UnderstandingAccounting Cycle

Maintaining Books of accounts of an organisation is a systematic process involving well defined steps. Such process involve recording, classifying and summarizing of economic transactions carried out by a business during a particular accounting period. The ultimate purpose of maintaining books of accounts is to generate useful information about entity's financial position. Hence, the end result of an accounting cycle is generation of Financial Statements like Profit & Loss Account (aka Income Statement) and Balance Sheet. In this article we shall understand each step involved in accounting cycle of an entity.



Understanding Provisions and Accounting Treatment of Provisions

At the end of the financial year when books of accounts are closed, certain provisions need to be created. The practice of creating provisions is in line with Matching Principle of Accounting. According to Matching principle, expenses incurred in a financial year must be recorder in the same financial year to which it relates. However, sometimes the exact amount of expense is not known at the end of financial year. Provision is created in order to recognize such accrued expenses for which exact amount is not yet known. Hence, a Provision for expense basically recognizes the liability of an organisation towards expenses related to a financial year. Please refer to the below points to further understand provisions.


Understanding BankReconciliation Statement

It is one of the primary responsibilities of an accountant to keep an eye on the bank balances for each bank account of the company. The balance as shown as per our books of accounts may not be the same as reflected in bank statement. This happens due to many different reasons. Hence, any difference in our books of accounts and in the bank statement must be reconciled to find and identify the differences. This article captures various terms related to bank reconciliation as well as discusses major reasons that cause difference in balances between books of accounts and bank statement. It also explains methods of bank reconciliation.



You might have often heard the word "Retained Earnings" and wondered what it means? Just like individuals save a portion of their salary to meet future contingencies, companies also do the same.Companies keep a portion of their profits aside for various purposes like paying debts, as contingency fund or to be reinvested into core business for expansion. Such savings are called "Retained Earnings" in accounting terminology.


Accrued Expenses amp Accounting Treatment of Accrued ExpensesAdd subheading 1

In last blog we discussed about Accrual Basis of Accounting v/s cash basis of accounting system. We also understood concept of accrued Income and treatment of accrued income in balance sheet and P&L accounts. In this article we are going to discuss about Accrued Expenses. The concept of accrued expense is also a part of accrual basis of accounting system.

What is Accrued Expense ?



In the U.S., when a small business grows, claiming the attention of investors or goes public, its accounting departments are required to immediately stick to the Generally Accepted Accounting Principles or GAAP.

Simply put, GAAP is a common, accounting language for companies to record accounting and financial information. The sole objective of GAAP is to enable organizations to have a standardized method of treating financial and accounting data so that the interpretation, analysis, sharing and communication of financial results and reports with the external parties will be easier and made transparent.

Financial Management