assets and liabilities at a given moment. This includes establishing the quantities of stocks on hand, which can create problems. A business buys stocks continually during its...

Monday, November 16, 2009

(27)-ACCOUNTING FOR STOCKS

Accounting for Stocks To calculate gross profit it is necessary to work out the cost of goods sold, and in order to calculate the cost of goods sold it is necessary to have value for the opening stock and closing stock. Normally purchases are introduced to the trading account.Trading account - DebitPurchases account - Credit When a stock take is made the business will have a value for its closing...

Sunday, November 15, 2009

(26)-ACCOUNTING ENTRIES FOR PROVISION FOR DOUBTFUL DEBTS

Accounting Entries for Provision for Doubtful Debts For this provision a business might know from past experience that say 5% of debtors balances are unlikely to be collected. It would then be considered prudent to make a general provision of 5%. It may be that no particular customers are regarded as suspect and so it is not possible to write off any individual customer balances as bad debts. The...

Friday, November 13, 2009

(25)-ACCOUNTING ENTRIES FOR BAD DEBTS WRITE OFF

Accounting entries for bad debts write off For bad debts written off there is a bad debts account. The double entry bookkeeping is fairly straightforward, but there are two separate transactions to record. When it is decided that a particular debt will not be paid, the customer is no longer called an outstanding debtor, and becomes a bad debt.Bad debts account (expense) - DebitDebtors account - Credit...

Thursday, November 12, 2009

(24)-PROVISIONS FOR DOUBTFUL DEBTS

Provisions For Doubtful Debts When bad debts are written off, specific owed to the business are identified as unlikely ever to be collected, however because of the risks involved in selling goods on credit, it might be accepted that a certain percentage of outstanding debts at any time are unlikely to be collected. But although it might be estimated that, say 10% debts will turn out bad the business...

Monday, November 9, 2009

(23)-BAD DEBTS

Bad Debts A bad debt is a debt which is not expected to be prepaid. Customers who buy goods on credit might fail to pay for them, perhaps out of dishonesty or perhaps because they have gone bankrupt and cannot pay. For one or another, a business might decide to give up expecting payment and to write the debt off. When a business decides that a particular debt is unlikely ever to be repaid, the amount...

Sunday, November 8, 2009

(22)-ACCOUNTING FOR DISCOUNTS

Accounting for Discounts A discount is a reduction in the price of goods below the amount at which those goods would normally be sold to other customers of the supplier. Discounts can identified as two parts, Trade Discounts – Trade discounts is a reduction in the catalogue price of an article, given by a wholesaler or manufacturer to a retailer. It is often given in return for bulk purchase orders....

Saturday, November 7, 2009

(21)-CALCULATING COST OF GOODS SOLD

Calculating Cost of Goods Sold Opening stock value -------------------------------------XXX(+)Cost of Purchase or cost of production -----XXX(-) Closing stock value -----------------------------------(XX)Cost of Goods Sold ---------------------------------------XXX Goods might be unsold at the end of an accounting period and so still be held in stock at the end of the period. The purchase cost or...

Friday, November 6, 2009

(20)-NEED OF ACCOUNTING INFORMATION (EXTERNAL PARTIES)

Need of Accounting Information (External parties) We can identify external parties as below,Trade contacts. Providers of finance to the company. Employees of the business. The Inland Revenue. Government and their agencies. Financial analysts and advisers. The public. Trade Contacts This includes suppliers who supply goods and customers who purchase the goods or services. Suppliers want to know about...

Thursday, November 5, 2009

(19)-NEED OF ACCOUNTING INFORMATION (INTERNAL PARTIES)

Need of Accounting Information (Internal Parties) There are two main internal parties need accounting information in business, Managers Of the company.Shareholders of the company. Managers of the company Managers of a business need the most information, to help them take their planning and control decisions, and they have special access to information about the business, because they can get people...

Wednesday, November 4, 2009

(18)-ACCRUALS AND PREPAYMENTS

Accruals and Prepayments The net profit for a period should be calculated by charging the expenses which are relate to that period, if we preparing financial statements of a business for a period of eight months it would be appropriate to charge eight months expenses and income.AccrualsAccruals or accrued expenses are expenses which are charged against the profit for a particular period, even though...

Monday, November 2, 2009

(17)-EXAMPLE- TRIAL BALANCE AND PROFIT AND LOSS ACCOUNT

Example Trial Balance and Profit and Loss Account One of the trading company prepared ledger books and find following balances as at 31 March 2009 Cash ------------------------------(Dr) 430Bank ------------------------------(Dr) 192Capital ----------------------------(Cr) 500Rent -------------------------------(Dr) 60Carriage ---------------------------(Dr) 46Creditors --------------------------(Cr)...

Sunday, November 1, 2009

(16)-AN EXAMPLE FOR BOOKKEEPING

An Example for Bookkeeping A business is established with capital of $ 4000, and this amount is paid into bank account by proprietor. During the first year’s trading, following transactions occurred. Purchases of goods for resale on credit $ 8600Payments to trade creditors $ 7200Sales all on credit $ 11600Payments from debtors $ 6400Fixed assets purchased fir cash $ 3000Other expenses all paid in...

Saturday, October 31, 2009

(15)-THE TRIAL BALANCE

The Trial Balance At the end of the accounting period, a balance is struck on each accounting in turn. This means that all the debits on the account are totaled and so are all the credits. If the total debits exceed the total credits there is said to be a debit balance on the account if the credits...

Friday, October 30, 2009

(14)-THE SALES LEDGER AND PURCHASE LEDGER

The Sales Ledger and Purchase Ledger The accounts in the general ledger relate to types of income, expense, asset, liability excreta rather than to the person whom the money is paid or from whom it received. They are called impersonal accounts. There is also a need personal account most commonly for debtors and creditors. These are contained in the sales ledger and purchase ledger.Personal accounts...