Double Entry in T Accounts by Debits and Credit Rules

basic rules of DEBITS and CREDITS

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Accounting Course: Lesson 1 - Understanding Chart of Accounts

A chart of accounts is the listing of all accounts, a company needs to use for recording of transactions. Chart of accounts is designed by keeping in view the needs of the company.

Accounts are usually listed in chart of accounts as below;

Balance Sheet

1. Assets
2. Liabilities
3. Equity/ Capital

 

Income Statement

 

1. Revenues
2. Expenses
3. Non Operating Revenues
4. Non Operating Expenses

 

Expenses are usually breakdown into further categories;

 

Production expenses

Selling Expenses

Marketing expenses

Human Resource Expenses

 

Sample Chart Of Accounts :

 

Current Assets: (Account numbers : 0001-0100)

 

0001 Raw Material 1

0002 Raw Material 2

0003 Raw Material 3

0004 Work in Progress 1

0005 Work In progress 2

0006 Cash

0007 Trade receivables

Sub Ledgers: 0007-001 ABC debtor

                      0007-002 CDE debtor & so on

 

Property Plant & Equipment : (Account numbers : 0101-0200)

 

0101 Vehicles

0102 Furniture

0103 Plant

0104 Land & so on

 

Current Liabilities :( Account numbers : 0201 -0300)

 

0201 Bank Loan

0202 Notes

0203 Suppliers

        Sub ledger : 0203 -001 ABC Supplier

 

Long Term Liabilities : (Account numbers 0301-0400)

 

0301 Bank Loan

0302 Lease Liability

 

Equity : (Account numbers 0401-0500)

 

0401 Paid up Share Capital

0402 Retained Earnings

0403 Treasury Stock

 

Income statement accounts shall be explained in detail in Lesson 2. Keep visiting us for a 1 month Accounting course.

 

 

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Learn Accounting by DEBITS & CREDITS - No mistake in double entry

It is often said that if you have learnt the basic rules of DEBITS and CREDITS, accounting is no more difficult. I am writing this to make the most confusing topic easy for you.

Remember there are 5 elements of Financial Statements, these are;

1. Assets
2. Liabilities
3. Capital
4. Expenses
5. Income

Remember these rules and you will be the Winner!

Asset :  Increase in  Asset >>> Debit
            Decrease in Asset >>> Credit

If you have purchased a property by paying cash of $100,000, then it means You have in fact made an increase in your asset by corresponding decrease in asset i.e cash.

Entry would be:
   Property Dr
   Cash       Cr

Liabilities:   Opposite of Assets

    Increase >>>>Cr
    Decrease>>>>Dr

If you have taken a loan of $100,000 for paying to supplier. Means you have increased your bank liability for decreasing liability towards supplier

Entry would be:
   
     Supplier Account >>>> Dr
     Bank Loan>>>>>>>>> Cr

Capital:   Same as Liabilities


Expenses:   Same as Assets

Income:    Same as Liabilities/ Capital

Conclusion: Just remember two scenarios

1) Assets & Expenses >>>>>>>>>>Same Treatment
2) Liability, Capital and Income >>>Same Treatment



Be confident! you will never make an error in double entry. Best of Luck!

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Basics of Accounting for All

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Financial Statement Analysis - Introduction

The way of understanding the risks and profitability of the company/ firm through reported figures in financial statements is Financial Statements Analysis. Various types of analysis may be conducted but the most commonly uses is 'Financial Statements Ratio Analysis'. Two types of ratios are calculated that are Profitability ratios & Risk ratios.

Profitability Ratios:

Profitability ratios calculates the utilization of capital invested to generate profits. 

1) ROE ' Return on Equity':      Earnings
                                          Average Equity
Equity means the total capital invested plus retained profits.

2) Gross Margin ratio

3) Net profit margin Ratio

Net Profit/ Sales

4) Gross Profit margin ratio

Gross profit/ Sales

Apart from the above mentioned there are various profitability ratios.

Credit Risk Ratios:

These ratios calculates underlying credit risk of the company. Liquidity analysis and solvency analysis. Liquidity analysis returns the efficiency of working capital cycle.

Working Capital:

Working capital represents the net current assets. Net current asset means the current assets less current liabilities.




 

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Excel Tips n Tricks - Conditional Formatting

Conditional Formatting in Excel 2007 is one of the most powerful data validation tool.

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Understand Inventory Accounting

There are three types of inventory/ stock in an organization.

Raw Material Inventory
Finished goods
Consumables

Raw material inventory is used to manufacture finished goods.
Finished goods inventory is held for sale.
Work In Process: Semi Finished goods.

lets take a scenario of Potato Chips Factory;

Raw Material : Potatoes, Vegetable Oil
Finished goods: Potato Chips
Work in process: Potato chips peeled and half fried

Accounting Entries:

Purchase of Raw material:

Raw Material Inventory   DR
Bank/ Cash                       CR

Work In Process:

Work In Process             DR
Raw material Inventory CR

Finished Goods

Finished Goods              DR
Work In Process            CR






 

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