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Accounts Payable And Expenses Accou nts Payable is a Current Liability as it is the amount of dues payable by the business to its vendors, suppliers or creditors for the goods or services purchased on account or credit during the accounting cycle in order to finance the business and to run it while Expenses are the costs incurred for the purpose of earning revenue for the business. These are necessary in order to run the daily business operations and incurred to meet obligations for the period. Accounts Payable / Sundry Creditor is recorded on the B alance Sheet as it is a Permanent Account while expenses are recorded on Income Statement or Trading & Profit And Loss Account as these are Temporary Accounts . There are different types of accounts payable such as Trade Payable, N on Trade Payable, Loans Payable, etc., while expenses are mainly divided into two types named as Direct Expenses and Indirect expenses. Similarities B etween Acco...

The Debit And Credit Balances Of Expense Accounts As Expe nses are Temporary Accounts so these have no balances at the end of the accounting period, so these have neither Debit B alance nor Credit B alance at the end of the accounting period. However, the debit balance is normal or favorable or positive balance for expenses and credit balance is unfavorable or negative for expense in a ledger account. When expenses increase, we debit these accounts and when these decrease, we credit these according to the Rules of Debit And Credit . There are some special reaso ns due to which expenses accounts are credited rather than debited due to some reasons such as expenses accounts are decreasing, in case of reclass entry and other reasons.

Increase And Decrease In Revenue Accounts A ny increase in Revenues is credited according to the Rules of Debit and Credit . It is due to the fact that the favorable or positive balance of revenues / incomes is credit or on credit side of a ledger account. Any decrease in revenue accounts is resulted in the debit to revenue accounts as the negative or unfavorable balance is on debit side in a ledger account. It is due to the some special reasons such as in case of Post Closing Entries , Prepaid Income , etc.

Why Decreases And Increases In Liabilities Recorded As Debits And Credits Accordi ng to the Rules of Debit And Credit , any increase in Liabilities are recorded on the credit side of the ledger account as the credit balance is a favorable or positive balance of liabilities account. On the other hand, any decrease in liabilities account resulted in the debit to liabilities account as with the decrease in liabilities, these are decreased and unfavorable or negative balance is on the debit side in the ledger account due to make payments to suppliers and other reasons. What is Negative Liability - Mea ning As negative liabilities have debit balance, so these are treated as Assets on  Balance Sheet   u ntil these are cleared.   N egative liability on balance sheet is created because of some reasons such as paying excessive amount to vendors / suppliers due to some errors or mistakes, etc.

Increase And Decrease In Assets Accounts Recorded As Debits Or Credits Accordi ng to the Rules of Debit And Credit , an increase in assets account resulted in the debit to assets accounts as Assets usually has debit balance which is also called positive, favorable or normal balance. Any decrease in assets accounts resulted in the credit to assets account as with the decrease in assets accounts, these are recorded on credit side in the ledger account. Also, since the assets account has credit balance which is unusual or unfavorable or negative balance for it due to the Disposal of Assets or any other reasons.

I ncreases / Decreases In Shareholders Equity Recorded As A Debit Or Credit Accordi ng to the Rules of Deb it A nd Credit , a n i ncrease in Shareholders Equity , i n case of Proprietorship and Partnership, the term " Capital " is used instead of shareholder equity / stockholder equity, is recorded on the credit side in the ledger account as increase in shareholders equity shows the favorable result of this particular type of account which also has credit balance which is a usual, normal, positive or favorable for it. On the other hand, any decrease in shareholders equity account resulted in the debit side of a ledger account. It shows that equity account decreases due to the utilization of funds from the business or withdrawn of cash or goods from business for owners’own use. When the shareholders equity account has debit balance, then it is called negative, unusual or unfavorable balance.

U nder net worth method or increased worth method, we make comparison between opening capital and closing capital in order to find out the P rofit or Loss made by the business during the year. All the activities taken by proprietor or sole owner would be resulted in the increased of net worth (Closing Capital - Opening Capital) of the business for the accounting period and as a result, the business earns profit, otherwise business suffers a loss i.e., when closing capital is less than opening capital. In other words, if there is a decrease in the net worth of the business, then there is a loss suffered by the business during the period. During the period, the sole trader may withdraw cash or goods for his own personal use, so we add back to it in the profitable activities of the business if it was not withdrawn from the business it would be utilized or still remained the part of profits of the business. Also, any additional or further capital introduced is als...

Loan VS Equity / Owner's Equity / Capital Usually, Loa n is an example of Long-Term Liability / N on Current Liability , but there are also short-term loans and in that case, these are treated as Current Liabilities . Loans are payable by the business to outsiders while Equity is the rights of owners of the company’s business against the Assets of the business. In case of Sole Proprietorship or Partnership, the word “ Capital ” is used instead of “Equity”. A loan is taken from financial institutions like banks, etc., while equity is raised by issuing shares to owners or public in general. I n case of Sole Proprietorship or Par t nership, the capital is i nvested  by ow ner or part ners to ru n the  busi ness   A Loan is an external source of finance while equity / capital is an internal source of finance of the business. There are different types of loans like shot-term loans, long-term loans, secured loans, unsecured ...

Write Off VS Provision | Difference Between Bad Debts Write Off And Bad Debts Provision Write Off mea ns a percentage of amounts due is the certain or real amount and possibly may not be collected from the customers in reality at the end while a provision is an estimation of the amounts due which is uncertain or not sure to be collected from customers for sales. Write off is recorded in the Income Statement as it is a Loss or an Expense to the business while a provision is a Current Liability which is created due to the probable or possible reduction in the value of an account. For example in case of an asset account (e.g., Accounts Receivable / Debtors ), a Contra Asset Account (e.g., Allowance for Doubtful Accounts / Provision for Doubtful Debts ) is deducted from relevant asset account (e.g., Accounts Receivable) on balance Sheet. The b est examples of write off are Write Off Bad Debts , inventory write off, etc.. while Provision for Doubtful Debts or A...

Co nversion Method is a method of Single Entry System in which we convert the basis of preparing Books of Accounts into the basis of Double Entry System while in N et Worth Method , we remain under the single system and prepare books of accounts in order to calculate profit and loss of the business for the accounting period. N et worth method is also called balance sheet approach as we find out net worth’s value of Capital during the year in order to get the information about the profitable activities of the business. That is whey this method is also called Increased N et Worth Method. Conversion method is simply a system of transferring the Single Entry System into Double Entry System in order to prepare Trial balance, Income Statement, balance Sheet and other financial statements of the business for the accounting period.

Marketi ng Expense in Accounting means those Expenses which are incurred to promote a business, its products or services through various mediums such as Advertisements, IT Technologies such as through website, emails, ads, etc. Marketing Expenses are categories under Selling Expenses in Income Statement .   When the company paid marketing expenses, we debit marketing expense account and credit cash account. but, when these are incurred but, still the company did not paid to advertising company for the marketing campaign, then these become Current Liabilities for the company to pay to the advertising company for marketing campaign, promoted by advertising company. In that case, we record the following adjusting entry, based on Accrual basis of Accounting :                             Marketing Expense a/c   XXX               ...