Recording of Transactions - I Test 44

Accrued Income is that income which is earned or due but not received. All such accrued income should be recorded in books of account on accrual concept basis.

Following entry will be passed if the shares are issued in payment of bills payable:

The left side of asset accounts is used for recording increases and the right side is used for recording decreases. It is explained that the right side of liability and capital accounts is used to record increases; it  naturally follows that he left side of such accounts is used to record decreases. The left side of all accounts, whether asset, liability or capital, is called debit and the right side is called credit. Consequently, a debit may signify either an increase or decrease, depending on the nature of the account, and a credit may likewise signify either an increase or decrease, depending on the nature of the account. 

The debit balance of a personal account indicated debt owing by the person and credit balance indicates debts owing to the person concerned. For the business, the first one is account receivable or asset, while the second is accounts payable or liability. Every personal account showing debit balance (i.e. excess of debit side over credit side) will reveal the amount by which the debit side is more than the credit side. Debit balance is recoverable from the person whose account shows a debit balance. A debit balance to a personal account is an asset and therefore the more debit balance to a personal account is an asset and therefore the more debit balances to personal accounts, more the assets are in the form of outstanding recoverables. The debit balance of a personal account shows the amount receivable.

Business transactions are events that have a monetary impact on financial statements of an organization. When accounting for these transactions, numbers are recorded into teo accounts, where the debit column is on the left side  and the credit column on the right.

Books of original entry refers to the accounting journal in which business transactions are initially recorded. The information in these books is the summarized into a general ledger, from which financial statements are produced. Each accounting journal contains detailed records for the types of accounting transactions pertaining to a specific area. Examples of these accounting journals are:

When the business transactions take place, the first step is to record the same in the books of original entry or subsidiary books or books of prime or journal. Thus, journal is a simple book of accounts in which all the business transactions are originally recorded in chronological order and from which they are posted to the ledger accounts at any convenient time. Journalisisng refers to the act of recording each transaction in the journal and the form in which its is recorded, is known as a journal entry.

Outstanding expenses are those expenses which have been incurred and consumed during an accounting period and are due to be paid. Examples include outstanding salary, outstanding rent, etc. Outstanding expenses are recorded in the books at the end of an accounting period to show true numbers of a business. 

Accounts relating to properties or assets are known as "Real Accounts". A separate account is maintained for each asset. Real accounts can be further classified into tangible and intangible.

Accounts recording transactions with a person or group of persons are known as personal accounts. These accounts are necessary, in particular, to record credit transactions. Personal accounts are of the following types:

1. Natural persons: An account recording transactions with an individual is termed as a natural persons' personal account. For e.g. Kamal's account, Mala's account. Both males and females are included in it.

2. Artificial or legal persons: An account regarding financial transactions with an artificial person created by law or otherwise is termed as an artificial persons' personal account. For e.g. Firms' account, limited companies' accounts.

3. Representative personal account: An account indirectly representing a person or persons is known as representative personal account. When accounts are of a similar nature and their number is large, it is better to group them under one head and open a representative personal account. For e.g. prepaid rent, outstanding wages etc.

Drawings are related to the account of an individual, i.e. proprietor's account which shows the amount withdrawn by the proprietor from the business for his/her personal use. Hence, it is classified as a personal account.