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When the company or corporation earns Net Income or Net Profit for the period, then the board of directors decide to declare Dividend to shareholders / stockholders. A dividend is always declared and paid to shareholders or stockholders, only and only, if the company earns net income for the accounting period. In case of net loss, dividend is not declared and not paid to shareholders or stockholders. Dividend for the period is paid to shareholders or stockholders out of Retained Earnings in a company or corporation. It is to be noted that a dividend is not an Expense Account but a Personal Account and a Contra Equity Account . Also, it is a Temporary Account and closed to retained earnings account at the end of the accounting period. Example When dividend is declared, then the company is liable to pay to shareholders. Following journal entry is recorded for Dividend declared but not yet paid to shareholders / stockholders:              ...

The Effect Of Received Cash From Sole Owner Or Owners / Proprietors On The Accounting Equation When cash received by the business from Sole Proprietor or Sole Owner as an additional investment in order to grow, expand or to Stabilize the Business , then following journal entry is recorded as shown below:                                                                                Cash a/c  XXX                                                                                                         Additional Capital a/c ...

Electricity Bill Expense Is Which Type / Kind Of Account (Electricity Bill Expense Is Direct Or Indirect) Electricity Bill Expense  is a Nominal Account as it is closed to Income Summary Account at the end of the accounting period. This Expense is recorded in Income Statement as an indirect expenses if it is not related with direct cost or cost of production. But electricity bill expenses are neither considered as real accounts (accounts related with assets and liabilities) nor personal accounts (accounts related with natural and artificial persons i.e., Sole Proprietor such as Mr. A,  ABC Company such as ABC Company’s Account , etc.). Is Electricity Bill An Expense Or Asset? Actually, electricity bill is an expense as these are paid to suppliers of the company every month in order to operate the business during the accounting cycle and not an asset which is used in the business for office purposes. However, when a company paid electricity bill expenses in a...

If Services Are Sold Out For Cash Or Bank Then What Is The Journal Entry And Its Effect On Accounting Equation? When services are rendered, performed or sold for cash or bank i.e., payment is received by cheque or check, then we debit cash or bank account and credit sales account as cash or cash received by check / cheque (bank) is coming into the business, so there is an increase in cash or bank account being a Current Asset which ultimately affects assets side of the accounting equation. Sales is also increasing as services are receiving by the clients from the business and as sales is the results of operating activities or profitable activities of the owner of the business, so it positively affects owner’s equity on the right side of the accounting equation. The journal entry for services rendered for cash / bank is shown below:                                           ...

Cash Withdrawal Or Withdrew Cash By Cheque / Check From Business For Personal Use Of The Sole Owner / Sent Check To The Owner For Personal Or Private Use When a business owner withdrew cash or bank from business for his own personal use, then one account which is affected is cash account or bank account and other one is drawings account. Actually, a business pays cash or pays cash through check / cheque to sole proprietor from time to time due to personal or private use of owner of the business and in that case this transaction has no concern with business affairs according to Business Entity Concept . So, Drawings Account is created to record transaction related to personal expenses of the owner in order to separate this matter from business own’s accounts. Example: Mr. A is a sole proprietor withdrew cash Rs. 6000 from business for his own personal use. What is the journal entry and how this transaction affected the accounting equation? The journal entry to record for...

What Two Accounts Are Affected When Services Are Sold By Business On Account Or On Credit / The Effect Of Credit Sales On The Accounting Equation When a business rendered or performed services on account / credit, then Accounts Receivable Account and Sales Account are affected as the customers to whom the business rendered services did not pay at the time of receiving services but to pay at some later date. So, the sales is also made on account i.e., Credit Sales is made as not payment is received at the time of rendering the services to customers. According to Accrual Concept , we record a Business Transaction whether the cash is paid or not. Example, Mr. A is a Sole Proprietor in his own business. He sold / performed services for his client, Mr. B for Rs. 2000 but the client did not pay at the time of receiving services but he will pay at a future date as agreed between both of them. What is the journal entry and two accounts involved in this transaction which affects...

What Is The Effect Of Cash Received From Sales On The Accounting Equation When a business receives Cash from goods / merchandise sold or Sales , then the cash account on the asset side (left side) of Accounting Equation is affected and Owner’s Equity on the right side of the accounting equation is affected as sales is the result of operating activities of the owner of the business. Example, Mr. A is a sole proprietor, received cash Rs. 5000 from sales. What is the effect of this transaction on the accounting equation? Firstly, we must know the journal entry for the cash sales transaction. So, the following journal entry is recorded for cash received from sales:                                                                               Cash a/c  5000       ...

The Effect Of Purchased Supplies For Cash / Bank On The Accounting Equation / Purchased Supplies For Cash And Accounting Equation When a business paid cash or by cheque / check for Supplies , Inventory purchases or Stock, then we debit supplies account as a current asset and credit cash or bank account as a current asset also. The journal entry to record is shown below:                                     Stock a/c / Inventory a/c / Supplies a/c  XXX                                                                                                          Cash a/c / Bank a/c  XXX          ...

Trial Balance VS General Ledger VS Sub-Ledger Accounts In Trial Balance , the arithmetical accuracy of all of the Ledger’s Accounts are tested i.e., the total of all of the debits accounts must be equal to the total of all of the credits accounts in monetary value. In General Ledger , those accounts are recorded which occurred very often such as Sale of Fixed Assets, Sales Returns and Allowances, Purchase Returns and Allowances, etc. In Sub-Ledger Accounts , individual records are recorded such as sales on account made to each customer is recorded separately. For example, credit sales to Mr. A is recorded in Mr. A’s Account Receivable Ledger and Mr. A’s Sales Ledger, credit sales to Mr. B is recorded in Mr. B’s Accounts Receivable’s Ledger and Mr. B’s Sales Ledger and so on. All of the individuals totals are then aggregated in Master Ledger such as “Sales Account”, “Accounts Receivable Account”, Accounts Payable Account, etc. So, we can say that a trial balance is such a...

Where Is The Information Obtained To Journalize Adjusting Entries And Why Are Adjusting Entries Journalized? / Which Columns Of Worksheet Is Used To Obtain Information About Adjusting Entries It is the Worksheet i.e., the adjustment columns of worksheet, which provides the information about Adjusting Entries needed to be journalized in order to update general ledgers’account balances at the end of the accounting period. Actually, worksheet provides a summary of different types of special ledgers and master or general ledgers’account balances before the preparation of Financial Statements . Worksheet also provides information about adjusting entries related to different ledgers’ accounts balances that need to be updated at the end of the accounting period. So, we can say that if you want to obtain information related to adjusting entries, then correct worksheet provides such information so that we update the general or master ledgers’ account balances at the end of the ac...

Journal Entry For Travelling Expenses Paid By Cash When we paid travelling expenses of Rs. 30000 by cash, then we debit travelling expenses account and credit to Cash Account as shown below:                                                                     Travellings Expenses a/c  30000                                                                                                                        Cash a/c  30000                         ...

Travelling Expenses Is Which Type / Kind Of Account (Travelling Expenses Accounting Treatment) / Are These Direct Or Indirect Expenses? / Are These Debited To Profit And Loss Account? Travelling Expense is a Nominal Account as it is an Expense recorded in Income Statement or Profit and Loss Account . It is a Temporary Account . Travelling expense is neither a personal account nor a real account as it is not related with assets, liabilities and personal accounts to treat it as a personal or a real account. For example, travelling expenses of Rs. 20000 paid to sales manager for visiting a place to promote the business products is an example of a nominal account. Travelling expenses are closed at the end of the accounting period to Income Summary Account and not transferred to Balance Sheet / Statement Of Financial Position as these are not Permanent Accounts . Travelling Expenses In Trial Balance Debit Or Credit The normal or usual balance of these kinds of expenses i...

A Debit Entry / Credit Entry Always Decreases / Increases The Balance Of An Account Is A Debit Entry Always Decreases / Increases The Balance Of An Account? A debit entry does not always decrease the balance of an Account . It all depends upon the Types of Accounts involved in a Transaction . For Liabilities, Owner’s Equity and Revenues, a debit entry always decreases the balances of these accounts but for Assets and Expenses Accounts, a debit entry always increases the balances of these accounts according to the Rules of Debits And Credits . Is A Credit Entry Always Increases / Decreases The Balance Of An Account? On the other hand, a credit entry always increases the balances of liabilities, owner’s equity and revenues but decreases the assets and expense accounts. Why A Debit Entry / Credit Entry Always Decreases / Increases The Balance Of Liabilities, Owner’s Equity And Revenues And Increases Assets And Expense Accounts? As the normal, unusual, favorable or positive...

If a Business Transaction increases or decreases the left side of the Accounting Equation , then the right side of the accounting equation must be increased and decreased respectively. This is due to Dual Aspect Concept which states that for every debit, there must be a credit with an equal amount. Examples of such transactions include initial or additional investment made by owner of the business, expenses paid for cash, paid to Suppliers for goods purchased on account, withdrawal of owner from the business for his own personal use, etc. All of these examples either show the increase of the debit side or the decrease of the left side or assets side of the accounting equation but at the same time these examples also show the increase or decrease of the right side whichever is the case, i.e., if the left side is increased, then the right side of the accounting equation must also be increased (e.g., made initial investment, expenses paid, etc.) and if the left side is decreased...