Accounting Process

Any non trading organisations, companies, government organisations are all examples of artificial personal accounts.
Real accounts are concerned with tangible/intangible items such as furniture, machinery, goodwill etc. Natural personal accounts are Madhav's, Divesh's and Radha's account etc. Representative personal accounts include outstanding expenses, capital account etc.

Drawings account is a representative personal account as it represents person (proprietor) in the business.

The entry with two or more debits/credits is a compound entry.
Opening entry is one which is passed to carry forward the previous year's balances to current year.
Closing entry is one which is passed to carry forward the current year's balances to next year.
Rectified entry is meant for making rectification of the errors made in account books.

The correct entry is:
Loss by fire/accident account______ Dr.
            To trading/purchase account.
Trading/Purchase account should be credited. Insurance company may be debited with the amount of claim admitted by them, if the goods are insured.

Real accounts such as machinery, furniture, cash always show debit balance.
Personal accounts, Nominal accounts, Natural personal accounts may show both debit and credit balance.

Assets always show debit balance. So these appear on debit side. Incomes, liabilities, capital accounts are credited in the trial balance.

Credit note shows the information that the customer account is being credited for the said amount of goods returned by him. A debit note is the intimation to the supplier for the goods returned to him. An invoice is concerned with sale or purchase of goods.

Adjustment, opening, closing and rectification entries are passed in journal proper.
Invoice book is prepared for recording invoice sent/received. Subsidiary books are prepared to record entries of specific nature such as sales book, purchase book etc. Ledger is required for posting entries from journal.

Stationery purchased for cash should be recorded in cash book.
Petty cash book is required to record petty payments made by petty cashier.

Only credit sales of goods are recorded in sales book.
Cash sales are recorded in cash book. Credit sales of assets are not recorded in sales book.

Paid cash from personal sources is capital contribution and is not a contra entry.
All others are contra entries. Contra entries are those which are debited and credited with cash/bank account only.

The examples of capital expenditures are machinery, furniture etc.          
Revenue expenditures are those, the benefit of which is derived during the current period only.
The deferred revenue expenses are paid during the current period but not written off due to the heavy expenditures; and the benefit is likely to be secured in more than one period such as advertisement, suspense.

Capital expenditures are made on assets. So, they are shown accordingly in balance sheet.
Revenue expenses are shown on the debit side and revenue income on the credit side of profit and loss account.
Capital receipts are shown on the liabilities side of balance sheet.

Anything purchased for resale purpose is revenue expense.
Capital expenditures are made on assets.
The deferred revenue expenses are paid during the current period but not written off due to the heavy expenditures; and the benefit is likely to be secured in more than one period such as advertisement, suspense.

These are shown under the heading 'miscellaneous expenditure.'
Revenue expenses are shown on debit side and revenue income on credit side of profit and loss account.
Capital receipts are shown on the liabilities side of balance sheet.

Intangible assets are those which are not in tangible form i.e., these can't be seen or touched. All of these are intangible assets.

Repair charges paid for keeping the machinery workable are revenue expense.
All the others are capital expenses.

Revenue receipts are the receipts from the operating activities. All others are capital receipts.

Since the bill has been dishonoured, so it is a definite liability.
Contigent liabilities are those which may or may not arise in the future. All the others mentioned above are contigent in nature.

The entries made in contravention of accounting principles are errors of principle.
Error of omission refers to complete/partial omission of transaction from the books of account. When an entry is posted with wrong amount or on wrong side, it is error of commission. Compensating errors are those which compensate the effect of another error.

It is an error of commission. Such errors do not affect the totaling of trial balance.

Compensating errors are those which compensate the effect of another error.
The entries made in contravention of accounting principles are errors of principle. Error of omission refers to complete/partial omission of transaction from the books of account. When an entry is posted with wrong amount or on wrong side, it is the error of commission.

All of above are the features of suspense account.

Supplier should have been credited with Rs. 1, 345. When he is debited with Rs. 4, 135, the difference in trial balance will be 1, 345 + 4, 135 = 5, 480 i.e. excess debit.

Error of commission affects the trial balance . Error of principle and omission , and compensatory errors does not affect the trial balance but error of commission does. Error of commission means putting wrong entry with wrong amount or in wrong account which adversly affects the balances of trial balances.