Author: Mohit

Employer Resolutions 2017

7 Resolutions that Every Employer Needs to Make in 2017 Are you an employer? If you are, then have you made the resolutions for 2017 yet? No, not the personal resolutions like quitting smoking, taking your child to movies on every weekend. I am talking about professional resolutions. Don’t be under the impression that such resolutions are only for your employees. The employer needs to make resolutions too. What resolutions should you make? Well, that I am going to discuss here. The benefit package Employees fear they’d be laid off if they don’t work diligently and show commitment to...

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Accounting – Trial Balance Errors

Accounting – Trial Balance Errors We shared mechanisms of tracing trial balance mistakes in our last post on the accounting stream. http://faoblog.com/accounting-trial-balance-errors-3/ The next step obviously is correcting these errors. Errors of Omission These type of errors simply need a journal entry to be passed. Whatever entry was missed out, has to be incorporated in the books of accounts. So if you missed a purchase, you debit the purchases account and credit the seller. Errors of Commission Incorrect postings are reversed by way of journal entries. Where the totals of subsidiary books are incorrectly carried forward, the resultant error...

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Accounting – Trial Balance Errors

Accounting – Trial Balance Errors In the last post, you read about the errors which do not disrupt the totals of a trial balance. Also, we classified the errors into four segments. http://faoblog.com/accounting-trial-balance-errors-2/ So how do we trace these mistakes? Let us look at these based on the four classifications: Errors of Omission This is a difficult category to catch, especially for expense accounts. When you call for balance confirmations, from vendors, customers, or of cash from the group handling cash, some of these differences will be thrown out. Errors of Commission These are again identified based on corresponding...

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Accounting – Trial Balance Errors

Accounting – Trial Balance Errors We pointed out mistakes, which throw a trial out of balance. http://faoblog.com/accounting-trial-balance-errors/ There surely will be errors, which do not disrupt the equation of the total balance, i.e. the total of debits and total of credits. Now these are also very crucial, as the final accounts drawn will be incorrect. Some of these are: An incorrect amount is entered in the primary books Missing to record a transaction in the primary books Making an entry with an incorrect account name / ledger Posting an asset to an expense account / liability to income and...

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Accounting – Trial Balance Errors

Accounting – Trial Balance Errors Did you like the sample Trial Balance shared by us? http://faoblog.com/accounting-trial-balance-2/ We had discussed earlier that quite often errors happen while drawing the trial balance, Most of the errors normally are inadvertent. Let us see what kind of errors actually happen. Manual accounts: Totaling mistakes for manual accounts Balancing in the ledger book wrongly done Incorrect amount posted to the ledger Entry made on the wrong side of the ledger Missing taking the balance to the trial balance from a ledger account Incorrect totals in the primary books Electronically maintained accounts Failures of complete...

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Accounting – Trial Balance

Accounting – Trial Balance You read that even in case of computerized accounts, there can be errors, leading to un-matching of a trial balance. http://faoblog.com/accounting-trial-balance/ The key reasons why a trial balance is prepared are as under: It brings together all the balances of all accounts It acts as a check on the accuracy of the posting activities, both in the manual and the electronic environment It is used as a base for preparation of interim / final accounts It throws out some blaring factual errors before final accounts can be prepared. Below is a sample how a trial...

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Accounting – Trial Balance

Accounting – Trial Balance In our last post, we had explained about the primary and secondary books of accounting. http://faoblog.com/accounting-books-accounting-2/ Fundamentally, the primary books of accounting are those where the first accounting entry is made, and secondary is that where the entry is posted.. Let us understand what a trial balance is. We had covered what balances of each type of account mean in an earlier post, and then the posting. Eventually all this leads to creation of a ledger account. Each ledger account, as on any date will have a debit or credit balance. A trial balance  is...

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Accounting – Books of Accounting

Accounting – Books of Accounting We shared what posting signified in the ERP world. In fact on our Outsourcing blog as well, we have recently explained book closures, which technically are an extension of posting in the computerized world. FAO- http://faoblog.com/processes-record-report-r2r-general-accounting-book-closures-2/ Accounting last post – http://faoblog.com/accounting-posting-2/ Today, let us try to understand the structure of the books of accounting. The books of accounting can primarily be divided into two segments: Primary Books Secondary Books Primary books are those which initiate the entry of any transaction, while secondary books are those which summarize the results. This is a very simple...

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Accounting – Posting

Accounting – Posting We described what posting signified in the accounting world. http://faoblog.com/accounting-posting/ How modern day accounting systems achieve this process of posting. In the modern day accounting systems, the interfaces of the primary books are often similar to the manual books. Accounting systems like Tally, will automatically and simultaneously update the ledgers. But in the background, they just sort the data using the ledger name, and you have your balances. ERPs are a little different. They are modular, so, the sub-modules, like receivables / payables will be independent and only summaries will be posted to the general ledgers....

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Accounting – Posting

Accounting – Posting We talked about exceptions in the Meaning of Balances and an input shared by a reader. http://faoblog.com/accounting-meaning-balances-2/ In an earlier post, I had mentioned the term “Posting”. Did you ever wonder what posting is? I am sure this term is quite known to almost all accounting students. Posting was an important accounting process in manual / paper based accounting, done earlier. After the advent of computers and computer based accounting systems, this process is taken care of by the computer. None the less, it is important to understand what this means. You have the prime books...

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Accounting – Meaning of Balances

Accounting – Meaning of Balances We tried to articulate what the ledger balances would imply. A reader responded back to us with this note: ———————————————— Credit an entry in the right hand column of an account; credits increase liability, income, and equity accounts and decrease asset and expense accounts Debit an entry in the left hand column of an account to record a debt; debits increase asset and expense accounts and decrease liability, income, and equity accounts” ———————————————— So truly mentioned by Mr. Rajesh Maheshwari. The last post was – http://faoblog.com/accounting-meaning-balances/ If you recall, I said there can be...

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Accounting – Meaning of Balances

Accounting – Meaning of Balances We hope your concepts of Capital and Revenue are quite clear by now. http://faoblog.com/accounting-capital-revenue-2/ Let’s try to understand what debit and credit balances mean. The base of this lies again in the concept of  Capital and Revenue. As we add entries, we keep summarizing the totals in the ledgers. This is called posting, From the original source entry, we pick up the amounts and put the same in a “T” format, in the ledger, keeping the debit amounts on the left of the “T” and the credits on the right. At the end of...

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Accounting – Capital and Revenue

Accounting – Capital and Revenue I hope you found the concept of capital and revenue fruitful. http://faoblog.com/accounting-capital-revenue/ So, let’s understand this a little more. The concept and the basic reason to segregate the balances into capital and revenue indicate that there are two primary classifications to the transactions, one short term, and the other long term. We have talked about this multiple times. As a consequence, this will lead to two primary reporting documents, one for showcasing the operation results, and the other, the long term one showcasing the strength of the business or the organization. So, the current...

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Accounting – Capital and Revenue

Accounting – Capital and Revenue We hope the concept of Accounting period was clear to you. http://faoblog.com/accounting-accounting-periods/ Now as we create various ledger accounts, it will be important to understand the basic distinction between Capital and Revenue. The fundamentals of accounts reporting and assessment of the state of affairs of any organization / business commences from this. This concept flows in from the concept of accounting periods. Based on the benefits during a certain period, and item will go to the Profit & Loss Account or the Balance Sheet. The exception to this rule would be if you are...

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Accounting – Accounting Periods

Accounting – Accounting Periods We concluded the third rule of accounting in the last post. Here are the links to all posts on rules of accounting. http://faoblog.com/accounting-rules-accounting/ http://faoblog.com/accounting-rules-accounting-2/ http://faoblog.com/accounting-rules-accounting-3/ http://faoblog.com/accounting-rules-accounting-4/ It is critical to understand Accounting Periods. You may ask why? What are we trying to achieve by accounting for our businesses? First assess what is the state of affairs of our business Then ensure reporting and filing to the legislative / governmental authorizes To report the state of affairs to all the stakeholders And more….. So, we need to assess what goes into our profit and loss account...

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Accounting – Rules of Accounting

Accounting – Rules of Accounting The second rule of accounting was discussed in the last two posts. http://faoblog.com/accounting-rules-accounting-2/ http://faoblog.com/accounting-rules-accounting-3/ Let’s look at the third rule. Debit the receiver, credit the giver This is fairly straight forward. From the perspective of your books, if you end up creating a receivable or a payable by the current transaction, you use this rule. You give an advance to your employee, your employee is the receiver, so you debit his account and you pay through a check / cheque through your bank, so money is going out (credit what goes out). If you...

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Accounting – Rules of Accounting

Accounting – Rules of Accounting The second rule of accounting was discussed in the previous post. http://faoblog.com/accounting-rules-accounting-2/ There is more to this logic, i.e. the period of benefit. Normally accounting periods define the periodicity for which, in a reasonable manner a business could declare the business affairs to the stake holder, namely, the owners / shareholders, the tax authorities and those dealing with the business on an ongoing basis. If the benefit of the transaction does not lead to a receivable / payable and is within the period, then it would be proper to use this rule and classify...

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Accounting – Rules of Accounting

Accounting – Rules of Accounting Hope you enjoyed Christmas. http://faoblog.com/merry-christmas/ We revisited and detailed a part of the first rule. http://faoblog.com/accounting-rules-accounting/ These rules are quite interlinked.  As per the reader, the seller of the pack of chips could be used. Well if the transaction was that I paid cash to the shopkeeper, with nothing else happening, he would have been the receiver.  Then I would have debited his business entity. Also, since he delivered the pack of chips, the transaction was closed, so, he had no obligation in future to return a monetary equivalent / money to me in...

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Accounting – Rules of Accounting

Accounting – Rules of Accounting Let us revisit the rules of accounting. I had covered these in an earlier post: http://faoblog.com/accounting-definition-debits-credits-2/ Double entry accounting is based on three fundamental rules, which ultimately apply to every and all parts of every transaction you can think of. What are these rules? Debit what comes in, credit what goes out Debit all expenses and losses, credit all incomes and gains Debit the receiver, credit the giver Different authors of accounting articulate these in different sequences, but it does not matter. Let us make an attempt to understand each of these. Debit what...

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Accounting – Systems of Accounting

Accounting – Systems of Accounting Last few posts, I covered the basic concepts of accounting. If you have any questions, you can shoot them out through the comment section on the posts. http://faoblog.com/accounting-accounting-concepts-2/ http://faoblog.com/accounting-accounting-concepts-3/ http://faoblog.com/accounting-accounting-concepts-4/ http://faoblog.com/accounting-accounting-concepts-5/ http://faoblog.com/accounting-accounting-concepts-6/ http://faoblog.com/accounting-accounting-concepts-7/ http://faoblog.com/accounting-accounting-concepts-8/ Today let me talk about the systems of accounting. Initially in my posts, I had mentioned two basic systems, the single entry system and the double entry system. But this is not what I wish to talk about today. The two systems I wish to discuss today are: Cash System Mercantile System We have actually discussed both in some way...

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