Definition Posting refers to moving the transaction entries from the journal to the ledger books of the company. It is an important part of the accounting cycle. Posting helps us to classify transactions in a better manner. A journal is used to record transactions in chronological order while ledgerRead more
Definition
Posting refers to moving the transaction entries from the journal to the ledger books of the company. It is an important part of the accounting cycle.
Posting helps us to classify transactions in a better manner.
A journal is used to record transactions in chronological order while ledger books are used to classify transactions into assets, liabilities, expenses, and incomes.
Steps of Posting
• Create and name ledger accounts for different items of trial balance
• Identify those entries in the journal that relate to the relevant ledger book under consideration.
• Post the entry on the debit or credit side of the ledger account.
• For example, when salaries are paid a salary account is debited and a bank account is credited. When posting this transaction in the bank account we will debit the bank account and write “To salaries” under the head “particular”. This will indicate that salaries were paid from a bank account causing a reduction in the bank balance.
• After all the journal entries relevant to a particular ledger account have been posted in it, we will tally the total of the debit and the credit side of the ledger account to ascertain any balance left.
• Usually, asset accounts have the debit side exceeding the credit side. That is to say, they have a debit balance. Liability accounts usually have a credit balance.
• It is not necessary that every ledger account may have a balance left at the end. The total of the amounts on the debit side may be equal to the total of the amounts on the credit side in some ledger accounts.
• The last step is to recheck the ledger account to identify and correct any mistakes that may have occurred during the posting process.
Importance of Posting
• Posting helps us to classify transactions in a better and more efficient manner.
• Posting makes the books of accounts more readable.
• An accountant may choose to engage in posting once every month or even once every day as per the requirements of the business and the financial reporting norms.
• Posting is necessary for the creation of financial statements. A trial balance cannot be drafted without determining the balance of each ledger account.
• Posting helps us to know the balance of each account This helps to run the business smoothly by tracking balances timely and making up for any likely deficiency in advance.
• Analysis of how balances of various ledger accounts have changed over time helps us to draw valuable conclusions for the business.
Conclusion
We can conclude by saying that the process of posting refers to transferring the entries from the journal to the ledger accounts.
Posting is an essential step of the accounting cycle and without it, financial statements cannot be prepared. Any error while posting is bound to adversely affect the creation of the financial statements.
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Definition Contingent Asset is an asset the existence, ownership, or value of which may be known or determined only on the occurrence or non-occurrence of one or more uncertain future events. However, the difference between Contingent assets is not disclosed whereas Contingent liabilities are discloRead more
Definition
Contingent Asset is an asset the existence, ownership, or value of which may be known or determined only on the occurrence or non-occurrence of one or more uncertain future events.
However, the difference between Contingent assets is not disclosed whereas Contingent liabilities are disclosed by way of notes they do have different criteria for recognition which are discussed below.
For example:– a claim that an enterprise is pursuing through the legal process, where the outcome is uncertain, is a contingent asset.
Contingent liabilities are defined as obligations relating to existing conditions or situations which may arise in the future depending on the occurrence or non-occurrence of one or more uncertain events.
For example:- Billis discounted but not yet matured, arrears of dividend on cum –preferences-shares, etc.
Meaning as per AS – 29
Now let me try to explain to you the meaning according to Accounting Standard 29 of the above contingent assets and liabilities which is as follows:-
• Contingent asset
A contingent asset is a possible asset that arises from past events the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events.
Not wholly within the control of the enterprise.
It usually arises from unplanned or unexpected events that give rise to the possibility of an inflow of economic benefits to the enterprise.
• Contingent liability
A possible obligation that arises from past events the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events.
Not wholly within the control of the enterprise.
A present obligation that arises from past events but is not recognized because it is not probable that the outflow of resources embodying economic benefits will be required to settle the obligation or,
A reliable estimate of the amount of obligation cannot be made.
Recognition In Financial Statements
Contingent assets and liabilities are recognized as follows:-
• Contingent Assets
As per the prudence concept s well as present accounting standards, an enterprise should not recognize a contingent asset.
It is possible that the recognition of contingent assets may result in the recognition of income that may never be realized.
However, when the realization of income is virtually certain, the related asset no longer remains contingent.
• Contingent liability
As per the rules, it is not recognized by an enterprise.
When recognized?
Contingent assets are assessed continually and if it has become virtuality an outflow of economic benefits will arise.
The assets and the related income are recognized in the financial statements of the period in which the change occurs.
Contingent liability is assessed continually to determine whether an outflow of resources embodying economic benefits has become probable.
And if it becomes probable that an outflow or future economic benefits will require for an item previously dealt with as a contingent liability.
A provision is recognized in financial statements of the period in which the change probability occurs except in extremely rare circumstances where no reliable estimate can be made.
Disclosure
Now we will see how contingent assets and liability are disclosed which is mentioned below:-
• Contingent asset
These contingent assets are not disclosed in financial statements.
A contingent asset is usually disclosed in the report of the approving authority ( ie.e., Board Of Directors in the case of a company, and the corresponding approving authority in case of any enterprise), if ab inflow of economic benefits is probable.
• Contingent Assets
A contingent liability is required to be disclosed by way of a note to the balance sheet unless the possibility of an outflow of a resource embodying economic benefit is remote.
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