Business Transaction

Features of business transaction

1. It is measurable in terms of money.
2. It changes the financial position of the business.
3. It has dual aspects.
4. It must be an event visible or invisible
5. It should be independent and complete.
6. It may be historical or future nature.

Advantages and Disadvantages of Trial Balance

Advantages of trial balance

 

1. To check the debits equal the credits
2. To find the uncover errors in journalizing
3. To find the uncover errors in posting
4. To locate the errors in ledger accounts
5. To make financial statements
6. To list the accounts at a single place

Disadvantages of trial balance

A trial balance has some disadvantages. Such of them are as follows:

1. It does not prove that all transactions have been recorded
2. It does not prove that the ledger is correct
3. Numerous errors may exist even though the trial balance columns agree
4. It cannot find the missing entry from the journal
5. It cannot find the missing entry from the ledger
6. It cannot protect the repeated postings
7. It cannot protect the offsetting errors

 

Definition of adjusting entries

Entries made at the end of an accounting period to ensure that companies follow the revenue recognition and matching principles are called Adjusting entries. This is a process through which an amount of money is added or deducted to form the ledger balances to make the balances up to date. So adjusted entries can be defined in the following way:
http://bankofinfo.com/definition-of-adjusting-entries/

Definition of adjusting entries

Entries made at the end of an accounting period to ensure that  companies follow the revenue recognition and matching principles are called  Adjusting entries. This is a process through which an amount of money  is added or deducted  to form the ledger balances to make the balances  up to date. So adjusted entries can be defined  in the  following way:

Businesses believe their accountants to report correct information. The homeowners and managers use this info to create selections on behalf of the firm.

Importance of adjusting entries

1. To update the financial statements
2. To settle the accrued financial transactions
3. To settle the advanced financial transactions
4. To ensure the exact revenues
5. To ensure the exact expenses
6. To rectify any error

Adjusting entries are required for the following reasons

1. Some events are not journalized on a daily basis, for example, the earning salary by the employees
2. Some costs are expired with the passage of time. They are not recorded during an accounting period. examples are rent depreciation and insurance.

Importance of adjusting entries

The owners and managers use this information to make arrangements on behalf of the business. The analyst records financial activities throughout the month as they transpire.

Merchandise concern and service concern

Difference between Merchandise concern and service concern

Topic	Service Enterpriser	Merchandiser
Business Pattern	It is a service oriented business.	It is  a product oriented business
Basic Revenue	Service revenue  is the basic  revenue  of service enterprise	Sales revenue is the basic revenue of merchandiser.
Journal	It uses only periodic  Journal	It uses both periodic and perpetual journal.
Scope	It has a comparatively narrow scope of businesses.	It ahs comparatively wide scope of businesses.
Limitation	It provides limited services within a limited area.	It has no limitation to sell merchandises.
Examples	Schools, colleges, universities, medical, clinic,  repair workshop, chartered  accountants  firm, law concern, transportation  concern  etc.	Stores,  stalls, shops, companies, incorporation

Inventory Systems and Their Characteristics

Accountants maintain a record of inventory  to determine the cost of goods sold and its quantity.


There are two methods of recording inventory namely:

• Periodic system
• Perpetual system 

Periodic inventory system

Under this method, the merchandise company does not maintain a detailed record of inventory for the result the cost of goods sold is calculated at the end of the accounting period

Perpetual inventory system

Under this method, a detailed record of the cost of inventory is maintained each time a purchase or a sale is made.

periodic and perpetual journal entry

periodic and perpetual journal entry are important..........

differences between periodic and perpetual journal entry which are discussed below:

 

Periodic Journal Entry:which records the financial events within an accounting period is called periodic journal entry

Perpetual Journal Entry: which records the financial events within a continuous accounting period is called perpetual journal entry.