Introduction & Definition Firstly, let's see what the term 'petty cash book' means. The word ‘petty’ means small. A petty cash book is identical to a cash book, maintained to record the small expenses of a business like stationery, postage, stamps, carriage, etc. The cash received by a petty casRead more
Introduction & Definition
Firstly, let’s see what the term ‘petty cash book’ means. The word ‘petty’ means small. A petty cash book is identical to a cash book, maintained to record the small expenses of a business like stationery, postage, stamps, carriage, etc. The cash received by a petty cashier is recorded on the debit/ receipt side whereas, the money he pays is recorded on the credit/ payment side. The difference between the sum of the debit and credit items represents the balance of the petty cash in hand.
The reason the petty cash book is maintained is that it records small expenses that are inconvenient or too small to be registered in the cash book. This is also called a simple petty cash book. Just like a cash book is maintained by the accountant, the petty cash book is maintained by a petty cashier.
When it comes to the format, there are two types of petty cash book formats. They are-
Simple Petty Cash Book
Analytical Petty Cash Book
We have been discussing the simple petty cash book so far. Thus,
Format of Simple Petty Cash Book
Analytical Petty Cash Book
The analytical petty cash book has numerous columns for the recording of monetary transactions. In the analytical petty cash book, there are pre-existing columns for the usual expenses that are recorded frequently in the business which makes it easier for a business that has daily expenses for food, stationery, postage, etc. They’ll be having individual columns. It has numerous columns in it for the recording of expenses in it.
The key advantages of an analytical petty cash book are-
One of the major key advantages is that the analytical petty cash book due to its format and structure saves time.
The other advantage is that it helps the business in easy comparisons.
Drawings of goods The drawings of the goods, in a business, take place when the owner/partner of a business withdraws goods for their personal use. It's hence called drawings as it reduces the capital invested by the owner(s). It's also called the withdrawal account. The drawings are generally madeRead more
Drawings of goods
The drawings of the goods, in a business, take place when the owner/partner of a business withdraws goods for their personal use. It’s hence called drawings as it reduces the capital invested by the owner(s). It’s also called the withdrawal account.
The drawings are generally made for cash or stock by the owner/partner and the relevant account is thus reduced causing the adjustment done on the owner/partner’s capital at the cost price.
Journal entry
The journal entry for the goods withdrawn for personal use will be as follows:
Explanation via rules
The drawings account is debited because it decreases the balance of the capital account. Whereas, the purchases account is credited as it causes a reduction in the purchases account.
As per the modern rules of accounting, we credit the decrease in assets, thus, the purchases account is credited. Whereas, the withdrawal account when increased is debited. Therefore, the drawing account is debited here.
As per the golden rules of accounting, “debit what comes in and credit what goes out.” Hence, the purchase account is credited. And, “if any expense or loss is incurred for the business, the expense or loss account shall be debited“. Thus, the drawing account is debited.
Journal entries in the ledger What is a Journal Entry? Journal entry is a form of bookkeeping. All the economic or non-economic transactions in the business are recorded in the journal entries showing a company's debit or credit balances. It is a double-entry accounting method and requires at leastRead more
Journal entries in the ledger
What is a Journal Entry?
Journal entry is a form of bookkeeping. All the economic or non-economic transactions in the business are recorded in the journal entries showing a company’s debit or credit balances. It is a double-entry accounting method and requires at least two accounts or more in a transaction.
The journal entry helps to identify the transactions. We use journals to get a running list of business transactions. Each journal entry provides this specific information about a transaction:
Date of the transaction.
Accounts involved in it.
Payer, payee, receiver, etc.
Account name.
Debit and credit of money.
General Ledger
After the transactions are recorded in the journal, they are posted in the principal book called ‘Ledger’. A ledger account contains information about a specific account. It contains the opening balance as well as the closing balances of an account. It summarizes the business transactions.
Transferring the entries from journals to respective ledger accounts is called ledger posting or posting to the ledger accounts. Balancing of ledgers is carried out to find differences at the year’s end, it means finding the difference between the debit and credit amounts of a particular account.
For instance,
Suppose goods were bought for cash. While passing the journal entry, we’ll be debiting the purchases a/c and crediting the cash a/c by stating it as, ‘To Cash A/c’.
Now, this entry will be affecting both the purchases account and the cash account. In the cash account, we’ll be debiting purchases. Whereas in the purchases account, we’ll be crediting the cash. That’s how it works in the double-entry bookkeeping system of accounting.
Example
Mr. Tony Stark started the business with cash of $100,000. He bought furniture for business for $15,000. He further purchased goods for $75,000. He hired an employee and paid him a salary of $5,000.
Now, we’ll be journalizing the transactions and posting them into the ledger accounts.
Journal Entries
Recording into Ledger Account
Cash A/c
Capital A/c
Furniture A/c
Purchases A/c
Salary A/c
Note: The balance b/d is not applicable as this is the business’ commencement year.
Therefore, 2) Asset is the correct option. Explanation The petty cash book is managed and made by not an accountant but the petty cashier and is done to record small incomes and expenditures that are not recordable in the cash book. Therefore, the desired result we obtain from the deduction oRead more
Therefore, 2) Asset is the correct option.
Explanation
The petty cash book is managed and made by not an accountant but the petty cashier and is done to record small incomes and expenditures that are not recordable in the cash book. Therefore, the desired result we obtain from the deduction of the total expenditure and total cash receipt is the closing balance of the petty cash book.
Petty cash refers to the in-hand physical cash that a business holds to pay for small and unplanned expenses.
Asset: The closing balance of the petty cash book is considered an asset because the petty cash book is a type of cash book. The petty cash book also deals in outflow and inflow of the cash, it also maintains and records income and expenditure that are similar to the cash book.
The petty cash book since being a part of the cash book, which records all the inflow and outflow of cash in a business, which is an asset, thus petty cash book’s closing balance is considered an asset. Also, the balance of the petty cash book is never closed. Their closing balance is carried forward to the next year.
Liability: The closing balance of the petty cash book is not considered a liability because that closing balance of the petty cash book doesn’t create a liability for the business. In fact, the closing of the petty cash book is placed under the head current asset in the balance sheet as mentioned above, it’s a part of the cash book which records the transactions of cash a/c which is an asset itself.
Expenses or Income: It is not an expense because the closing balance of the petty cash book is calculated by deducting the total expenditure from the total cash receipt.
That is an asset and it is considered to be a current asset, neither an income nor an expense. It is used for paying out petty expenses.
Therefore, the closing balance of the petty cash book is considered an asset.
Land in the balance sheet The land is an asset and hence it is shown on the asset side of the balance sheet. On the asset side of the balance sheet, the land is stated under the heading long-term assets. Balance Sheet (for the year…) Explanation The land is a fixed asset and is supposed not to be caRead more
Land in the balance sheet
The land is an asset and hence it is shown on the asset side of the balance sheet.
On the asset side of the balance sheet, the land is stated under the heading long-term assets.
Balance Sheet (for the year…)
Explanation
The land is a fixed asset and is supposed not to be cashed, consumed, last, sold, or written off within one accounting year and is purchased for long-term use. The fixed assets are also called non-current assets and the reason behind it is that current assets are easily converted into cash within one year and they are not.
The sole purpose of buying fixed assets like the land is that they are planned to be used for the long term in order to generate income.
Examples of fixed assets – Land, buildings, furniture, plants & equipment, etc.
Also called non-current assets and capital assets.
Why is it shown on the asset side?
The land is an asset, although it is not depreciable it is still considered to be an asset because just like other assets the business spends its own money to acquire it, and it gives them a long-term benefit while reselling it.
Therefore, the land is shown on the asset side under the fixed asset heading.
Ledger Folio A ledger folio, in simple words, is a page number of the ledger account where the relevant account appears. The term 'folio' refers to a book, particularly a book with large sheets of paper. In accounting, it's used to maintain ledger accounts. The use of ledger folio is generally seenRead more
Ledger Folio
A ledger folio, in simple words, is a page number of the ledger account where the relevant account appears. The term ‘folio’ refers to a book, particularly a book with large sheets of paper. In accounting, it’s used to maintain ledger accounts.
The use of ledger folio is generally seen in manual accounting, i.e the traditional book and paper accounting as it is a convenient tool used for tracking the relevant ledger account from its journal entry. Whereas, in computer-oriented accounting (or computerized accounting), it’s not really an issue to track your relevant ledger account.
Ledger folio, abbreviated as ‘L.F.’, is typically seen in journal entries. The ledger folio is written in the journal entries, after the ‘date’ and ‘particulars’ columns. It is really convenient when we’re dealing with and recording a large number of journal entries. As we will be further posting them into ledger accounts, thus, ledger folio comes in as a really useful component of journal entries.
The number in the ledger folio may be numeric or alphanumeric.
The ledger folio column in the journal has nothing to do with the accounting principles and rules. It’s used by us as per our methods and needs.
Example
We’ll look at how the ledger folio column is used while recording journal entries.
We can find the relevant ledger accounts on the page numbers of the book as mentioned in the above entries, i.e. the cash and sales account on page – 1 whereas, the purchases and sundry creditors on page – 2 of the relevant ledger book.
1) A simple petty cash book is like a cash book. Definition The term 'petty' means small. A simple petty cash book is identical to a cash book, maintained to record the small expenses of a business like stationery, postage, stamps, carriage, etc. The cash received by a petty cashier is recordRead more
1) A simple petty cash book is like a cash book.
Definition
The term ‘petty’ means small. A simple petty cash book is identical to a cash book, maintained to record the small expenses of a business like stationery, postage, stamps, carriage, etc. The cash received by a petty cashier is recorded on the debit/ receipt side whereas, the cash he pays is recorded on the credit/ payment side. The difference between the sum of the debit and credit items represents the balance of the petty cash in hand.
Format
Explanation
Cash Book– A simple petty cash book is recorded and maintained just like the cash book. Just like a cash book records all the major transactions of the business, a petty cash book only focuses on the expenses which are of little value. Just like the cash book is maintained by the accountant of the business, the petty cash book is maintained by the petty cashier.
Therefore, a petty cash book is like a sub-part of a cash book itself.
Statement – A statement in accounting terms refer to a report. They are prepared to show some accounting data and different types of statements show different perspectives of the company’s financial health and performance. For e.g Balance sheet, trial balance, cash flow statements, etc.
Thus, a petty cash book is not a part of statements in accounting.
Journal – A petty cash book is not a part of a journal as a journal entry records business transactions in the accounting system for an organization and is also called the building block of the double-entry accounting method. While a petty cash book is maintained to record the small expenses of a business that are of little value.
No, the building is not a current asset. Explanation Current assets are those in a business that is reasonably expected to be sold, consumed, cashed, or exhausted within one year of accounting through normal day-to-day business operations. Examples: Cash and cash equivalent, stock, liquid assets, etRead more
No, the building is not a current asset.
Explanation
Current assets are those in a business that is reasonably expected to be sold, consumed, cashed, or exhausted within one year of accounting through normal day-to-day business operations.
Examples: Cash and cash equivalent, stock, liquid assets, etc.
The building is expected to have a valuable life for more than a year and is bought for a longer term by a company. The building is a fixed asset/non-current asset, those assets which are bought by the company for a long term and aren’t supposed to be consumed within just one accounting year.
In order to understand it more clearly, let’s see the two types of assets in the classification of the assets on the basis of convertibility:
In the classification of the assets on the basis of their convertibility, they are classified either as current assets or fixed assets. Also referred to as current assets/ non-current assets or short-term/ long-term assets.
Current Assets – As explained above, those assets in a business that is reasonably expected to be sold, consumed, cashed, or exhausted within one year of accounting.
Fixed Assets – Those assets which are not likely to be converted into cash quickly and are bought by the business for a long term.
Building in the balance sheet
Let us take a look at the balance sheet’s asset side and see where building and current assets are shown
Balance Sheet (for the year ending…)
As we can see, the building is shown on the long-term assets side and not in the current assets.
Prepaid Payable Prepaid payable or prepaid expenses refer to the future expenses that have been paid in advance. It is an advance payment made by the business for the goods and services to be received by the business in the future. A prepaid expense is an asset on the balance sheet. The number of prRead more
Prepaid Payable
Prepaid payable or prepaid expenses refer to the future expenses that have been paid in advance. It is an advance payment made by the business for the goods and services to be received by the business in the future.
A prepaid expense is an asset on the balance sheet. The number of prepaid expenses that will be used up within one year is reported on a company’s balance sheet as a current asset. According to generally accepted accounting principles (GAAP), expenses should be recorded in the same accounting period as the benefit generated from the related asset.
Example
ABC Ltd. purchases insurance for the warehouse. It was ₹2,000 per month. The company pays ₹24,000 in cash upfront for a 12-month insurance policy for the warehouse. Each month an adjusting journal entry will be passed, adjusting the amount of insurance used from the prepaid insurance.
Journal Entry-
Prepaid Expenses in Balance Sheet-
Prepaid expenses are shown in the balance sheet under the current assets heading as it’s a short-term asset and to be consumed within one accounting year.
Ledger posting As we know, a business records all of its transactions in the journal. After the transactions are recorded in the journal, they are posted in the principal book called ‘Ledger’. Transferring the entries from journals to respective ledger accounts is called ledger posting or posting toRead more
Ledger posting
As we know, a business records all of its transactions in the journal. After the transactions are recorded in the journal, they are posted in the principal book called ‘Ledger’. Transferring the entries from journals to respective ledger accounts is called ledger posting or posting to the ledger accounts. Balancing of ledgers is carried out to find differences at the year’s end.
Posting to the ledger account means entering information in the ledger, and respective accounts from the journal for individual records. The accounts that are credited are posted to the credit side and vice versa.
Ledger maintenance is done at the end of an accounting period and it’s maintained to reflect a permanent summary of all the journal accounts. In the end, all the accounts that are entered and operated in the ledger are closed, totaled, and balanced. Balancing the ledger means finding the difference between the debit and credit amounts of a particular account.
While posting to the ledger account, suppose goods were bought for cash. While passing the journal entry, we’ll be debiting the purchases a/c and crediting the cash a/c by stating it as, ‘To Cash A/c’.
Now, this entry will be affecting both the purchases account and the cash account. In the cash account, we’ll be debiting purchases. Whereas in the purchases account, we’ll be crediting the cash. That’s how it works in the double-entry bookkeeping system of accounting.
Example
Mr. Tony Stark started the business with cash of $100,000 on April 1, 2021. He bought furniture for business for $15,000. He further purchased goods for $75,000.
Now, we’ll be journalizing the transactions and posting them into the ledger accounts.
Can someone share petty cash book format?
Introduction & Definition Firstly, let's see what the term 'petty cash book' means. The word ‘petty’ means small. A petty cash book is identical to a cash book, maintained to record the small expenses of a business like stationery, postage, stamps, carriage, etc. The cash received by a petty casRead more
Introduction & Definition
Firstly, let’s see what the term ‘petty cash book’ means. The word ‘petty’ means small. A petty cash book is identical to a cash book, maintained to record the small expenses of a business like stationery, postage, stamps, carriage, etc. The cash received by a petty cashier is recorded on the debit/ receipt side whereas, the money he pays is recorded on the credit/ payment side. The difference between the sum of the debit and credit items represents the balance of the petty cash in hand.
The reason the petty cash book is maintained is that it records small expenses that are inconvenient or too small to be registered in the cash book. This is also called a simple petty cash book. Just like a cash book is maintained by the accountant, the petty cash book is maintained by a petty cashier.
When it comes to the format, there are two types of petty cash book formats. They are-
We have been discussing the simple petty cash book so far. Thus,
Format of Simple Petty Cash Book
Analytical Petty Cash Book
The analytical petty cash book has numerous columns for the recording of monetary transactions. In the analytical petty cash book, there are pre-existing columns for the usual expenses that are recorded frequently in the business which makes it easier for a business that has daily expenses for food, stationery, postage, etc. They’ll be having individual columns. It has numerous columns in it for the recording of expenses in it.
The key advantages of an analytical petty cash book are-
Format of Analytical Petty Cash Book
See lessWhat is the journal entry for goods taken for personal use?
Drawings of goods The drawings of the goods, in a business, take place when the owner/partner of a business withdraws goods for their personal use. It's hence called drawings as it reduces the capital invested by the owner(s). It's also called the withdrawal account. The drawings are generally madeRead more
Drawings of goods
The drawings of the goods, in a business, take place when the owner/partner of a business withdraws goods for their personal use. It’s hence called drawings as it reduces the capital invested by the owner(s). It’s also called the withdrawal account.
The drawings are generally made for cash or stock by the owner/partner and the relevant account is thus reduced causing the adjustment done on the owner/partner’s capital at the cost price.
Journal entry
The journal entry for the goods withdrawn for personal use will be as follows:
Explanation via rules
The drawings account is debited because it decreases the balance of the capital account. Whereas, the purchases account is credited as it causes a reduction in the purchases account.
As per the modern rules of accounting, we credit the decrease in assets, thus, the purchases account is credited. Whereas, the withdrawal account when increased is debited. Therefore, the drawing account is debited here.
As per the golden rules of accounting, “debit what comes in and credit what goes out.” Hence, the purchase account is credited. And, “if any expense or loss is incurred for the business, the expense or loss account shall be debited“. Thus, the drawing account is debited.
See lessHow do you record journal entries in ledger?
Journal entries in the ledger What is a Journal Entry? Journal entry is a form of bookkeeping. All the economic or non-economic transactions in the business are recorded in the journal entries showing a company's debit or credit balances. It is a double-entry accounting method and requires at leastRead more
Journal entries in the ledger
What is a Journal Entry?
Journal entry is a form of bookkeeping. All the economic or non-economic transactions in the business are recorded in the journal entries showing a company’s debit or credit balances. It is a double-entry accounting method and requires at least two accounts or more in a transaction.
The journal entry helps to identify the transactions. We use journals to get a running list of business transactions. Each journal entry provides this specific information about a transaction:
General Ledger
After the transactions are recorded in the journal, they are posted in the principal book called ‘Ledger’. A ledger account contains information about a specific account. It contains the opening balance as well as the closing balances of an account. It summarizes the business transactions.
Transferring the entries from journals to respective ledger accounts is called ledger posting or posting to the ledger accounts. Balancing of ledgers is carried out to find differences at the year’s end, it means finding the difference between the debit and credit amounts of a particular account.
For instance,
Suppose goods were bought for cash. While passing the journal entry, we’ll be debiting the purchases a/c and crediting the cash a/c by stating it as, ‘To Cash A/c’.
Now, this entry will be affecting both the purchases account and the cash account. In the cash account, we’ll be debiting purchases. Whereas in the purchases account, we’ll be crediting the cash. That’s how it works in the double-entry bookkeeping system of accounting.
Example
Mr. Tony Stark started the business with cash of $100,000. He bought furniture for business for $15,000. He further purchased goods for $75,000. He hired an employee and paid him a salary of $5,000.
Now, we’ll be journalizing the transactions and posting them into the ledger accounts.
Journal Entries
Recording into Ledger Account
Cash A/c
Capital A/c
Furniture A/c
Purchases A/c
Salary A/c
Note: The balance b/d is not applicable as this is the business’ commencement year.
See lessThe closing balance of petty cash book is considered as?
Therefore, 2) Asset is the correct option. Explanation The petty cash book is managed and made by not an accountant but the petty cashier and is done to record small incomes and expenditures that are not recordable in the cash book. Therefore, the desired result we obtain from the deduction oRead more
Therefore, 2) Asset is the correct option.
Explanation
The petty cash book is managed and made by not an accountant but the petty cashier and is done to record small incomes and expenditures that are not recordable in the cash book. Therefore, the desired result we obtain from the deduction of the total expenditure and total cash receipt is the closing balance of the petty cash book.
Petty cash refers to the in-hand physical cash that a business holds to pay for small and unplanned expenses.
Asset: The closing balance of the petty cash book is considered an asset because the petty cash book is a type of cash book. The petty cash book also deals in outflow and inflow of the cash, it also maintains and records income and expenditure that are similar to the cash book.
The petty cash book since being a part of the cash book, which records all the inflow and outflow of cash in a business, which is an asset, thus petty cash book’s closing balance is considered an asset. Also, the balance of the petty cash book is never closed. Their closing balance is carried forward to the next year.
Liability: The closing balance of the petty cash book is not considered a liability because that closing balance of the petty cash book doesn’t create a liability for the business. In fact, the closing of the petty cash book is placed under the head current asset in the balance sheet as mentioned above, it’s a part of the cash book which records the transactions of cash a/c which is an asset itself.
Expenses or Income: It is not an expense because the closing balance of the petty cash book is calculated by deducting the total expenditure from the total cash receipt.
That is an asset and it is considered to be a current asset, neither an income nor an expense. It is used for paying out petty expenses.
Therefore, the closing balance of the petty cash book is considered an asset.
See lessWhere is land on a balance sheet?
Land in the balance sheet The land is an asset and hence it is shown on the asset side of the balance sheet. On the asset side of the balance sheet, the land is stated under the heading long-term assets. Balance Sheet (for the year…) Explanation The land is a fixed asset and is supposed not to be caRead more
Land in the balance sheet
The land is an asset and hence it is shown on the asset side of the balance sheet.
On the asset side of the balance sheet, the land is stated under the heading long-term assets.
Balance Sheet (for the year…)
Explanation
The land is a fixed asset and is supposed not to be cashed, consumed, last, sold, or written off within one accounting year and is purchased for long-term use. The fixed assets are also called non-current assets and the reason behind it is that current assets are easily converted into cash within one year and they are not.
Why is it shown on the asset side?
The land is an asset, although it is not depreciable it is still considered to be an asset because just like other assets the business spends its own money to acquire it, and it gives them a long-term benefit while reselling it.
Therefore, the land is shown on the asset side under the fixed asset heading.
See lessWhat is the meaning of ledger folio?
Ledger Folio A ledger folio, in simple words, is a page number of the ledger account where the relevant account appears. The term 'folio' refers to a book, particularly a book with large sheets of paper. In accounting, it's used to maintain ledger accounts. The use of ledger folio is generally seenRead more
Ledger Folio
A ledger folio, in simple words, is a page number of the ledger account where the relevant account appears. The term ‘folio’ refers to a book, particularly a book with large sheets of paper. In accounting, it’s used to maintain ledger accounts.
The use of ledger folio is generally seen in manual accounting, i.e the traditional book and paper accounting as it is a convenient tool used for tracking the relevant ledger account from its journal entry. Whereas, in computer-oriented accounting (or computerized accounting), it’s not really an issue to track your relevant ledger account.
Ledger folio, abbreviated as ‘L.F.’, is typically seen in journal entries. The ledger folio is written in the journal entries, after the ‘date’ and ‘particulars’ columns. It is really convenient when we’re dealing with and recording a large number of journal entries. As we will be further posting them into ledger accounts, thus, ledger folio comes in as a really useful component of journal entries.
Example
We’ll look at how the ledger folio column is used while recording journal entries.
We can find the relevant ledger accounts on the page numbers of the book as mentioned in the above entries, i.e. the cash and sales account on page – 1 whereas, the purchases and sundry creditors on page – 2 of the relevant ledger book.
See lessSimple petty cash book is like a?
1) A simple petty cash book is like a cash book. Definition The term 'petty' means small. A simple petty cash book is identical to a cash book, maintained to record the small expenses of a business like stationery, postage, stamps, carriage, etc. The cash received by a petty cashier is recordRead more
1) A simple petty cash book is like a cash book.
Definition
The term ‘petty’ means small. A simple petty cash book is identical to a cash book, maintained to record the small expenses of a business like stationery, postage, stamps, carriage, etc. The cash received by a petty cashier is recorded on the debit/ receipt side whereas, the cash he pays is recorded on the credit/ payment side. The difference between the sum of the debit and credit items represents the balance of the petty cash in hand.
Format
Explanation
Cash Book – A simple petty cash book is recorded and maintained just like the cash book. Just like a cash book records all the major transactions of the business, a petty cash book only focuses on the expenses which are of little value. Just like the cash book is maintained by the accountant of the business, the petty cash book is maintained by the petty cashier.
Therefore, a petty cash book is like a sub-part of a cash book itself.
Statement – A statement in accounting terms refer to a report. They are prepared to show some accounting data and different types of statements show different perspectives of the company’s financial health and performance. For e.g Balance sheet, trial balance, cash flow statements, etc.
Thus, a petty cash book is not a part of statements in accounting.
Journal – A petty cash book is not a part of a journal as a journal entry records business transactions in the accounting system for an organization and is also called the building block of the double-entry accounting method. While a petty cash book is maintained to record the small expenses of a business that are of little value.
Therefore, 1) Cash book is the correct option.
See lessIs building a current asset?
No, the building is not a current asset. Explanation Current assets are those in a business that is reasonably expected to be sold, consumed, cashed, or exhausted within one year of accounting through normal day-to-day business operations. Examples: Cash and cash equivalent, stock, liquid assets, etRead more
No, the building is not a current asset.
Explanation
Current assets are those in a business that is reasonably expected to be sold, consumed, cashed, or exhausted within one year of accounting through normal day-to-day business operations.
Examples: Cash and cash equivalent, stock, liquid assets, etc.
The building is expected to have a valuable life for more than a year and is bought for a longer term by a company. The building is a fixed asset/non-current asset, those assets which are bought by the company for a long term and aren’t supposed to be consumed within just one accounting year.
In order to understand it more clearly, let’s see the two types of assets in the classification of the assets on the basis of convertibility:
In the classification of the assets on the basis of their convertibility, they are classified either as current assets or fixed assets. Also referred to as current assets/ non-current assets or short-term/ long-term assets.
Building in the balance sheet
Let us take a look at the balance sheet’s asset side and see where building and current assets are shown
Balance Sheet (for the year ending…)
As we can see, the building is shown on the long-term assets side and not in the current assets.
Therefore, the building is not a current asset.
See lessWhat is a prepaid payable?
Prepaid Payable Prepaid payable or prepaid expenses refer to the future expenses that have been paid in advance. It is an advance payment made by the business for the goods and services to be received by the business in the future. A prepaid expense is an asset on the balance sheet. The number of prRead more
Prepaid Payable
Prepaid payable or prepaid expenses refer to the future expenses that have been paid in advance. It is an advance payment made by the business for the goods and services to be received by the business in the future.
A prepaid expense is an asset on the balance sheet. The number of prepaid expenses that will be used up within one year is reported on a company’s balance sheet as a current asset. According to generally accepted accounting principles (GAAP), expenses should be recorded in the same accounting period as the benefit generated from the related asset.
Example
ABC Ltd. purchases insurance for the warehouse. It was ₹2,000 per month. The company pays ₹24,000 in cash upfront for a 12-month insurance policy for the warehouse. Each month an adjusting journal entry will be passed, adjusting the amount of insurance used from the prepaid insurance.
Journal Entry-
Prepaid Expenses in Balance Sheet-
Prepaid expenses are shown in the balance sheet under the current assets heading as it’s a short-term asset and to be consumed within one accounting year.
Balance Sheet (for the year ending…)
See lessWhat is the meaning of post to the ledger accounts?
Ledger posting As we know, a business records all of its transactions in the journal. After the transactions are recorded in the journal, they are posted in the principal book called ‘Ledger’. Transferring the entries from journals to respective ledger accounts is called ledger posting or posting toRead more
Ledger posting
As we know, a business records all of its transactions in the journal. After the transactions are recorded in the journal, they are posted in the principal book called ‘Ledger’. Transferring the entries from journals to respective ledger accounts is called ledger posting or posting to the ledger accounts. Balancing of ledgers is carried out to find differences at the year’s end.
Posting to the ledger account means entering information in the ledger, and respective accounts from the journal for individual records. The accounts that are credited are posted to the credit side and vice versa.
Ledger maintenance is done at the end of an accounting period and it’s maintained to reflect a permanent summary of all the journal accounts. In the end, all the accounts that are entered and operated in the ledger are closed, totaled, and balanced. Balancing the ledger means finding the difference between the debit and credit amounts of a particular account.
While posting to the ledger account, suppose goods were bought for cash. While passing the journal entry, we’ll be debiting the purchases a/c and crediting the cash a/c by stating it as, ‘To Cash A/c’.
Now, this entry will be affecting both the purchases account and the cash account. In the cash account, we’ll be debiting purchases. Whereas in the purchases account, we’ll be crediting the cash. That’s how it works in the double-entry bookkeeping system of accounting.
Example
Mr. Tony Stark started the business with cash of $100,000 on April 1, 2021. He bought furniture for business for $15,000. He further purchased goods for $75,000.
Now, we’ll be journalizing the transactions and posting them into the ledger accounts.
Journal Entries
Posting to Ledger Account
Cash A/c
Capital A/c
Furniture A/c
Purchases A/c
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