Interest on Capital

Interest allowed on the proprietor’s, partners capital is some times treated as a business expense.If the amount of capital were invested outside the business it would have earned a normal rate of interest.Therefore allowance is sometimes made for this interest  before the actual net profit of the business is ascertained. For example,before charging interest on capital a business earned for one year a net profit of 4000 and the capital at the beginning of the year was 10000.If the trader

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Bad debts and its accounting treatment

Many business offer credit facility to its customers in order to overcome the competition and increase its sale and there by revenue. Giving credit to its customers often leads to a negative result such as non payment of dues from customers.After lot of efforts to collect the outstanding amount from customers business will get to know that some debts are irrecoverable. The failure to collect amounts due from trade debtors result in an expense that is known as bad debts.When it

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Preliminary expenses and its Accounting

The expenses incidental to the formation of  a  company are termed preliminary expense.The cost of printing and circulating the memorandum and articles of association and prospectus ,the registration charges and stamp duties, the printing or share certificate,legal charges are included under preliminary expenses. Preliminary expense are a sort of capital expenditure which may be written off over a period of years. Examples of Preliminary Expenses The charges paid top Chartered accountant for forming a business. Expense paid for printing of memorandum &

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What is contra entry?

Contra entries are those entries in which same account can be debited and credited in contrary situation.For example we debit Bank account when depositing cash.At the same time we credit bank account when withdrawing money from bank. In manual accounting Contra entry is recorded in the journal by marking (C) in the Particulars column after ledger name. or in other words contra entry is Bookkeeping entry that is entered on the opposite side of an earlier entry to cancel its effect on the

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What is accrual? How it is accounted?

Accruals are the earnings of Income and incurred expenses which are not accounted in our books of accounts so far.Accruals are those expenses and earning which are recorded through adjusting entries in the books even if payment is made or received at the time accounting. A few examples can understand you the accruals better. Why Accrual Accounting? Accrual Accounting Helps to understand the accurate position of a company’s current financial situation as it record the expenses and Income which are become due.In other words it

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Definition of Accounting

Definition of Accounting “Accounting is the art of recording ,classifying and summarising in a significant manner and in terms of money,transactions and event which are, in part at least ,of a financial character and interpreting the result thereof “. Accounting is the Language of Business. Accounting Terms are used to explain things happening int he business. Purpose of Accounting The purpose of accounting is to provide financial information about any economic entity,a business enterprise. the management required this information to plan

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