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Accounts

1. Book keeping mainly involves recording financial transactions on a daily basis, while accounting also classifies, summarizes, and communicates financial information. 2. Accounting requires special skills to analyze complex financial situations and provide data to help management make critical business decisions, unlike book keeping which does not reflect the full financial position. 3. A suspense account is a temporary account used to balance the trial balance when errors cannot be found, and will be closed out once the errors are identified.

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30 views

Accounts

1. Book keeping mainly involves recording financial transactions on a daily basis, while accounting also classifies, summarizes, and communicates financial information. 2. Accounting requires special skills to analyze complex financial situations and provide data to help management make critical business decisions, unlike book keeping which does not reflect the full financial position. 3. A suspense account is a temporary account used to balance the trial balance when errors cannot be found, and will be closed out once the errors are identified.

Uploaded by

srisaidegree college
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© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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1. Differences between book keeping and accounting?

Basis of Book-keeping Accounting


difference
Meaning Book keeping mainly Accounting is a systematic
related to recording all process of recording,
financial transactions and classifying and
information on a daily summarizing and
basis. communication financial
information of an
organization.
Objectives The objectives of book The objectivces of
keeping is to keep the accounting is to figure out
records of all financial financial situation and
transactions in a proper further communicating the
and systematic manner. information to the relavent
authorities.
Skill Book keeping does not Accounting requires
required require special skill and special skills due to its
qualification limited level analytical and complex
of knowledge is needed. nature.it means an
accountant have special
knowledge of accounting.
Decision Management cannot Depending on the data
making take any decisions based provided by the
on the data provided by accountants the
book keeping. maangementcan take
critical business decisions.
Financial Book keeping does not Accounting clearly shows
position reflect the financial thw financial position of a
position of a company. company.
Branches Book keeping does not Accounting have many
have any branches. branches like financial
accounting, cost
accounting etc.,
Stage Book keeping is the Accounting is the
primary stage. secondary stage.
Suspense account:-

a. Meaning of suspense account:

Suspense account is a temporary account. It is


opened when our trial balance does not match put on shorter side. If
it has debit balance then it will appears on assets side and if it has
credit balance then it will appear on liability side.

b. Suspense account:

At the end of financial year all the organizations


prepare trial balance for the sake of preparing income statement and
balance sheet. Sometimes due to errors total of the trial balance do
not agree and the balance of debit side is different as compared to
credit side. It is a responsibility of an accountant to find put the error
and balance it off when errors cannot be found the trial balance
totals can be made to agree with each other by inserting the
differences of the amount as a suspense account.

Errors of principle:-

The transactions are recorded by contradicting accounting


principles like treating capital expenses as revenue expenses and vice
versa. Suppose a purchase of fuel for the cash a/c dr instead of fuel
a/c. Trail balance will agree.

Types of errors:-

1. Errors of principle
2. Clerical
a. Errors of principle:-
 Treating revenue expense as capital expense or vice versa.
 Does not affect trial balance(TB will agree) ex:- installation of
machinery expenses debited to installation expenditure.

Compensating errors

b. Clerical:-
 Errors of omission
 Errors of commission

Errors of omission:

Unintentional mistakes which happens.

Errors of omission
This is simply a failure to record an item.

Complete omission partial omission

Trial balance will agree trial balance will not agree

Debit and credit

Errors of commission:-

 Wrong amount in subsidiary book(TB agree)


 Wrong casting/totalling in subsidiary books. (TB not agree)
 Posting wrong amount wrong side of ledger/wrong balancing.

Realisation account:-

A realisation account is opened for disposing of all the assets


of the firm and making payment to all the creditors. Realisation
account is a nominal account and the object of an account is to find
out the profit or loss on realisation of assets and payment of
liabilities.
Distinction between revaluation and realisation:-

Basis of Revaluation a/c Realisation a/c


comparison
When This a/c is prepared on the This a/c is prepared on the
prepared admission, retirement or dissolution of the
death of a partner. partnership.
Object of This a/c is prepared to This a/c is prepared in find
preparation make the necessary out the profit or loss on
adjustments in the value of the sale of assets and
assets and liabilities. repayment of liabilities.
result Even after preparation of The firm comes to an end
revaluation a/c the firm after preparation of this
continuous function with a/c.
a changed relationship
among partners.
Value of Only the difference balance Book value of assets and
assets and the book values and revised liabilities the realisation of
liabilities values of assets and assets and the actual
liabilities is recorded in this payment of liabilities is
recorded
a/c. recorded in this a/c.
Why This a/c may be required to This a/c is prepared only on
prepared be prepared many firms during the life time of a
during the life time of a firm.
firm.

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