Accounting Principles and Subsidiary Ledgers

The owner and business are legally considered the same entity. This means the owner is fully responsible for all business debts and losses.

A partnership agreement outlines the profit/loss sharing percentages for each partner. If not specified, it's usually divided equally.

Partners are individually responsible for all business debt and losses, not just their share. This means creditors can claim from any partner's personal assets if needed.

A running record of a partner's financial involvement in the business, including investments and profit shares. Withdrawals for personal use are recorded as debits.

The liability of partners is limited to their investments, meaning their personal wealth won't be affected if the business fails.

Companies are formed by registering under the Companies Act and shareholders have limited liability, meaning their losses are capped at their initial investment in the company.

Shares of the company can be easily bought and sold on the stock market, offering investors the opportunity to participate in the company's growth.

Companies can be classified based on their ownership and share trading. Public companies offer shares open to the public while private companies restrict share trading.

A process used by businesses to systematically record all financial transactions.

A document supporting a financial transaction, such as invoices, receipts, and contracts.

A fundamental accounting principle that ensures every transaction is recorded in two accounts, with equal amounts but in opposite (debit and credit) entries.

This document lists all the accounts and their balances, ensuring that total debits equal total credits.

A formal record of all related financial transactions for a specific category, such as an asset, liability, equity, revenue or expense.

Financial statements help to assess a company's financial health and performance.

These agencies use financial statements to determine a company's creditworthiness and assign a rating.

Suppliers use accounting information to evaluate a company's ability to pay for goods and services.

Personal accounts track the financial interactions with individuals or organizations. These accounts are further categorized into different types such as natural, artificial, and representative personal accounts.

Natural Personal Accounts are the accounts of individuals or entities that exist naturally like the SBI account; Artificial Personal Accounts are for other businesses like Asian Paints Limited Account; Representative Personal Accounts denote accounts of groups of individuals or entities like the Creditors and Debtors account.

Real accounts reflect tangible and intangible assets used by the business. They are further divided into tangible real accounts like buildings and machinery and intangible real accounts like software and spectrum license fees.

Nominal accounts record income, expenses and losses related to the business's operations. They are further categorized based on their nature as income and profit, or expenses and losses.

Debit and credit recording, also known as double-entry bookkeeping, is a fundamental principle in accounting. Each transaction affects two or more accounts, one with a debit entry and the other with a credit entry.

Debit originates from 'debitum', meaning 'what is due' and credit comes from 'creditum', meaning 'a loan' or 'something given to someone'.

The accounting process involves a sequential flow of steps, starting with recording transactions in a journal, then transferring these entries to a ledger, and finally generating financial statements.

Adjustments are made to account for changes in the business's financial position at the end of an accounting period. These adjustments help ensure that the financial statements reflect the actual economic activity of the business.

A document that systematically lists all accounts and their balances. It helps ensure that the total debits equal the total credits, ensuring accuracy in bookkeeping.

A written record of all related financial transactions for a specific category. It can be for assets, liabilities, expenses, or other financial areas.

A principle in accounting where every transaction is recorded in two accounts with equal amounts but opposite entries (debit and credit). This ensures a balanced financial record.

A document supporting a financial transaction. Examples include invoices, receipts, and contracts.

The main ledger, also known as the General Ledger (GL), is the central record of all financial transactions. It summarizes information from subsidiary ledgers.

It's a rule in accounting that states for a personal account like a person or company, you debit the receiver of something (like an asset) and credit the giver. Imagine you're buying something. You receive the asset and have to pay someone. You're debiting yourself because it's coming into your possession, and crediting the person you owe money to.

It's a rule that says for real accounts (like assets like cash or inventory) you debit what comes into your possession and credit what goes out.

It's a rule that says for nominal accounts (like expenses, income, gains and losses) you debit all the expenses and losses and credit all the incomes and gains.

Subsidiary books are like smaller accounting books that summarize specific data, such as sales, purchases, returns, etc., over a period. They are also called day books.

A purchase book is a subsidiary book specifically used to record all the purchases made by a business over a period.

A ledger is a main book of accounts that holds all the detailed information about each transaction.

The left side of a ledger account is called the debit side, and the right side is called the credit side. Imagine it like two columns, one for debits and one for credits.

When goods are bought on credit (meaning you will pay later), you debit the Goods Account and credit the supplier account. Think of it like receiving the goods and owing the supplier for them.

The accounting equation is a fundamental principle that shows how a business's assets are financed by its liabilities and owners' equity.

An asset is anything owned by a business that has a monetary value.

A liability is a financial obligation owed by a business to someone else.

Owner's equity represents the owner's stake in the business.

The accounting equation can be expanded to highlight the sources and uses of capital. It shows how revenue and expenses affect the owner's equity.

The income statement, also known as the profit and loss statement, shows the company's revenue earned and expenses incurred over a specific period. The difference between these two is the profit or loss.

The balance sheet is a snapshot of a company's financial position at a specific point in time. It shows the sources of capital used (liabilities and owner's equity) and the uses of that capital (assets).

The cash flow statement shows the movement of cash into and out of a company over a period. It highlights the sources of cash (inflows) and the uses of cash (outflows).