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What is Trial Balance?

What is Trial Balance?

The Trial Balance is the summary of all the ledger accounts at one place to give the overall view of the business activities indicating the business health of the organization or the statement which takes all the ledger balances at one place to summarize the business activities to indicate the financial health of the business is called as the Trial Balance. Explanation In General, the accounts consists of the various ledgers indicating the different heads of accounts. When all the…

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Determinants of price elasticity of demand

Determinants of price elasticity of demand

Price Elasticity of demand refers to the percentage change in quantity demanded to the percentage change in price and it measures the percentage of change in demand due to change in the price of the product which may be affected by various reasons like availability of substitutes, consumer habits, etc. Determinants of Price Elasticity of Demand: Price Range of the product: The price Range of the product affects the price elasticity of demand as with the change in the price…

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Expansion & Contraction of demand

Expansion & Contraction of demand

Demand refers to the number of goods & services that the consumers are willing to purchase and are able to afford at different prices at a given period of time. To constitute a demand, only desire to purchase any goods & services is not enough but desire should be accompanied by the means of purchase and the willingness to use that means of purchase to purchase the required product or service. Expansion of demand Expansion of demands means when there…

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Bank Reconciliation Statement (BRS)

Bank Reconciliation Statement (BRS)

Bank reconciliation is a summarized statement that reconciles the difference between bank balance as per the company’s accounts and the bank balance as per bank statements of the company in order to ensure that the company’s cash records are correct and are free from fraud and errors. Explanation: A bank reconciliation statement is prepared to find out the difference between the bank column of the cash book and the bank statement (passbook). The cash book is prepared by the bank…

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Methods of Preparing Trial Balance

Methods of Preparing Trial Balance

A trial balance is defined as the accounting report or the bookkeeping that contains the list of all general ledgers of the organization in the form of debits and the credits in the way that all the debit balances are listed under the heading “Debit balances” and all the credit balances are listed under the heading “Credit balances” and the total of all debits equals to the total of all the credits. Purpose of Trial balance There are basically two…

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What is Ledger?

What is Ledger?

Ledger is the systematic accounting of transactions summarized from journals and is posted as debit or credit to determine the actual status of transactions i.e. whether the transaction is representing asset or income for the organization or it is a liability or expense for the organization. Through ledgers, each transaction is recorded that takes place during the life of an operating organization. Explanation Ledgers contain information that is used for the preparation of the financial statement. Journal is the record…

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What is Journal?

What is Journal?

Journal, also known as the subsidiary book, is the book that initially records the business transactions with the help of the vouchers that are prepared using various source documents in chronological order. Journal records each account separately and shows which account is debited and which one is credited based on the concept of double-entry system of accounting. Explanation After all the transactions that are needed to be recorded are identified, are firstly recorded in the basic book of original entry…

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Goods & Service Tax

Goods & Service Tax

Goods & Service tax is a value-added tax which is levied on the manufacture, sale & consumption of goods & services. Goods & service tax has subsumed various indirect taxes such as VAT, service tax, excise duty, entertainment tax, CST, Luxury tax, entry tax, etc. GST is a comprehensive, multi-stage, destination-based tax which is levied at every stage of value addition. Explanation GST is an Indirect tax that is levied on the goods & services at every stage while reaching…

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Owner’s Capital/Equity

Owner’s Capital/Equity

The owner’s capital is the amount invested by the owner in the business whether it is a proprietary concern, partnership firm, or Company. It reflects how much assets are financed by the owner’s fund. In the company we use the owner’s equity instead of the owner’s capital which represents the amount invested by the shareholders in the company or the sum of money that belongs to the shareholders of the company.   Explanation The owner’s capital is the total sum invested…

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Income Elasticity of Demand

Income Elasticity of Demand

Income Elasticity of Demand refers to change in the quantity demanded for certain goods with reference to change in the income of the person or consumer and all other factors being constant. It measures the relationship of change in quantity demanded to change in the income as people tend to spend more in case of an increase in real income. Explanation Income Elasticity of Demand measures how much there is a change in demand for certain goods with a change…

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Price Elasticity of demand

Price Elasticity of demand

Price elasticity of demand is the measure of the percentage change in price to the percentage change in quantity demanded. With price elasticity of demand, it can be measured as whether the demand for goods is elastic or inelastic. If the demand for goods is elastic there will be a change in the demand due to change in price whereas if the demand for the goods is inelastic there won’t be change in the demand due to change in price….

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Rationale of Law of Demand

Rationale of Law of Demand

The law of demand states that other things remaining constant if the price of a product declines then the demand for such product increases whereas if the price of a product rise then the demand for such product declines. Therefore, we can say that an inverse relationship exists between the price of the given commodity and the quantity demanded of such commodity, ceteris paribus.   Why does a demand curve slopes downward? Usually the demand curve is downward sloping. This implies…

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Methods of Calculating GDP

Methods of Calculating GDP

GDP is known as Gross Domestic Product. It is calculated to know the growth of the nation. GDP is nothing but realizable market value of all goods and services produced in a country during the period of time. It is generally calculated on annual basis but in some countries it is also calculated on quarterly basis. More GDP attracts more investment in the country and vice versa. GDP plays an important role in development and growth of country. There are…

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What is income?

What is income?

Income refers to the sum of money earned by the business during an accounting period usually through the sale of goods & services, commonly known as revenue, or by earning through capital investment etc. In case of individual, income is earned in the form of salary or wages. Explanation – Income: Income is the money earned on sale of goods & rendering of service in the usual course of business and also the inflow of cash from the use of…

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What are Expenses?

What are Expenses?

Expenses refer to the sum of money spent on the day to day activities of the business in its routine course of operations to generate income in the business such as the cost incurred on the purchase of goods and services so that the final sale of good & rendering of service can be done to generate revenue for the business and the benefits of such expenses are enjoyed in the same accounting year in which they are incurred. Explanation…

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What are Liabilities?

What are Liabilities?

Liabilities refer to the amount that remains unpaid by the business on the given date or in other words we can say liability is the amount that is owed by the business to an outsider where an outsider can be the creditor, lenders, employees etc.  Liabilities arise from any past transactions such as transaction of goods purchased on credit, borrowing of money etc. Explanation with Example Basically, Liability the financial obligations of the business entity.  The amount that reflects as…

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What are Assets?

What are Assets?

Assets are the economic resources that are owned by a business entity and help to generate income of the business. The asset can be tangible or intangible in nature and are expressed in monetary terms. For example Property, Plant & Machinery, Building Inventory, Cash in hand, Cash at the bank, Trade receivable, etc. Explanation with Example Assets are the resources that a business owns. These assets are used for the furtherance of business. For example, plant & machinery used for…

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Law of Demand

Law of Demand

The law of demand states that other things remaining constant if the price of a product declines then the demand for such product increases whereas if the price of a product rise then the demand for such product declines. Therefore, we can say that an inverse relationship exists between the price of the given commodity and the quantity demanded of such commodity, ceteris paribus.    Explanation The Law of demand is one of the important laws studied in microeconomics. The law…

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Determinants of demand

Determinants of demand

Demand refers to the desire and ability to purchase any given commodity or service at different prices, at different prices of complementary or competing goods and at different levels of income. There are various factors including price of goods, price of related goods, income of consumer etc. that affect the quantity demanded of goods & services and these factors are known as determinants of demand. Determinants of demand: The determinants of demand are discussed below. 1.Price of the commodity:Ceteris paribus…

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What is Demand?

What is Demand?

Demand refers to the quantity of goods & services that the consumers are willing to purchase and are able to afford at the different prices at a given period of time. To constitute a demand, only desire to purchase any goods & services is not enough but desire should be accompanied by the means of purchase and the willingness to use that means of purchase to purchase the required product or service. Explanation with example: The Demand is the quantity…

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Modern approach of accounting

Modern approach of accounting

Real accounts, personal accounts & nominal accounts are the traditional approach of recording transactions but there is another approach of classification of accounts which involves recording of transactions on the basis of increase/decrease in the assets, liabilities, capital, expenses and revenues and that approach is known as the modern approach of accounting. Explanation: There are two approaches that define the rules of debit and credit. The first approach is the traditional approach of accounting and the second one is the…

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Traditional approach of accounting

Traditional approach of accounting

The debit and credit are the terms that denote whether the entry is to be made on the left hand side of the T account or the right hand side of the account where the left entry indicate the debit in the account while the left side indicate credit in the account. So the rules of debit and credit are framed to state the criteria which explain when the account is debited or credited. Under the traditional approach of accounting,…

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Tax Planning Vs Tax Avoidance Vs Tax Evasion

Tax Planning Vs Tax Avoidance Vs Tax Evasion

Tax Planning Tax planning is the diagnosis of the financial situation of any individual, organization etc as the case may be and do planning from tax perspective so as to ensure the optimal tax efficiency. It is an important part of financial planning. It involves planning of the income and expenditure by following the various provisions of Taxation law and abiding it legally with the aim of minimizing the tax burden. The planning helps the taxpayers to lessen the tax liability through various options viz deductions, exemptions, rebates stated in…

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Source Documents Types

Source Documents Types

Source documents are the documents that act as an evidence of a business transaction. It is a document on the basis of which the accounts are debited or credited. The verification and the objectivity principle focus on the importance of source documents. There are various different types of source documents. Commonly used source documents Cash Memo Cash Memo is the document that is prepared at the time of selling of goods for cash. The details that are included in cash…

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Branches of Accounting

Branches of Accounting

With the emergence of various corporations, industries and technological developments, the business operations have resulted in large scale operations of businesses which have resulted in the vast scope of accounting. Therefore, there is a requirement of various kinds of accounting information for which different sub fields or the branches of accounting prevail these days. The different branches of accounting are as follows: 1. Financial Accounting: Financial Accounting covers identifying, recording, classifying & summarizing of the financial transaction. It also includes…

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Source Document

Source Document

The transactions of the business are recorded in the books of accounts of the business on the basis of some evidences, usually written, which contains the key information about the name of the parties involved, amount of the transaction, date, Tax registration number (if any) etc. Such written evidences are known as source documents. Explanation with example Source documents are the written documents that capture the complete details of any business transaction including the details about the parties, amount involved,…

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Capital Investment

Capital Investment

Capital investment refers to the amount of funds, generally involves huge investments, that a business owner spends on the purchase of long term capital asset such as fixed assets that includes Plant & Machinery, building, furniture etc. that will provide economic benefits to the business for a long period but does not include expenses that is done by the business while conducting routine operations. Explanation with Example The capital investment requires huge amount of funds as the capital assets are…

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Users of Financial Statements

Users of Financial Statements

Every organization has to prepare financial statements that include Income statement & Balance Sheet to know the profitability and the financial position of the business respectively over a period of time. These statements are used by various individuals & entities to evaluate the financial performance of the business and take the decisions based on these evaluations where the users can be internal users or external users. Explanation The users of accounting information require the necessary financial information related to the…

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What is Tax?

What is Tax?

A tax is the pecuniary burden which is laid upon the individuals, businessman, and property owner’s etc. to provide support to the government. It is not any voluntary contribution or donation but a mandatory payment exacted by government authorities. It is further classified as direct & indirect tax. Explanation Tax is basically an amount of money that is payable to the government so that the government can spend such money for providing public services. More precisely, it is the percentage…

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T- Account

T- Account

T account is the visual representation of the accounting entries made in journal in an account which is T shaped and it have the left side and the right side for recording of the financial transactions of the business where the entry on the left side denotes debiting the account and the entry on the right side denotes crediting the account Explanation- T Account In the double entry system of accounting every financial business transaction is recorded in atleast two…

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Cryptocurrency

Cryptocurrency

A cryptocurrency is a virtual or digital currency which is designed to act as a mode of exchange wherein ownership records pertaining to individual coin are kept in a digital database. Explanation The ledger is maintained using cryptography so as to secure the transactions, to validate the transfer of coin ownership and put a check over creation of extra coins. It makes it impossible to counterfeit. Once a cryptocurrency is created or minted it remains in centralized form unless it…

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Double entry accounting system

Double entry accounting system

The double entry system of accounting is the only scientific accounting system which states that every business transaction has two fold aspects where the first aspect is debit and the other one is credit. In other words every business transaction affects at least two different accounts and the total amount debited is always equals to the total amount credited for every financial transaction. Explanation with Example: The first book, Summa de Arthimetica, Geometria, Proportioni, et proportionlita, describing double entry system…

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Gross Domestic Product

Gross Domestic Product

Gross Domestic Product represents the total market value or the total monetary value of the goods & services produced in the nation’s economy within a given time period (usually a period of one year). Calculation of GDP is the most widely used method to calculate the size of the economy of the nation and includes only the market value of initial production of goods & services and not the sale and resale of the goods produced. Explanation: GDP is used…

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Difference between Microeconomics and Macroeconomics

Difference between Microeconomics and Macroeconomics

Firstly, let’s discuss the basic meaning of microeconomics and macroeconomics. Microeconomics: Definition: Microeconomics is the study of small groups of society including the study of the decision making of the individuals such as consumers, firms, households etc. in allocating of resources. The approach of microeconomics is both practical as well as theoretical. It focuses on solving the three major problems of an economy i.e. what to produce, how to produce and for whom to produce. Explanation: The word micro in…

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Macroeconomics

Macroeconomics

Macroeconomics is the study of the performance and behavior of the larger groups in the economy as it involves study of overall national and international economy. It focuses on the study of problem of employment, GDP, investment, government fiscal & monetary policy, consumption, economic growth, level of inflation, recessions, depressions etc. Explanation: The word ‘Macro’ in the macroeconomics is derived from the Greek word ‘makros’ that means large. The study of macroeconomics focuses on overall economic phenomena, national income and…

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Microeconomics

Microeconomics

Microeconomics is the study of small groups of society including the study of the decision making of the individuals such as consumers, firms, households etc. in allocating of resources. The approach of microeconomics is both practical as well as theoretical. It focuses on solving the three major problems of an economy i.e., what to produce, how to produce and for whom to produce. Explanation: The word micro is derived from the Greek word ‘mikros’ which means small. It is the…

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Economics

Economics

Economics refers to the study of human behavior where an individual or the nation as a whole is required to make choices to employ limited resources, having alternative uses, into the production, distribution & consumption of goods and services to achieve the maximum output over a period of time. Explanation: With the publication of Adam Smith’s, ‘An Inquiry into the nature and causes of wealth of nations’ in the year 1776, the study of economics came into the picture. The…

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Accounting Equation

Accounting Equation

Accounting Equation signifies that the total assets of the company are always equal to the sum of total liabilities and the owner’s capital (in case of company, owner’s Equity). The accounting equation looks like below: Where, Assets of the business refer to the economic resources owned by the company that will result in the inflow of cash. Liabilities are the amount that the organization owes to the outsider. And capital is the amount invested by the owners into the business….

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Cash Basis of Accounting

Cash Basis of Accounting

Cash Basis of accounting is the method of accounting which involves recording the accounting entries in the books of accounts when the cash is actually received and paid against the revenues & expenses and asset & liabilities and not at the time when the revenues and expenses are incurred and becomes due for receipt/payment. Explanation with Example: Cash basis of accounting is the accounting method in which the revenues and expenses are recognized as and when the cash is received…

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Basis of Accounting

Basis of Accounting

Basis of accounting refers to different methods or approaches followed by the business entities while reporting & recording the financial transactions into their books of accounts over an accounting period where the approaches are based on the timing of recognition of revenues & expenses and are categorized as cash basis and accrual basis. Explanation & Difference: Every business has to record their transaction to know their financial performances over a period of time. This has to be followed by the…

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Accounting Process

Accounting Process

Accounting process is the procedure that is followed by entity for recording the business transactions in the books of accounts so that the position of each account balances can be known and the profitability and financial position of a business can be measured. The steps include identifying, classifying, recording and summarizing of the financial business transactions.  Explanation The Accounting process of a business includes steps to record every financial transaction of the business and at the end, preparing the financial…

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Consistency Concept in Accounting

Consistency Concept in Accounting

The consistency concept states that the methods, practices or policies of accounting once followed must be followed consistently from one year to another but can be changed in the exceptional circumstances like changes in the government laws & regulations, changes in issued accounting standards or any other situation where it is felt that the change in accounting practice may result in more accurate picture of financial statements. Explanation with example: The financial statements of the companies are required to draw…

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Accrual Concept in Accounting

Accrual Concept in Accounting

Accrual Concept or accrual basis of accounting is the method of accounting which involves recording the accounting entries in the books of accounts when the revenues & expenses becomes accrue /due and not when the money against such revenues & expenses are received & paid respectively. Explanation with Example: Accrual basis of accounting is the accounting method is also known as the mercantile method of accounting and this method require the revenues to be recorded at the time it is…

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Revenue Recognition Concept in Accounting

Revenue Recognition Concept in Accounting

The concept of revenue recognition states that the revenue should be recorded in the books of accounts of business when the revenue is earned/realized no matter the actual cash is received or not against such revenue or in other words the revenue is considered to be earned at the point of time when the goods and services are sold and the associated risk & rewards are transferred to the buyer. Explanation with Example: Revenue refers to the inflow of cash…

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Objectivity Concept in Accounting

Objectivity Concept in Accounting

The concept of objectivity states that the financial statements of the business should be independent and free from any biasness which means that the financial statements need to be based on the solid evidences, facts & figures so that the records are not based on the biased management’s opinions.  Explanation with example: The objectivity concept defines that the financial record of the business should be prepared on the basis of solid evidences and figures and are not influenced by the…

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Full Disclosure Principle in Accounting

Full Disclosure Principle in Accounting

Full disclosure principle require the management of the company to disclose the information and figures that are relevant for the users (includes investors, lenders, shareholders etc.) but doesn’t means that each and every information about the business is needed to be disclosed as it directs the business to mention the material information that the user should know before investing in that company.  Explanation with example:  The full disclosure principle directs the company to disclose the relevant facts and material information…

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National Digital Health Mission (NDHM) – One Nation, One Health Card

National Digital Health Mission (NDHM) – One Nation, One Health Card

The honourable prime minister of India has announced the scheme as a part of his Independence Day speech which will aim in transforming the health related data like prescriptions, diagnostic reports, medical data, previous discharge summary, allergic information etc into digital platform. The scheme is “National Digital Health Mission” Every Indian citizen will be given a unique health ID number and data corresponding to it will be stored in the server which will be accessible to the hospitals, doctors who…

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Materiality Concept in Accounting

Materiality Concept in Accounting

Materiality concept states that those items or transactions that are significant and can have impact on the decisions of the users of financial statements should be disclosed in the financial records of the business but not the transactions that only increase the work of accountant and are not relevant for the users.  Explanation with example:  According to the concept of materiality, all the financial information that is significant and can have major impact on the business and on the related…

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Dual Aspect in Accounting

Dual Aspect in Accounting

The concept of dual aspect states the basis of recording the financial business transactions into the books of accounts of the entity where it mentions that every financial transaction shall impact two different accounts of the business i.e. every financial transaction shall be recorded in two accounts.  Explanation with example:  According to the dual aspect concept of accounting at least two accounts are affected when any financial transaction take place. So for every debit there is an equal and opposite…

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Going Concern Concept in Accounting

Going Concern Concept in Accounting

According the going concern concept, every business should assume that their business will continue to work for an indefinite period i.e., there is no intention of closing the business in the coming future and because of this concept of going concern many revenues and the expenses are deferred for the future periods. Explanation and Example: The concept of going concern provides the basis for the preparation of balance sheet as it assumes that the business will continue for an indefinite…

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