BASIC ACCOUNTING SOFTWARE (TUSHAR TIWARI)
BASIC ACCOUNTING SOFTWARE (TUSHAR TIWARI)
Here are some more details about the golden rules of accounting:
• Debits and credits
A debit is an entry made on the left side of an account, while a credit is an entry made
on the right side.
• Real, personal, and nominal accounts
The golden rules apply to different types of accounts, including real, personal, and
nominal accounts. For example, a bank account is a real account, while an interest
account is a nominal account.
MUKESH & COMPANY
PURCHASE ACCOUNT
Q-1.1 –CAPITAL INTRODUCED
Q.NO-1.2 OPEN BANK ACCOUNT
Q.1.3 PURCHASE ON CREDIT
Q.1.3 PURCHASE ON CASH
Q.NO-1.4 SALARY PAID
Q.NO-1.5 DRAWING ACCOUNT
Q.NO-1.6 SOLD GOODS ON CASH
Q.NO-1.7 INTEREST RECEIVED
Q.NO-1.8 ISSUE CH. IN FAVOUR OF MR.X
FINAL ACCOUNT’S
Profit and loss accounts show your total income and expenses, and also shows whether
your business has earned more income than it has spent on its running costs. If that is
the case, then your business has made a profit.
The profit and loss account represents the profitability of a business. It cannot, for
example, show you if you are running out of cash as you build stock. For this sort of
insight, you’ll need a balance sheet.
The profit and loss account is also known as a P&L report, an income statement, a
statement of operation, a statement of financial results, or an income and expense
statement.
A profit and loss account will include your credits (which includes turnover and other
income) and deduct your debits (which includes allowances, cost of sales and
overheads). These are used to find your bottom line figure – either your net profit or your
net loss.
The profits shown in your profit and loss account are used to calculate both income
tax and corporation tax. Failure to file either of these correctly can result in you paying
added interest and penalties, so it’s important to get this report right.
The P&L account takes revenues into account for a specific period. It also records any
expenses or costs incurred by these revenues, such as depreciation and taxes.
This can be used show investors and other interested parties whether or not the
company made money during the period being reported.
MUKESH & COMPANY PROFIT & LOSS ACCOUNT
BALANCE SHEET
A balance sheet depicts many accounts, categorized under assets and liabilities. Like
any other financial statement, a balance sheet will have minor variations in structure
depending on the organization. Following is a sample balance sheet, which shows all the
basic accounts classified under assets and liabilities so that both sides of the sheet are
equal.
A balance sheet consists of two main headings: assets and liabilities. Let us
take a detailed look at these components.
Assets
An asset is something that the company owns and that is beneficial for the
growth of the business. Assets can be classified based on convertibility,
physical existence, and usage.
Liabilities
Liabilities are what the company owes to other parties. This includes debts
and other financial obligations that arise as an outcome of business
transactions. Companies settle their liabilities by paying them back in cash or
providing an equivalent service to the other party. Liabilities are listed on the
right side of the balance sheet.
Under your current liability accounts, you can have long-term debt, interest
payable, salaries, and customer payments, while long-term liabilities include
long-term debts, pension fund liability, and bonds payable.
Cash moves into and out of a business for various reasons, sometimes unrelated
to the direct sale of products, goods, or services. The cash on these financial
statements includes current assets, like money in checking and savings
accounts, and cash equivalents, like short-term investments.
Cash flow statements explain how the company manages this cash. For
example, a CSF can show if a company is taking on excess financing to fund
operations but isn’t generating enough cash to support those debts.
Operating Activities
Cash flows from operating activities include money spent or generated by selling
products, goods, or services. Line items in this section may include:
• Depreciation and amortization: how much an asset loses value over the
course of its lifetime
• Changes in working capital: transactions that affect current assets or
liabilities
• Accounts receivable: money owed to the company by clients and
customers
• Accounts payable: money the company owes to clients and customers
• Inventory: sellable products or goods
Investing Activities
Investing activities include changes to long-term assets, such as real estate, and
changes in capital expenditures (CapEx). Line items for this section include:
Cash flows from financing activities involve any money spent or generated from
issuing debt, paying dividends to shareholders, and repaying long-term loans.
Line items in the financing activities section include:
Under U.S. GAAP (Generally Accepted Accounting Policies), inventory can be valued in
three ways. These methods are the:
• First-in, first-out (FIFO) method, which says that the COGS is based on the cost
of the earliest purchased materials. The carrying cost of the remaining inventory,
on the other hand, is based on the cost of the latest purchased materials
• Last-in, first-out (LIFO) method. This method states that the COGS is valued
using the cost of the latest purchased materials, while the value of the remaining
inventory is based on the earliest purchased materials.
• Weighted average method, which requires valuing both inventory and the COGS
based on the average cost of all materials bought during the period.
Types of Inventory
Remember that inventory is generally categorized as raw materials, work-in-progress,
and finished goods. The IRS also classifies merchandise and supplies as additional
categories of inventory.1
Raw materials are unprocessed materials used to produce a good. Examples of raw
materials include:
Work-in-progress inventory is the partially finished goods waiting for completion and
resale. WIP inventory is also known as inventory on the production floor. A
halfassembled airliner or a partially completed yacht is considered to be a work-in-
process inventory.
Finished goods are products that go through the production process, and are completed
and ready for sale. Retailers typically refer to this inventory as merchandise. Common
examples of merchandise include electronics, clothes, and cars held by retailers.