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  Accounts Payab le or Sundry Creditor is a Real Accou nt as it a Perman ent Account w h ic h is transferred to b ala nce s h eet and not a nominal account w h ic h is a Temporary Accoun t t h at is closed to Income Statement finally for t h e period. It is also considered as a Personal Account as it relates to  natural persons w ho are the suppliers of the compa ny and havi ng different names suc h as Mr. A, Mr.  B , Mr. C, etc.,  and he nce Accounts Payab le or Su n dry Creditors accou nt is created to represents all of t he suppliers of the compa ny from w hom the b usi ness purc hased goods o n account or credit. For example, if t here are three suppliers of the compa ny named as Mr. A, Mr. B a nd Mr. C, t he n to represent t hese suppliers, a certai n account name is created w hich is called as “Accou nts Payab le” that represe nts all of t he suppliers of the compa ny from w hom the compa ny purc hased goods o n account or credit. ...

  Accou nts Receivab le or Su ndry Deb tor is a Real or Property Accou nt as it is categorized as Current Asset w hich is show n on b ala nce s heet. It would pro b a b ly provide b e nefits to t he compa ny in t he form of cash received from customers to whom the compa ny sold goods on credit. For example, goods sold to customers, Mr. A, Mr. B, Mr. C, etc., on account creates Accounts Receivab le from whom the b usi ness would get t he cas h amou nt w he n they paid to the compa ny against t he goods sold to them b y the b usi ness for t h e period. Accounts Receivab le is also co nsidered as a personal account as it s hows certai n numb er of  natural or living  customers to whom the b usi ness sold goods on account. N ominal Accounts are co n sidered as Temporary Accou nts as t h ese are concerned wit h expe nses and losses and revenues and gains w hich are closed to I ncome Statement finally at t h e end of t h e accounting period. So, accounts r...

  W he n we received C heque / Check From Our Customer Or Debtor a nd deposited into b a nk on t he same date, the n we record t he e ntry on cas h b ook eve nt hough it is not recorded, cleared or credited b y the b a nk in our b a nk’s account. T he followi ng entry is recorded for c heque received a n d deposited i nto b a nk w hich is still not cleared b y the b a nk:                            Ba nk a/c  XXX                                              Accounts Receivab le a/c  XXX                                   (Cheque Received from Customer)   As still the e ntry is not recorded b y b a nk and h ence as a result the cas h b ook b a nk column increases and t he credit ...

  Using Accrual Accounting, Revenues Are Recorded And Reported Only U nder Accrual Accounting System , we recorded and reported Expenses at t h e time w he n t hese are i ncurred or incurred to produce or earn Revenues for t h e b usi ness w hether the cash is paid or not. For example, t he expe nses of April incurred s hould b e recorded a nd reported to Income Statement in April, event hough, the payme nt is made in May. Using Accrual Accounting, Revenues Are Recorded And Reported Only U nder Accrual System of Accounting, revenues or income are recorded and reported to financial statements at t h e time w he n t hese are ear ned or goods sold or services rendered to customers w he t h er t he cash is received or not. For Example, t he reve nue earned in Marc h is recorded a nd reported in t h is period event hough the payme nt is received in advance in Feb ruary i.e., b efore March as the goods sold or services re ndered in Marc h a nd not in Feb ruary. ...

  W he n we paid to our suppliers or creditors b efore due date, the n t hey may give us a Discount due to prompt payment w hich is Discount Received for our b usi ness. Example, suppose we paid cas h / c h eck to our suppliers Rs. 9500 in full settlement of Rs. 10000. T he n, w hat is the jour nal entry to record in t he b ooks of accou nts? In t his example, we record the followi ng entry:                                Accounts Payab le a/c  10000                                                                     Cas h a/c / B a nk a/c  9500                                               ...

T he jour nal entry to write off or clear or close or to remove Accounts Payab le / Creditors Account from t he b ooks of accou nts is recorded w he n we paid full amount to our suppliers / vendors or sundry creditors for goods purc hased o n credit or account. Now, actually, the company paid off (paid in full) its current liability. Following entry is recorded to clear accounts payab le:                    Accou nts Payab le a/c  XXX                                                        Cash a/c / Ba nk a/c  XXX                                   (Write Off Accounts Payab le Duri ng T he Period) As the favora b le b ala nce of accounts payab le is credit, so to close it we de b it it a nd...

  Because all assets acquired b y the b usi ness t hrough exter nal lia b ilities a nd internal liab ilities (Ow ner’s Equity or Equity) , accordi ng to Accounting Equation . Also due to dual aspect accounting concept of b usi ness transactions, t he total of de b its must b e equal to the total of credits i n a transaction under Doub le Entry Bookkeeping System . T he Dual Aspect Accou nting Concept stated t hat:    “For Every Deb it, There Must Be A Credit With A n Equal Amount” If t he de b it side a n d credit side of a n account are not equalized or b ala nced wit h each other, the n accurate accounting information can not b e o b tai ned. So, Balancing of Accounts or Equalization of Accounts is necessary so t hat b ala nce s heet, whic h  is also a represe ntation of an Accounting Equation , should b e tally o n specified time of a particular date during t he accou nting period.

  Assets are recorded at historical cost o n b ala nce s heet b ecause to show that cost at which, firstly, assets are acquired b y the b usi ness as a historical record a nd to compare t his cost with fair market value a nd b ook value of assets over a period of time. It is also the requireme nt of Cost Principle w h ic h states t hat assets should b e recorded i n itially at historical costs at which these are acquired b y b usi ness. With the passage of time, the value of assets is depreciated or appreciated, b ut historical cost is used to show the origi nal cost at w hich these are acquired i n order to make comparison it wit h fair market value a nd b ook value. However, this cost pri nciple lacks in providing updated value of assets prevailing in t he market a nd as a result fails to convince t he i nvestors, shareholders and ot her users of fi nancial statements ab out realistic a nd up to  date information. For example, if t he value of b uildi...

  Re nt Receivab le is the amou nt of rent receivab le to ow ner or landlord against t he re nt facilities rendered to tenant for t he accou nting period. It is a current asset for t he b usi ness and recorded on b ala nce s heet. Rent Payab le or Outsta n di n g Re n t or Accrued Re n t is a curre nt liab ility paya b le b y te nant to landlord or owner of t he property agai nst t he services re ndered to him for the period. It is also recorded o n b ala nce s heet b ut a curre n t liab ility o n liab ilities & equity side.

Re nt received is t h e amount of revenue or income earned b y th e owner or landlord against t h e services rendered to tenant during t h e accounting period. It is recorded in Income Statement as it is a temporary account w hich has life equal to or less tha n one year. Rent Receivab le is a Curre nt Asset as it is a receivab le from te nant for t he facilities re ndered to him b ut still the payme nt is not received from tenant b y la ndlord during t he accou nting period. It is s how n on b ala nce s heet as it is a perma nent asset.

  Cost of Goods Sold or Cost of Sales is the direct cost of productio n and it is related to manufacturing / produci ng  and selling of finis hed goods to ultimate customers. Cost of goods sold for tradi ng or merc ha ndise companies is calculated b y applyi ng t he b elow formula as show n b elow: Cost of Sales = Ope ning Inventory + Purc hases - Closi ng Inventory For Manufacturing companies we use t he followi ng formula: Cost of Sales = Cost of Goods Manufactured + Ope ning Finis h ed Inventory + Purchases - Closing Finis h ed Inventory Cost of services or cost of revenue is only calculated for services companies. It does not deal wit h cost of sales as it is concerned only wit h merc h andising or goods produced and traded w h ic h is not involved in a pure service b usi ness. Cost of revenue includes all the costs incurred in rendering the services to clients. Major examples of services companies include all professional firms suc h as Accounti...

Received Cas h From Clie nts For Services Rendered W he n service company rendered services to its client, t he it received cash agai nst suc h services. It is usually the mai n source of revenue for suc h compa n y’s b usi ness. Following journal entry is recorded for t h e amount of revenue received from clients against t h e services rendered as s how n b elow:                         Cash a/c / Ba nk a/c  XXX                                                         Service Revenue Received a/c  XXX                             (Cas h / Ch eck Received For Services Rendered To Clients)   If services rendered on account or credit, t he n following entry is recorded as s how n b elow: ...

  Cas h received or collected from customers, de b tors or accou nts receivab le is recorded whe n t he compa ny received cas h from customers for goods sold to them o n account or credit. T his tra nsaction is recorded in Cas h Book a nd Sundry Deb tors or Accounts Receivable Ledger’s Account . T h e effect of Cas h collected from customers o n accounting equation is t h at cash accou nt is added to asset side a nd accounts receivab le is deducted from asset side b y equal amou nt and accounting equation remai ns in b ala nce in quantity. T he jour nal entry to record cas h received or check received from customers is show n b elow:                               Cash a/c / Ba nk a/c  XXX                                                         ...

  A compa ny paid cas h to suppliers, creditors or accou nts payab le for goods purchased o n account or credit. A company may need cas h to purc h ase goods for running its b usi ness operations and suc h requirement is fulfilled b y suppliers of goods. It is a Cas h Payme nt and outflows of cas h from the poi nt of view of b usi ness. T he jour nal entry to record cas h paid or check paid to supplies is recorded i n Cas h Book a nd Creditor or Accounts Payab le Ledger’s Account . Following journal entry is recorded as s how n b elow:                       Creditors a/c / Accou nts Payab le a/c  XXX                                                                                   Cash a/c / Ba nk a...