The following are the differences between single entry and double entry system:1. MeaningSingle entry system is an incomplete system of recording financial transactions. Double entry system is a complete system of recording and reporting financial transactions.2. DualitySingle entry system is not based on the concept of duality. Double entry system is based on the concept of duality.3. AccountsSingle entry system maintains only personal accounts of debtors and creditors and cash book. Double entry system all personal, real and nominal accounts.4....
Monday, 26 July 2010
Sunday, 25 July 2010
Disadvantages Of Single Entry System
Posted on 23:45 by Unknown
The following are the notable disadvantages of single entry system:1.Unscientific And UnsystematicThe single entry system is unsystematic and unscientific system of recording financial transactions. It does not have any set of fixed rules and principles for recording and reporting the financial transactions.2. Incomplete SystemSingle entry system is incomplete system because it does not record the two aspects or accounts of all the financial transactions of the business. It does not maintain any record of the transactions relating to the nominal...
Advantages Of Single Entry System
Posted on 23:32 by Unknown
The following are the important advantages of single entry system:Simple And EasySingle entry system is simple to understand and easy to maintain as it has no fixed set of principles to follow while recording financial transactions.EconomySingle entry system is an economical system of recording financial transactions. It does not require hiring skilled accounting personnel to record financial transactions of the business. Further, it does not require large number of books to record the limited number of financial transactions.Easy To Calculate...
Meaning And Features Of Single Entry System
Posted on 23:06 by Unknown
Meaning Of Single Entry SystemSingle entry system is an incomplete form of recording financial transactions. It is the system, which does not record two aspects or accounts of all the financial transactions. It is the system, which has no fixed set of rules to record the financial transactions of the business. Single entry system records only one aspect of transaction. Thus, single entry system is not a proper system of recording financial transactions, which fails to present complete information required by the management. Single entry system...
Differences Between Receipts And Payments Account And Income And Expenditure Account
Posted on 22:47 by Unknown
The following are the main differences between receipts and payments account and income and expenditure account:1. NatureReceipts and payments account is a summary of cash transactions for a period and it is a real account. Income and expenditure account is a summary of expenditure and income like trading and profit and loss account and it is a nominal account.2. Objective Receipts and payments account is prepared to show cash and bank receipts and payments during the period to derive closing balance of cash and bank. Income and expenditure account...
Wednesday, 21 July 2010
Concept And Features Of Income And Expendiutre Account
Posted on 23:59 by Unknown
Concept Of Income And Expenditure AccountIncome and expenditure account is prepared by non-trading concern to reveal the surplus or deficit arising out of the operating activities during the accounting period. It is one of the final accounts of non-trading concern like the profit and loss account of trading concern. All the revenue incomes during the accounting period are shown on income side and all of the revenue expenses during the period are shown to debit (expenditure) side of income and expenditure account. The excess of credit side over...
Concept Of Receipts And Payments Account, Its Features And Limitations
Posted on 23:25 by Unknown
Concept Of Receipts And Payments AccountReceipt and payment account is a summary of cash receipts and payments during the accounting period. It records all cash receipts and cash payments including capital receipts and revenue revenue receipts irrespective of accounting period. All cash receipts are recorded on debit side or receipts side and all cash payments are recorded on credit or payments side of receipts and payments account.Features Of Receipts And Payments AccountThe essential features of receipts and payments account are as follows:1....
Concept Of Non-Trading Concern And Its Accounting System
Posted on 23:04 by Unknown
The organizations, which are established for the purpose of rendering social services to its members and to the society is known as non-trading concern. Such organizations include clubs, schools, colleges. hospitals, libraries, trusts, professional associations and unions. These organizations render their service to the members and to the general public, such as a club provides sports and other recreational services to the members. Schools and colleges provide education services, hospital provides treatment and services to the patients.The sole...
Tuesday, 20 July 2010
Differences Between Reserve And Provision
Posted on 01:57 by Unknown
The following are the main differences between reserve and provision:1. Mode Of CreationReserve is created against the charge of the profit and loss appropriation account. Provision is created against the charge of the profit and loss account.2. ObjectiveMain objective of reserve is to strengthen the financial position and to meet future unknown losses and liabilities. Objective of provision is to meet known losses and liabilities the amount of which is not certain.3. Accounting TreatmentReserve is shown on debit side of profit and loss appropriation...
Meaning And Objectives Of Provision
Posted on 00:16 by Unknown
Meaning Of ProvisionA provision is the sum of amount set aside by charging against the profit and loss account. It is created for meeting a known loss or liability. Provision is maintained for meeting an anticipated loss or liability of uncertain amount. Such amount of anticipated loss or liability can only be estimated. If the present regular transactions undoubtedly bring certain losses or liabilities of unknown amount in further then provisions should be made for them in current year's book. Such provisions should be made every year by debiting...
Monday, 19 July 2010
Concept Of Secret Reserve, Its Objectives, Advantages And Disadvantages
Posted on 23:47 by Unknown
A reserve which maintained to strengthen the financial position of the business without disclosing it in the book is known as secret reserve. Secret reserve is hidden reserve which is not disclosed by the balance sheet. Secret reserve is also known as internal reserve. It is created by showing the figure of net profit less than actual. Its existence makes the financial position of the business better than what the balance sheet is disclosing. Generally, it is maintained by bank, Insurance and other financial institutions.A secret reserve is created...
Concept And Meaning Of Revenue Reserve And Types Of Revenue Reserve
Posted on 23:21 by Unknown
Concept And Meaning Of Revenue ReserveA reserve which is created out of the revenue profit is called revenue reserve. Revenue profit is earned in the normal course of the business. Revenue reserve refers to the undistributed revenue profit. It is created for strengthening the financial position, replacing deprecialble assets, redeeming liabilities, declaring uniform rate of dividend and conducting research and development functions. If the reserve is not needed in the future, it can be distributed as dividend to the shareholders.Types Of Revenue...
Concept And Meaning Of Capital Reserve, Its Objectives, Advantages And Disadvantages
Posted on 23:02 by Unknown
Concept And Meaning Of Capital ReserveA reserve which is created out of the capital profit is known as capital reserve. It is not created out of the profit earned in normal course of the business. Capital reserve is created out of the profit earned from some specific transactions of capital nature. Capital reserve is not available for the distribution to the shareholders. The examples of capital profit from which capital reserve is created are as follows:* Profit on sale of fixed assets* Profit on sale of investment* Profit on revaluation of assets...
Types Of Reserve
Posted on 22:49 by Unknown
The following are the main types of reserves1. Capital Reserve2. Revenue Reservea)General Reserveb) Specific Reserve*Dividend Equalization Fund* Research And Development Fund*Sinking Fund- Sinking fund for replacement of assets- Sinking fund for redemption of liabilities3. Secret Rese...
Meaning And Objectives Of Reserve
Posted on 01:21 by Unknown
Meaning Of ReserveA reserve is a part of the profit set aside to meet future contingencies and losses. Usually, the whole amount of profit earned by the business is not distributed to the owners or shareholders. A part of the profit is retained in the business either for meeting its unexpected future liabilities and losses or for strengthening financial position. It can be created for redeeming liabilities or replacing depreciable assets or declaring uniform rate of dividend over years. It is created out of the profit only. If there is no profit...
Sunday, 18 July 2010
Concept And Meaning Of Annuity Method Of Depreciation, Its Advantages And Disadantages
Posted on 23:54 by Unknown
Concept And Meaning Of Annuity Method Of Providing DepreciationUnder this method, it is assumed that the amount spent in the purchase of the assets is an investment which should earn interest. The amount spent in acquiring an asset is assumed as an investment and interest is charged at a certain rate on the diminishing balance of assets and is debited to assets account and credited to interest account which is transferred to profit and loss account. The asset is credited year by years with a fixed amount of depreciation. The amount of depreciation...
Concept Of Double Declining Balance Method Of Providing Depreciation And Its Calculation
Posted on 23:53 by Unknown
According to double declining method, the depreciation is charged on the reducing balance method but the rate of depreciation is determined by multiplying the straight line rate by 2.Calculation Of Amount Of Depreciation Under Double Declining Balance MethodPurchase price of assets = $ 2,000Useful life of the assets = 3 YearsScarp value = $ 200Required: Annual depreciation under double declining balance methodSolution,Cost = $ 2000Scarp value = 0 (under this method scarp value is ignored)Straight line depreciation per year = 2000-0/3 = $ 667Rate...
Differences Between Fixed Installment And Reducing Balance Method Of Depreciation
Posted on 00:48 by Unknown
Following are the main differences between fixed installment method and reducing balance method of depreciation:BasisDepreciation is charged on the original cost of assets in fixed installment method. In reducing balance method, depreciation is charged on the book value of asset.Yearly DepreciationThe amount of depreciation is the same in each year over the life of assets in fixed installment method. The amount of depreciation decreases every year in reducing balance method.Ending ValueIn fixed installment method, book value of asset generally...
Concept Of Machine Hour Rate Method Of Providing Depreciation And Its Calculation
Posted on 00:35 by Unknown
Under machine hour rate method, the total number of working hours of a machine during the whole of its effective life is estimated, and then, the cost of machine is divided by the expected number of hours of useful life, this gives the rate per hour. The annual depreciation is calculated by multiplying this rate by the number of hours, the machine actually runs in a year.Calculation Of Machine Hour Rate Method Of DepreciationIllustration,The life of machine costing $ 10,00,000 is estimated 10,000 hours. Calculate the amount of depreciation for...
Concept Of Sinking Fund Method Of Providing Depreciation, Its Advantages And Disadvantages
Posted on 00:20 by Unknown
Concept Of Sinking Fund Method Of Depreciation The methods discussed in the previous posts do not help in accumulating the amount of depreciation which can be readily available for the replacement of the asset when it is completely unusable. Sinking fund method is designed in such a way that it incorporates the advantages of depreciating the assets as well as accumulating the necessary amount for its replacement.Under this method, a fixed amount is debited every year to depreciation amount and credited to depreciation fund account instead of asset...
Concept And Meaning Of Sum Of Year's Digits Method (SYD) Of Providing Depreciation And Its Calculation
Posted on 00:17 by Unknown
Sum of year's digits method is an accelerated method of depreciation which is also based on the assumption that the loss in the value of fixed asset will be greater during the earlier years and goes on decreasing gradually with the decrease in the life of such asset. The sum of year's digit (SYD) is found by estimating an asset's useful life in years, then assessing consecutive numbers to each year, and totaling these numbers. For n years, SYD = 1+2+3+4+...........+n.For example, if the life of an asset is 5 years, the SYD would be 1+21+3+4+5=15....
Saturday, 17 July 2010
Advantages And Disadvantages Of Reducing Balance Method Of Depreciation
Posted on 23:35 by Unknown
Advantages Of Reducing Balance Method Of DepreciationThe main advantages of reducing balance method of depreciation are listed below* Reducing balance method is easy to understand and simple to implement. Depreciation is calculated every year on the opening balance of asset.* Reducing balance method equalizes the yearly burden on profit and loss account in respect of both depreciation and repairs. The amount of depreciation goes on decreasing while the expenses on repairs goes on increasing, so that the total charge against revenue over different...
Concept And Meaning Of Reducing Balance Method Of Depreciation
Posted on 23:18 by Unknown
Reducing balance method is also termed as diminishing balance method or written down value method or declining value method or book value method. Under the reducing balance method, depreciation is charged at fixed rate on the reducing balance of asset derived after deducting depreciation of every year out of the cost of the fixed assets. The balance in the asset account will go on decreasing but will never become zero. The remaining balance in the asset account is taken as scrap value. The following points should be considered while calculating...
Advantages And Disadvantages Of Fixed Installment Method Of Depreciation
Posted on 22:40 by Unknown
Advantages Of Fixed Installment Method Of DepreciationThe main advantages of fixed installment method of depreciation are given below* Fixed installment method is simple to understand and easy to calculate the amount of depreciation.* Fixed installment method provides the same amount of depreciation throughout the life of the asset.* Fixed installment method helps to estimate the amount of depreciation in advance.Disadvantages Of Fixed Installment Method Of DepreciationFollowing are the main disadvantages of fixed installment method of depreciation.*...
Concept Of Fixed Installment Method Of Providing Depreciation
Posted on 22:23 by Unknown
Fixed installment is the earliest and one of the widely used methods of providing depreciation. This method is based on the assumption of equal usage of asset over its entire useful life. It is also called straight line method for the reason that if the amount of depreciation and corresponding time period is plotted on a graph, it will result in a straight line. It is called fixed installment method because the amount of depreciation remains constant from year to year. According to this method, a fixed and an equal amount is charged as depreciation...
Friday, 16 July 2010
Methods Of Providing Depreciation
Posted on 00:45 by Unknown
There are various methods of calculating the amount of depreciation. These methods are listed below.1. Fixed Installment Method2. Diminishing Balance Method3. Annuity Method4. Depreciation Fund Method5. Insurance Policy Method6. Revaluation Method7. Machine Hour Rate Method8. Sum Of The Year's Digits MethodFixed installment method and diminishing balance method are most commonly used methods of providing depreciati...
Factors Affecting The Amount Of Depreciation
Posted on 00:29 by Unknown
Following are the important factors which should be considered for determining the amount of depreciation.1. Cost Of AssetsThe cost of asset include the purchase price, less any trade discount plus all the costs essential to bring the asset to a usable condition.In other word, the total cost of asset includes from purchase price to the installation.2. Estimated Scrap ValueScrap value refers to the value estimated to be realized after the expiry of the useful working life of the asset. This is also known as residual value or salvage value. Depreciation...
Thursday, 15 July 2010
Advantages Of Providing Depreciation
Posted on 23:30 by Unknown
The following are the advantages of providing depreciation:1. Ascertainment Of True ProfitsWhen an asset is purchased, it is nothing more than a payment in advance for for the use of asset. Depreciation is the cost of using a fixed asset. To determine true and correct amount of profit or loss, depreciation must be treated as revenue expenses and debited to profit and loss account.2. Reporting Of True And Fair Financial Position Of A BusinessThe value of assets decrease over a period of time on account of various factors. In order to present a true...
Major Causes Of Depreciation
Posted on 23:05 by Unknown
The major causes of depreciation are as follows:1. Wear And Tearwear and tear refer to a decline in the efficiency of asset due to its constant use. When an asset losses its efficiency, its value goes down and depreciation arises. This is true in case of tangible assets like plant and machinery, building, furniture, tools and equipment used in the factory.2. Effusion Of TimeThe value of asset may decrease due to the passage of time even if it is not in use. There are some intangible fixed assets like copyright, patent right, and lease hold premises...
Concept, Meaning And Features Of Depreciation
Posted on 22:45 by Unknown
Concept Of DepreciationEvery business acquires some non-trading fixed assets. These fixed assets are used in the business for facilitating its trading activities and enhancing its revenue earning capacity. These assets are basically purchased for the business with the intention of permanent use and not for resale.All fixed assets except the value of land decreases with the passage of time. The value of these assets decrease each year. Such gradual reduction or decrease in the value of fixed assets for the purpose of earning revenue is called depreciation....
Differences Between Capital Reserve And Revenue Reserve
Posted on 01:02 by Unknown
Following are the main differences between capital reserve and revenue reserveSourceCapital profit is the source of capital reserve. Revenue profit is the source of revenue reserve.UseCapital reserve is used to meet capital losses. Revenue reserve is used to strengthen the financial position, distribute dividend, replace fixed assets, and redeem liabilities.IndicationCapital reserve does not indicate the operating efficiency of the business. Revenue reserve indicates the operating efficiency of the business.ExistenceCapital reserve does not exist...
Concept And Meaning Of Capital Reserve And Revenue Reserve And Their Related Items
Posted on 00:48 by Unknown
Concept And Meaning Capital ReserveThe reserve which is created out of the capital profit is known as capital reserve. Capital reserve is created out of the profit of some specific transactions of capital nature. It is not available for the distribution to shareholders as dividend. It is used to meet capital loss. Capital reserve is shown on the liabilities side of the balance sheet. Sometimes, it can be used to issue fully-paid bonus shares.Items of capital profit out of which capital reserve is created:* Profit on revaluation of assets and liabilities.*...
Differences Between Capital Loss And Revenue Loss
Posted on 00:36 by Unknown
Followings are the main differences between capital loss and revenue lossCausesCapital loss occurs due to the sale of assets, share and debentures at a price less than their face value or book value. Revenue loss occurs due to heavy amount of operating expenses and low turnover or sales.NatureCapital loss does not occur in the normal course of the business. Revenue loss occurs in the normal course of the business.IndicationCapital loss does not indicate the inefficiency of the business. Revenue loss indicates the inefficiency of the business.TreatmentCapital...
Concept And Meaning Of Capital Losses And Revenue Losses And Their Related Items
Posted on 00:22 by Unknown
Concept And Meaning Capital LossesThe amount of loss suffered due to the sale of fixed assets, shares and debentures at a price less than their book value or face value is capital loss. It does not occur in the normal course of the business. It occurs in the course of selling assets and raising capital. Usually, it is shown on the asset side of the balance sheet and written off out of the capital profit.Items relating to capital loss* loss on sale of fixed assets* Discount on issue of shares and debentures* Premium on redemption of debentures*...
Wednesday, 14 July 2010
Differences Between Capital Profit And Revenue Profit
Posted on 23:33 by Unknown
Following are the main differences between capital profit and revenue profit.Mode Of EarningCapital profit is earned by selling assets, shares and debentures at a price more than their book value and face value. Revenue profit is earned in the ordinary course of the business.DistributionCapital profit is not available for the distribution to shareholders as dividend. Revenue profit is available for the distribution to shareholders as dividend.UseCapital profit is transferred to capital reserve and used for meeting capital losses. Revenue profit...
Concept And Meaning Of Capital Profits And Revenue Profits And Their Related Items
Posted on 23:13 by Unknown
Concept And Meaning Of Capital ProfitsThe amount of profit earned by the business from the sale of its assets, shares, and debentures is capital profit. If assets are sold at a price more than their book values then the excess of book value is capital profit. Similarly, if the shares and debentures are issued at a price more than their face value, then the excess of face value or premium is capital profit. Such profit is not earned in the ordinary course of the business. It is not available for the distribution to shareholders as dividend. Such...
Differences Between Capital Receipts And Revenue Receipts
Posted on 23:02 by Unknown
Following are the differences between capital receipts and revenue receipts.SourceCapital receipt is the amount received from the sale of assets, shares and debentures. Revenue receipt is the amount received from the sale of goods and services.NatureCapital receipt is of non-recurring nature. Revenue receipt is of recurring nature.ImpactMain items of capital receipt are capital and loan, which affect financial position of the business. Main items of revenue receipt are sale of merchandise, discount and commission, which affect operating results...
Concept And Meaning Of Capital Receipts And Revenue Receipts And Their Related Items
Posted on 22:41 by Unknown
Capital ReceiptsAn amount received in the form of capital from the owner and as loan from outsiders is known as capital receipts. Besides, cash received by selling shares, debentures and permanent assets is also capital receipt. It is of non-recurring type of receipt. It is treated as obligation of the business and shown on liabilities side of the balance sheet.Items relating to capital receipts* Amount received from the owner as capital.* Amount received through the sale of shares and debentures.* Amount of loan received* Amount received from...
Wednesday, 7 July 2010
Differences Between Capital Expenditures And Revenue Expenditures
Posted on 22:40 by Unknown
The following are the main differences between capital and revenue expendituresNatureCapital expenditure is of non-recurring nature. Revenue expenditure is of recurring nature.PurposeCapital expenditure is incurred in acquiring permanent assets or improving their existing capacity. Revenue expenditure is incurred in managing day-to-day activities of the organization and maintaining its fixed assets.BenefitCapital expenditure gives benefit over a number of years. Revenue expenditure gives benefit not for more than one year.EarningCapital expenditure...
Concept And Meaning Of Capital Expenditure And Revenue Expenditures And Their Related Items
Posted on 21:57 by Unknown
Capital ExpendituresThe expenditures which generates revenue or income is called capital expenditure. Capital expenditure incurred either for buying permanent assets or for improving their exiting working capacity. Capital expenditure helps in increasing production volume or decreasing cost of production. Such expenditures are shown on the asset side of balance sheet.Items relating to capital expenditure* Expenditure incurred in buying transporting and installing a permanent asset.* Expenditure incurred in overhauling and installing an old asset...
Concept And Meaning Of Capital And Revenue
Posted on 21:35 by Unknown
The main objective of accounting is to ascertain the true profit or loss and to reveal the financial position of a business at the end of financial year.To achieve the objectives, the business must take a clear distinction between its capital and revenue items. The distinction between capital and revenue items is essential for their correct treatment in the final accounts. Any incorrect treatment of those two items in the final accounts adversely affects the operating results and financial position of the business.Capital is the wealth invested...
Tuesday, 6 July 2010
Concept And Meaning Of Suspense Account And Utility Of Suspense Account
Posted on 00:02 by Unknown
Suspense AccountThe account opened to rectify the previous year's one-sided errors is called suspense account. Suspense account is opened for a temporarily period only. Suspense account shows no balance after rectification of all errors and it disappears automatically. Opening of suspense account does not mean that the errors detected should be left unrectified.Suspense account is opened with a purpose to correct the previous year's one-sided errors. It is used for temporary period only. One-sided errors affect only one side of account. Therefore,...
Monday, 5 July 2010
Concept And Meaning Of Rectification Of Accounting Errors And Its Methods
Posted on 23:29 by Unknown
Rectification Of Accounting ErrorsOnce an error is located, it should be properly corrected. The correction of accounting errors in a systematic manner is called the rectification of errors. In other words, the process of systematically correcting the accounting errors is known as rectification of errors. The presence of accounting errors affects accuracy of the profit and loss and the financial position of the business shown by the final accounts, therefore, no error should be left uncorrected.Methods Of Rectification Of Accounting ErrorsThe following...
Methods Of Locating Accounting Errors
Posted on 22:36 by Unknown
If any errors exists in the books, it affects the accuracy of results of business operations revealed by the financial statements. Therefore, the error must be located for its rectification. The task of locating error is, however not easy. The location of errors will be easier if the following steps are systematically taken.* Check the total of the trial balance* Compare the ledger account balances carried to the trial balance* Check the total of debtors' and creditors' accounts and compare with the balance of debtors' and creditors' amounts shown...
Types Of Accounting Errors Based On Disclosure By Trial Balance
Posted on 21:38 by Unknown
The accounting errors based on disclosure by trial balance can be of the following types:1.Accounting Errors Shown By Trial BalanceThe errors that effect the agreement of the trial balance are called the errors shown by trial balance. The following are the errors that affect the totals of trial balance.* Partial OmissionIf a transaction is recorded or posted partially in the journal or in the ledger, such an error affects the agreement of the trial balance. For example, the total of trial balance disagrees if goods costing $ 600 sold to Mr. Jack...
Saturday, 3 July 2010
Types Of Accounting Errors Based On Their Nature
Posted on 23:09 by Unknown
The accounting errors based on their nature can be of the following types:1. Clerical Errors2. Errors Of Principe1. Clerical ErrorsThe errors which are committed by accounting clerks are called clerical errors. These errors are committed in the process of recording financial transactions. These take place due to the carelessness of the clerk responsible for recording financial transactions. Clerical errors are also called technical errors. The principal types of clerical errors are as follows:a) Errors Of OmissionThe errors committed by not recording...
Thursday, 1 July 2010
Types Of Accounting Errors
Posted on 22:38 by Unknown
Accounting errors can be classified into two types according to their common characteristics. These are as follows:1. Types Of Accounting Errors Based On Their Nature *Clerical Error-Errors of omission-Errors of commission-Compensating errors- Errors of duplication* Errors Of Principle2. Types Accounting Errors Based On Disclosure By Trial Balance* Errors shown by trial balance* Errors not shown by trial bala...
Causes Of Accounting Errors
Posted on 22:22 by Unknown
There can be several causes of accounting errors. The following are the important ones:Lack Of knowledgeAccounting is based on certain principles and rules. Due to the lack of knowledge of the accounting principles and rules, accounting errors may be occur.CarelessnessCarelessness may be another reason by which accounting errors may be occur. If the person responsible for keeping books of accounts is not careful in her/his job such errors may crop up.Ineffective Internal CheckIneffective internal check system may also cause accounting errors. Ineffective...
Concept And Meaning Of Accounting Errors
Posted on 22:11 by Unknown
The errors or mistakes which are committed in the journal, ledger and any other financial statements are known as accounting errors. Accounting errors may be defined as those mistakes which are generally committed while recording the financial transactions in the book of accounts. These errors may be committed while recording the transactions in the journal and posting them in the ledger accounts. Such errors may be technically committed or committed due to lack of the knowledge of accounting principles and rules. Generally, accounting errors are...
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