What are current liabilities

What are current liabilities

Current liabilities are expected to be paid within one year. Example of current liabilities includes are trade payable, proposed dividend, tax payable, loan installment, and bank overdraft.

CURRENT LIABILITIES	$
Trade Payable	5,000
Loan repayable	2,000
Tax payable	1,000
Proposed Dividend	500
Bank overdraft	200
	8,700

What are current assets

What are current assets

Current asset are expected to be converted in liquid cash with in twelve months and it also includes the cash in hand and bank. Examples of currents assets includes the stock, receivable, cash in hand and cash in bank.

CURRENT ASSETS	$
Stock	5,000
Trade Receivables	2,000
Interest Payable	1,000
Prepayment & Advances	500
Cash in the Bank	200
Cash in Hand	100
	8,800

What is integrated Accounting System

What is integrated accounting System

In integrated accounting system one set of books of account are kept for both financial reporting and cost accounting. The profit is not required to be reconcile instead the cost accounting profit is adjusted for some non cost items like investment income, interest charges.

Advantages of Integrating Accounting System

1. Time Saved

Double set of account require a huge amount of time of finance department. The time can be saved by adopting integrated system

2. Cost Saved

Keep one book of account instead of two definitely save a lot of cost like cost of an additional staff required to maintain the cost accounting record cost of books and stationary and other cost and resources utilized by the staff maintaining the record like lightening and heating.

3. Duplication is avoided

In integrated system the duplication of record is avoided. Duplicate record creates many confusion within organization.

4. Space is saved

Book of accounts preservation require a lot of space. Due to statutory requirement record are to be saved for couple of year. The integrated system less space is required as only one set of book of account is being maintained.

What is interlocking accounting System

What is interlocking accounting System

In interlocking system two set of books of accounts are kept for financial accounting and cost accounting. The results of two books of account may be reconciled by the management.

What is purpose of Interlocking System

1. Detailed Reporting is possible

The management require the more detail reporting regarding the cost of production. These report can be prepared from separate books of accounts maintained for cost purposes.

2. Detailed Analyses

The more information is available under this system about the production cost and therefore more detailed cost analyses can be performed by the management.

3. Timely Reporting

Financial account department carry out the basic accounting work therefore there is not worry to meet the management needs and timely reporting of financial result can be prepared.

Trial balance

What is Trial Balance

Pu. Trial balance is basically a summary of different account activities and therefore this summary is provide the required information for the preparation of balance sheet and profit and loss.

What are Types of Trial Balance

There are mainly three types of trial balance

1. Un- Adjusted Trial Balance

There are number of adjustment which are entered at the year end. Therefore a trial balance prepared before those adjustment is known as Un adjusted trial balance. This trial balance is just an initial summary of the all account balances.

2. Adjusted Trial Balance

The Trial balance which is prepared after the year end adjustment is known as adjusted trial balance.

3.Post Closing Trial Balance

The adjusted trial balance many account which related to income and expense are closed and only assets and liabilities account are left. This trial balance which contains only the asset and liabilities account summary is known as post closing trial Balance.

Advantages of Trial Balance

There are some advantages of preparing the trial balance.

1. Missing Head of Account 

The first review of trial balance may detect any missing items in the trial balance because the both side of trial balance must be equal and therefore in case of inequality something is missing.

 2. Mistake Detection

The other important advantage of trial balance that it identify a number of possible error in the recording process. those error include the errors like single entry , transposition errors, double impact on one side, and casting error.

Trial balances however is unable to detect the error of principle, omitted error and compensating errors.if the trial balance is tele mean when the debit side is equal to credit side it gives us surety that there is no transposition error , single effect error or double entry of same aspect error.

What is Suspense Account

There is a situation where the trial balance is imbalance but we are unable to locate the error then we may create a suspense account and put the difference in the suspense account. However, the suspense account is only a temporary solution for the preparation of financial statement.It is highly recommended that difference must be worked out and corrected.

Control Account

What are Control Accounts

Control Accounts basically are the summary of transaction entered in different primary books.The control account are maintained from the  primary books in totality where the individual accounts are maintained from individual entry.

Control accounts is maintained as general Led memorandum record and updated on periodical bases . Concept of control account is more related to manual books of accounts and it has little use in computerized environment.

Advantages of Control Account

1.Preparation of Financial statement

Control accounts are really helpful to update the trial balance and preparation of financial statement. The information is readily available for the preparation of financial statement at any point of time.

2.Accuracy of Individual Account

The balance of control account must agree with the individual account. if there is any difference then the individual account must be checked for error.


3. Better control over Receivable and payable

The information is available about the receivable and payable account and therefore management can  manage the working capital in a better way.


4. Manageable Size of Trial Balance

Control account keep the trial balance with manageable size unlike the subsidiary ledger accounts which make the trial balance to large to manage.

Example of Control Account

Books of Accounts

What are books of accounts

The books of account are mainly consist of books of primary entry and ledger which contains the individual account. The primary books enter the transaction in first place where the ledger are used to classify the information.

Purpose of Primary books of accounts

The primary books of account are  maintained for the following advantages

1. Sequential Check

 Primary books of account are important sequential check that all transaction has been recorded in the books of accounts. The books can be checked any time with source document to detect unrecorded transaction.

2. facilitate Classification

Primary books of account make it easier to classify the transaction. Direct classification require special skill and experience.

Types of Prime entry books

Mainly there are two types of journal i.e General Journal and Special Journal. The first type is used in small organization where volume of transaction is not higher and therefor all Journal transaction are recorded in a single book.

 Special  journal is used where volume of  some transactions are very high like sales and purchase. Therefore separate Journals are used to record those transactions. The special journal facilitate the management in many ways. 

How many books will be maintained by the management mainly depends on the volume of transaction and nature of business. The below is primary books of entries also known as special Journals.

1. Sales Day book record the credit sales only
2. Sales Return Day book record the sales return by the customer
3. Purchase Day Book record the credit purchases
4. Purchase Return Day book record the purchases return to supplier 
5. Cash Book record all the cash transaction
6. Petty cash book is used for small cash payments
7. Journal is used for adjustment and correction

Column of Sales Day Book and other books

The typically the sales day book have six columns that includes the date, invoice number , customer name, net amount , sales tax and Gross amount. The purchase day book also contains the same column number of column and customer column is replaced by supplier column. Similarly the sales return and purchase return books contains the same information.

 Purpose of using several prime entry books

1. Control Account

The entry in the control account is facilitated with the help of special journals. it is really time consuming to collect required information from General journal to update control accounts.

2. Better Control

Number of primary book improve management control over transaction processing and the work load can be divided among different staff member . for example one person is responsible for maintaining the sales journal and other is for maintaining the purchase Journals.