What are GOLDEN RULES OF ACCOUNTING (PRINCIPLES)?
Accounts are divided into three categories.
i. Real Accounts (assets)
Debit: What comes in
Credit: What goes out
ex: Cash, Land & Building, Furniture, Computer, plant &machinery etc.
ii. Personal Accounts (persons & firms)
Debit: The Receiver
Credit: The Giver
ex: Rajesh Singh, S.V. Enterprise, Wipro Pvt Ltd, PNB Bank, Capital, firms, organizations, trusts etc.
iii. Nominal Accounts (expenses & incomes)
Debit: All Expenses and Losses
Credit: All incomes and gains
For ex: Discounts, Commission, Salary, Wages, Freight, office expenses etc.
Define what is a balance sheet?
A balance sheet is a statement consisting of all the assets, liabilities, and capital of a company at certain point.
2. What does Tally accounting mean?
Tally accounting is an ERP software that is used by small as well as large businesses for business functionalities like accounting, finance, inventory, payroll, etc.
3. What is the difference between capital and revenue transaction?
Accounting involves two types of business transactions-capital and revenue.
Revenue transaction refers to the transactions relating to the day-to-day activities.
A capital transaction refers to the transaction for long term objective such as the purchase of a fixed asset.
4. What is the meaning of working capital?
Working capital refers to the value of current assets minus current liabilities that are used in day-to-day trading.
5. What is the meaning of premises in terms of accounting?
In terms of accounting, the word premises refer to the number of fixed assets that are shown in the balance sheet.
6. What is VAT?
VAT stands for value added tax. It is a type of consumption tax placed on a product’s sales price. It stands for the price of ‘value added’ on the product in its production stage.
7. What is the basic accounting equation?
Accounting is all about measuring the assets, capital, and liabilities of a business. Therefore, the basic accounting equation is:
Assets = Liabilities + Owners Equity
8. How are accounting and auditing different?
Accounting and auditing are two different terms. Accounting means recording the daily financial activities of a business, whereas, auditing is checking whether these events are noted correctly or not.
9. What is retail banking?
Retail banking means carrying out financial transactions with a retail client and not any other business or organizational customers.
10. What are trade bills?
Trade bills are simply the documents generated against each transaction.
11. What is double entry bookkeeping and what are its rules?
Double entry bookkeeping follows the principle by which every debit has a corresponding credit due to which the value of the debit is equal to the total of all credits. This simply means that when one account is debited at the same time another account is credited by the similar account.
Rules followed
In the case of personal account: debit the receiver and credit the giver
In the case of real account: debit is what comes in and credit is what goes out
In the case of nominal account: debit all the expenses and credit all the incomes
12. What is debit and credit note?
Debit note is nothing but an intimation note sent to an individual dealing with the business stating that his account will be debited for the purpose indicated therein.
Whereas, credit note is an intimation note sent to an individual dealing with the business stating that his account will be credited for the purpose indicated therein.
13. What does the term dual aspect mean in terms of accounting?
The term dual aspect means every transaction that you carry out has two aspects, i.e., it affects two accounts in their respective opposite sides.
For example, to make a purchase, you have to give cash in exchange for the product or service you avail and when you sell something you get the money in exchange for the sale you make. So, in short, losing and receiving money are the two aspects of a financial transaction. Therefore, the transaction should be recorded in two places.
The concept of duality in terms of fundamental accounting equation is:
Assets = Liabilities + Capital
14. What is inactive and dormant account?
Inactive accounts are the accounts that are closed and will not be used anytime in the future.
Dormant accounts are accounts that are not functional but can be used in the future.
15. What are fictitious assets (intangible assets)?
Fictitious assets are assets that cannot be shown or touched, but can only be felt such as rights, good will, etc.
16. What is the meaning of the general ledger account?
The general ledger is a type of account that a company maintains for recording information of a specific type of transaction such as assets, liabilities, gains, losses, equities, etc. In short, these accounts are maintained for recording all type of transactions that are aggregated in the income statement and balance sheet.
17. What are balance sheet accounts?
Known as permanent accounts, balance sheet accounts are type of accounts in which the balance is not closed in the end of financial year and is carried forward to the next accounting year.
18. What is marginal cost?
Marginal cost is the estimated cost of additional inputs that are required to produce the output. The cost is calculated by dividing the total cost change by the difference in product output. This simply states the increase and decrease in the total cost of the product due to the production of one extra unit in the product.
19. What is working capital?
Working capital is calculated as current assets minus current liabilities, which is used in day-to-day trading. In a simple accounting scheme, the concept of working capital focuses on the capital resources that a given company can count on in the short term to operate. These resources owned by the company are the cash, the portfolio of financial products, and other investments made by the company.
20. What is the meaning of the term overhead in accounting?
In terms of accounting, overhead means the value of indirect expenditures of a company i.e. the rent dues, salaries, etc.
21. What does deferred tax liability stand for?
It stands for the fact that a company will be required to pay more tax in the future due to its transactions in the current period.
22. What is GST?
It is good and service tax; a type of indirect tax that is charged by the seller to the customer on the value of the goods or service availed. GST was implemented in India on 1st July 2017. This type of tax has replaced all the previously existing indirect taxes in India.
23. What is bank reconciliation?
It is a process done by companies to ensure that their records i.e. the balance sheet, general ledger account details, etc. are in accordance with the bank’s records.
24. What is cost objective and why is it done?
Cost objective is the process of recording all the cost incurred by the company in running the usual business. This is done to ascertain the cost of loss and profit ratio of the company and to find ways to control the cost.
25. What is a liability account?
It is a general ledger account of a company that records its obligations, debt, customer prepayments,deferred income taxes, etc. that are a result of the past transactions done by the company.