ACCOUNTING EQUATION
For every business enterprise, the sum of the rights to the
properties is equal to the sum of the properties owned. The properties owned by a business are called
assets. The rights to the properties are
called equities.
Assets and equities
are the basic elements of accounting. We
can express these elements by an equation known as “Accounting Equation”.
Assets = Equities
Or
Assets = Liabilities + Owner Equity.
CASH BOOK
A book in which we record all the transactions relating to
cash is called cashbook. Cash received
from sales of goods, services or from any other source is recorded on the debit
side of the cash book while payments made for the goods / assets purchased and
expenses are recorded on the credit side.
Generally there
are three kinds of cashbook.
·
Simple Cash Book / One
Column Cash Book
·
Cash Book With Discount
Column
·
Cash Book With Discount and
Bank Columns.
CONTRA ENTRY
If an amount is entered on the debit side of an account, and
the exact amount is again entered on the credit side of the same account, it is
called a contra entry.
SPECIAL JOURNAL
In case of a small concern all the transactions of the
business can be recorded in one journal.
But if the volume of transactions is large and it requires two or more
bookkeepers, the use of a single journal is not feasible. Therefore separate journals are used for
recording the transactions. This is
called special journal.
The journals usually for recording the purchase and sale of
merchandise are as under.
·
Purchase journal
·
Sales journal
·
Purchases Return and
allowance journal
·
Sales return and allowance
journal.
1. Purchase Journal
All the invoices for the purchases of
merchandise are recorded in a book called as purchases journal.
2. Purchases Return And
Allowance Journal
When merchandise purchased contains some
defect in quality or due to any other reason, they are returned back to the
supplier, these are called purchase return.
3. Sales Journal
All the
invoices for sales of merchandise are recorded in a book as sales journal.
4. Sales Return And
Allowance Journal
Merchandise sold on credit maybe returned by
the customers or the customer may be allowed any reduction in prices due to
short supply, etc. This is called sales
return and allowances journal.