Periodic and Perpetual Systems of Inventory Accounting
There are two types of systems of inventory accounting, which are briefly discussed below: (1) Periodic Inventory System – Definition and Explanation: When the periodic…
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Basic Concepts of Financial Accounting for CPA Exam - Online Syllabus Topics for Financial Accounting Course
Goods on Sale or Return Basis
Goods Sent to Customers on Sale or Return (Approval) Basis: When goods are sent on a “sale or return” or on “approval” basis, these goods…
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Effects of Errors in Valuing Inventory
The errors in valuing inventories affect the profit and assets in the following way:
Separate Valuation of Inventory Items
Accounting standards require that the cost and net realizable value (NRV) of each inventory item should be calculated individually and the lower figure taken in…
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Role of Accounting Concepts in Inventory Valuation
Historical cost concept of accounting states that assets including inventory should be recorded at their original cost until they are sold. In other words, no…
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Physical Flow of Goods VS Inventory Valuation Methods
The valuation methods are bookkeeping methods and must not be confused with the physical flow of inventory. As most goods deteriorate with age, the physical…
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Calculation of Gross Profit using Calculated Inventories of FIFO and AVCO
Calculation of Gross Profit (Perpetual): To calculate gross profit (perpetual) and gross profit (periodic), we take calculated inventories of FIFO from First in First out…
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Weighted Average Cost (AVCO) Method
Definition and Explanation: The weighted average cost (AVCO) method or standard cost method involves computing the weighted average cost of the inventory held after each…
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First in First out Method (FIFO)
Definition and Explanation: The FIFO method uses the price of first batch received for costing all units of sales until all units from this batch…
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Inventory Valuation Methods
Records of inventories are not normally included in the double entry system. Most organizations keep a separate record of inventories, outside the ledger, by maintaining…
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Balance Sheet and Income Statement – Solved Examples
Example 1: Preparation of Balance Sheet – Horizontal and Vertical Style: The following trial balance is prepared after preparation of income statement for F. Green…
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Items in the Balance Sheet
Balance sheet is a financial statement so it should give much information as possible to the users of the balance sheet. The items in the…
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Drawings
Drawings in Accounting – Definition and Explanation: Drawings are the amounts taken by the owner of a business for his personal use in anticipation of…
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Accounting Period
What is an Accounting Period/Reporting Period? Definition and Explanation: Accounting period (reporting period) is that period for which the organization ascertains its profit or loss. It…
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Carriage Inwards and Carriage Outwards
Difference between Carriage Inwards and Carriage Outwards: Carriage Inwards – Definition and Explanation: Carriage inwards is an expense incurred to bring the goods purchased to…
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An Introduction to Financial Statements
We had detailed discussion of trial balance and also learnt that how it is being prepared with the help of ledger account balances. We had…
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Closing of Incomes and Expenses
As mentioned in the accounting for inventories chapter, businesses close the accounts for all its incomes and expenses by transferring their balances to incomes statement…
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Calculation of Net Profit
Definition and Procedure to Explain Net Profit: We have already learnt in the accounting for inventories chapter that how profits and losses may be determined…
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Net Profit Ratio
Net Profit Ratio or Net Profit Margin or Operating Profit Ratio – Definition and Explanation: The net profit ratio (net profit margin or operating profit)…
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Gross Profit Ratio
Gross Profit (GP) Ratio or Gross Profit Margin – Definition and Explanation: Gross profit ratio (GP ratio or gross profit margin) tells us how much…
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Profitability Ratios
Profit is as essential for a business as blood for life of a human being. A business running in continuous losses finds it dubious to…
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Bookkeeping for Incomes and Expenses
The mechanism of recording incomes and expenses transactions/entries are given below: Explanation with Example Entries and T-Accounts: Transaction 1: Capital Injection by Owner: Transaction 2:…
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Double Entry for Expenses and Incomes (Revenues)
The double-entry for expenses and incomes (revenues) are slightly more complicated as compared to assets, liabilities and capital. Debit and Credit Rules for Incomes and…
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Incomes and Expenses
Definition of Income: The most important and possibly the only source of revenue for most businesses is the income derived from the sale of goods…
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Calculation of Profits for Service Business
Many trading and manufacturing organizations, there may be service businesses which sell knowledge and or skills such as solicitors, accounting firms, estate agents and advertising…
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Opening Inventory
Definition: Businesses may inventory of unsold goods at the beginning of the period called opening inventory. Normally, an assumption is made that this inventory is…
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Closing Inventory
Definition: This is very unlikely that a business sells all the goods that it purchased during the current period. Therefor cost of purchases is not…
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Closing of Incomes and Expenses
At the end of an accounting period businesses close the nominal accounts (accounts for all incomes and expenses) by transferring their balances to the income…
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Trading Section of Income Statement
Preparation Methods of Trading Section of Income Statement: Trading section of income statement is usually prepared on a separate sheet (in a vertical layout) rather…
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Sales Returns or Returns Inwards
Definition and Explanation: Sales returns are also known as returns inwards because they are being returned back to the firm which sold them. It provides…
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Purchase Returns or Return Outwards
Definition and Explanation: Purchase returns are also known as returns outwards because they are being sent out from the firm which bought them. It provides…
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Sales Transactions in Accounting
Definition of Sale: Sales refers to the sale of goods which have been purchased with the intention of selling. Sales just like purchases include both…
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Purchase Transactions in Accounting
Definition of Purchase: Purchase refers to those goods which are bought with the intention of selling. This also means that purchases of non-current assets should…
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Bookkeeping for Inventory of Goods
Bookkeeping of inventory may be determined in two different ways: (1) By reducing the purchases figure on account of every sale using the cost (purchase)…
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Inventory of Goods
Inventory of goods, for trading businesses, holds a key place in accounting analysis as it is mainly responsible for generating profits which is one of…
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Trial Balance
Definition: As the business grows, the number of entries increases and it is therefore rightly desired by the businesses to carry out periodic checks on…
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Balancing of an Account
Definition of Balance, Debit Balance and Credit Balance: The difference between the sum of the two sides of an account is called the balance. This…
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Double Entry for Assets and Liabilities
Double entry system for assets and liabilities can be well explain with the help of following examples: Before reading “double entry for assets and liabilities”…
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Accounts in Accounting
Definition: Instead of using a plus or minus sign to indicate increase or decrease of an item, an account is prepared to show summarized record…
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Rules for Debit and Credit
Accounting as language of business has its own vocabulary. There are certain rules for recording increase or decrease in assets, liabilities and capital in the…
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Balance Sheet
Balance Sheet or Statement of Financial Position – Definition: The balance sheet (statement of financial position) is a statement (not an account) which shows financial…
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Business Transaction
We should know that accounting equation is only affected when business enters into a transaction. The term transaction is defined below: Definition: Business transaction is…
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Accounting Equation
The whole system of accounting has developed from the same basic tenet of a single equation. As a business does not own any thing at…
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Branches of Accounting
There are following three main branches of accounting: (1) Bookkeeping. (2) Financial accounting. (3) Managerial accounting. Definition and Evolution of Bookkeeping: Firstly accounting is related…
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Explains financial and managerial accounting. Exercises, problems, calculators and more.