Financial Accounting Tutorials for Beginners

DOUBLE ENTRY SYSTEM , BOOKS OF PRIME ENTRY, SUBSIDIARY BOOKS: What is double entry system ?  In 1494, Luca Pacioli the Italian mathematician first published his comprehensive treatise on the principles of the Double Entry System.  The use of the principles of the double entry system  made it possible to record not only cash but also all sorts of Mercantile transactions. Click on to Read More... Books of Prime Entry Or Books of Original Entry:- What is Journal in Accounting? A Journal in Accounting is often referred to as a book of prime entry or a book of original entry . In this book, transactions are recorded in their chronological order.  The process of recording transactions in a  Journal in Accounting  is called 'journalization'. The entry made in books of prime entry or books of original entry is called the 'journal entry'.  Entries in a  Journal in Accounting  are used to create a general account that is then used to cr...

  Accrual Basis Accounting and Cash Basis of Accounting : What is the Accrual Basis of Accounting: The Accrual Basis of Accounting is a manner of recording transactions by which revenue, costs, assets, and liabilities are reflected in the accounts for the period in which they accrue.  This basis includes consideration relating to deferrals, allocations, depreciation , and amortization.  This  Accrual Basis of Accounting  is also referred to as a mercantile basis of accounting.  Under the Companies Act 1956, all companies need to maintain the books of accounts according to the accrual basis of accounting. What is the Cash Basis of Accounting: The Cash Basis of Accounting is a manner of recording transactions by which revenues, costs, assets, and liabilities are reflected in the accounts for the period in which actual receipts or actual payments are made. The distinction between Accrual Basis of Accounting and Cash Basis of Accounting. The accrual basi...

CAPITAL AND REVENUE : Why is the distinction between capital and revenue important ? The concepts of capital and revenue are important for the correct determination of accounting profit for a period and the recognition of business assets at the end of that period.  The difference affects the measurement of profit over several accounting periods. Capital is defined by economists as those assets used in the production of goods and services for the production of assets.  In accounting , on the other hand, the capital of a business is increased by a share of periodic income that has not been consumed by the owner. The relation of capital and revenue is between a tree and its fruits. It is the tree that produces fruit, and it is the fruit that can be consumed. If the tree is taken care of, it will produce more fruit, on the contrary, if the tree is destroyed, there will not be more fruit. Similarly, revenue originates from capital and capital is the source of revenue . Capita...

Accounting for Inventory: In this session, describing the Basic concept of Stock or Inventory accounting. So, the first thing what is stock or inventory in accounting? Stock or Inventory means any stock held by a manufacturing business to meet its production requirements. A trading concern holds stock of goods for sale. A per Indian Accounting Standard 2 [AS. -2] Inventories mean tangible property held: for sale in the ordinary course of business, or in the process of production for such sale, or for consumption in the production of goods or services for sale, including maintenance supplies and consumables other than machinery spares. Importance of  Stock or Inventory  valuation: AS-2 and its implications-- Before going into any discussion regarding any method of  Stock or Inventory  valuation the epitome of Indian Accounting Standard 2 (AS 2) should be understood. It says that--- Stock or Inventory  should normally be valued at historical cost o...

 Characteristics of Depreciation: In this chapter describing  characteristics and different methods of Depreciation :-- What are the characteristics of depreciation ? It is charged against profit . It indicates diminution in service potential . It is an estimated loss of the value of an asset . It is not an actual loss. It depends upon different assumptions, like the effective life and a residual value of an asse t. It is a process of allocation and not of valuation . It arises mainly from an internal cause like wear and tear or depletion of an asset. But it is treated as any expense charged against profit like rent, salary, etc., which arise due to an external transaction. Depreciation on any particular asset is restricted to the working life of the asset . What is amortization in depreciation accounting ?   It is charged on tangible fixed assets. It is not charged on any current asset. For allocating the costs of intangible fixed assets like goodwill, etc., a certai...