Golden rules of accounting:

RULES OF ACCOUNTING/ TYPES OF ACCOUNTS:-

There are 3 golden rules or types of accounts. These are:-

PERSONAL ACCOUNT These are accounts of parties with whom the business is a carried
on. Personal accounts may be:
Accounts of natural or physical persons. Ex: ama Account! "rishna Account
Accounts of artificial or legal persons. Ex: A#$ % $o.
epresentati&e personal account. Ex: '() Expenses Account! '() income Account!
Prepaid Expenses Account! *ncome ecei&ed in Ad&ance.
ules of Accounting:
Debit the Receiver
Credit the Giver

Real Acc!"t These are asset accounts that appear in the #alance )heet. They are referred to
as eal Account +or Permanent Accounts, as these are owned by businesses and the balances in
these accounts at the end of an accounting period will be carried o&er to the next period. Ex:
$ash Account! -and Account! #uilding Account etc.
ules of Accounting:
Debit #hat c$e% i"
Credit #hat &e% !t
N$i"al Acc!"t These are accounts of expenses and losses which a business incurs and
income % gains which a business earn in the course of business. Ex: ent Account! *nterest
Account.
ules of Accounting:
Debit all e'(e"%e% a"d l%%e%
Credit all i"c$e a"d &ai"%
What is final account?
The financial statements of an organisation made up at the end of an accounting period usually
the fiscal year
Final account consists of trading account, profit and loss account,profit and loss appropriation
account and balance sheet.
What is balance sheet? What for it is used?
A balance sheet is a statement showing the financial position of the company. It consists of
assets, Liabilities and ownership euity.
What is BRS?
!"# is !an$ reconciliation statement. It is a statement that helps to reconcile between
the cash boo$ maintained by the ban$ and pass boo$ maintained by the customers
%&ample: 'he differences may include cheue issued but not presented, Interest
pro(ided but not recorded etc."econciliation is made in regular inter(als to a(oid
hassles.
What is P&L appropriation account?
'he profit and loss appropriation account should be treated as a separate account from the
profit and loss account. 'he appropriation account is designed to pro(ide an indication of how
profit transferred from the profit and loss account is spent. Appropriations are generally placed
into one of four broad categories: funds designated for remo(al by partners, capital reser(es,
reser(es earmar$ed to impro(e capital and surplus funds to be carried into the ne&t accounting
period.
Debit side:
Funds transferred to profit and loss account at the end of accounting period,company general
reser(es and di(idend payments and income ta& payments
Credit side:
#urplus money transferred at the end of accounting period,)et profit of current year,money
ta$en from the general reser(es.
What is cost sheet?
A document that reflects cost of items and ser(ices reuired by a proet or department for the
performance of its business.For e&ample the cost sheet might include material cost, labour
cost,o(erhead costs incurred o(er a gi(en time frame by a department.
What is cash flow statement?
'he cash flow statement is concerned with the flow of cash in and out of business. It focuses on
sources and uses of funds.
What is fund flow statement?
'he fund flow statement is used to measure the different sources of fund.We ha(e sources of
funds and how funds are applied or used *Application of funds+
What is the difference between cash flow statement and fund flow
statement?
'he ma,or differences between the two are :
-. FF# is related with accrual basis whereas .F# is on cash basis. For this the, it is necessary
to con(ert the accrual to cash basis.
/. In FF#, a #chedule of changes in wor$ing capital de0lin$ing the current assets and current
liabilities are made. !ut in .F#, no schedule is prepared.
1. FF# shows the causes of the changes in net wor$ing capital. .F# shows the causes for the
change in cash
2. In FF#, no opening or closing balances are recorded. !ut in .F# both are incorporated
3. FF# is not based on the Ledger mode. !ut .F# is prepared on the basis of Ledger principles.
4. In FF#, 5'o6 and 5!y6 are indicated. In .F#, these are not indicated.
7. In FF#, net effect of receipts and disbursements are recorded. In .F# only cash receipts and
payments are recorded.
8. FF# is concerned with the total pro(ision of funds. .F# is concerned with only cash.
9. FF# is fle&ible but .F# is rigid
-:. FF# is more rele(ant for long range financial strategy. .F# concentrates on short term
aspects mostly affecting the liuidity of the business.
What is accounts paable?
An accounting entry that represents an entity;s obligation to pay off a short0term debt to its
creditors.
What is accounts recei!able?
Accounts recei(able is money owed to a business by its customers dealing with billing of
customers for goods and ser(ices pro(ided.
What is current asset?
'he assets which can be easily con(erted to cash within a period of one year is called current
asset.%g: cash in hand, stoc$s, bills recei(able.
What is wor$ing capital management?
Wor$ing capital I termed as operating capital where we arri(e at the same by the
following formula
Wor$ing capital<.A0.L *current assets0current liabilities+
Inorderfor the firm to meet up with its operational e&penses wor$ing capital should be
positi(e.
What is current liabilit?
A company=s debt or obligation that is due within one year is called current liability.%g: !ills
payable, loans payable within one year.
What is "ournal entr?
>ournal entry is a record of financial transactions recorded in a ,ournal.All business transactions
are initially entered in ,ournal using single entry or double entry method of boo$ $eeping.
What is sin#le entr and what is double entr?
In a double entry system each transaction was entered twice with one side of the transaction
being debit and other a credited: ?urchase in(oice entry
A single entry boo$ $eeping is relying on one sided accounting entry to maintain financial
information.
What is the "ournal entr for rent paid in ad!ance?
?repaid rent account debited to cash account
?lease prepare some other ,ournal entries in the same way.
What is in!oice and purchase order?
'he purchase order is what the buyer prepares, while the in(oice is what the seller ma$es in lieu
of the payment recei(able. 'he purchase order lists the uantity and the due date of deli(ery of
goods, products or ser(ices purchased@ordered by the buyer, while an in(oice has on it the price
of the goods, products or ser(ices being sold.'he following information will be there in in(oice
and purchase order
.ho is buying/
.ho is to be charged for the sale/
.hat are they buying/
0ow much is it/
.hen is it due for deli&ery/
)hat i% the di**ere"ce bet#ee" accr!al% a"d (rvi%i"+
Accrual is income earned but not recei(ed or e&penses incurred but not spent. ?ro(ision is
ma$ing pro(ision from the profit for a specified or $nown e&pense which is to be met in un$nown
future.
What is depreciation?
1epreciation is a non cash expense that reduces &alue of an asset o&er a period of time.Assets
depreciate for two reasons wear and tear,