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

http://www.youtube.com/watch?v=dMhwnzWKsDQ

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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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Rich Dad Poor Dad Author Robert's book has changed my perspective of education. I have made my strategy to come out of RAT RACE and have started working on it. To leave a Monthly fixed pay Check hurts initially, but it gives you the financial freedom.

Robert's new book "Why A students work for C Students" is the must read book for those who like to come out of this RAT RACE !


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Microsoft Excel 2007 Tips and Tricks for accounting Professionals

MS Excel 2007 application is widely being used in the organisations for data processing, financial modelling, data analysis and preparation of complex reports. Excel with its wide range of formula functions, embedded featured and adaptability makes the life of the accountant/ auditor rather simple.
Most commonly used features/ functions for accountants/ auditors.
Pivot Table
Pivot table gives you the option to prepare customized reports from the data range. The only task you have to do is to apply pivot table and rest would be done by the Excel.

• To apply pivot table just arrange the data with the headers.
  Insert pivot table from the 'Insert' tab on the toolbar of the sheet.


• Select the desired range of the data.


• Click 'OK' and you will see the window with all the fields in your data.


• Just select the desired field in order, you want to prepare report and copy it in a separate sheet if you want to create another report from the applied pivot table.

VLOOKUP

V lookup formula in excel is used to compare two separate set of data and retrieve any value on the basis of same control number/ text in both of the sheets. The formula can help you in preparing report from the million of records within few seconds. To apply the wonder, just follow following tips

• Sort the data in either way (ascending/ descending).


• Make sure that there is any common field in both set of data


• Apply V Lookup with the parameters given in guidance of the formula bar.
  

=VLOOKUP ( lookupvalue,table array,column index number, range lookup)

1. Lookup value means the value you want to look in the destination/ source data
   


2. Table array means range from which you want to retrieve value.



3. Column Index number means the number of column in which there is desired value. Count number from the column you select the range. If you are selecting range from column C then Column C will be '1' instead of '3'.

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