Common Terminology Associated with accounting – II

The previous article has highlighted the common terminologies of the accounting, here we will illustrate about the terms which are used in day to day basis.  In order to work in the day to day accounting the understandings of these terms are mandatory. Have a look to the terms;

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Credit: On the accounting the credit and debit will be place on the same line. And to each credit there must be a debit. The double entry record keeping system has dignified the use of credit. To be simpler the credit side contains all the income and gains as well as all the liabilities. Under the concept of accounting the giver must be credited and the correspondence head will be debited. The entry has to be maintained in the ledger and the journal as well.

Debit: The debit indicates the opposite of credit. Where ever there will be a credit there must be debit of same amount. Unlike the credit the debit side of the accounting book contains all expenses and losses occurred to the business and all the asset will also comes under the debit side.

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The receiver accounts should be debited with a similar credit. Under the concept f double entry system of book keeping the debit will decrease a liability or an equity account of the business house.

 General ledger: The general ledger in the book where you will find all the entry for your business. To be more specific the all the credit and the debit will be entered to the ledger book. The general ledger has a great importance while preparing the balance sheet. The maintenance of the ledger book requires special experience so that a fool proof ledger book can be maintained. In fact with the invent computerized accounting the concept of the general ledger has diminished. Still the importance of the ledger to the business can’t be ignored at any cost.

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Journal: The ledger is a voluminous entry where as the journal is a single entry. In general sense a journal is considered as the diary for every business. Each and every single transaction of your business will be first entered through the journal and finally it will be entered into the ledger. Hence every possible measure should be taken for a correct entry of the journal.

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Inventory: For every business the term carries a lot of importance. The inventory represents the volume of your business. The amount of stock you have purchased for your business will comes under the inventory. The more the inventory for your business the more will be the asset for your business. During the preparation of the balance sheet the inventory will be shown under the asset side of the balance sheet. However it has to be kept in mind that you are not converting the cash into inventory. If you have started converting the cash into inventory, at certain point of time your business organization will run out of the cash.

Know the various types of error in accounting and its compensation

Have you come crossed the term ledger and journal? Both the above terms arte the daily jobs for an accountant. As an accountant he has to check the balance in both the books and he has to tally the balance in both the books. The sum total of the balance in a book is called as trail balance. The accountant has to tally the debt balance and credit balance.

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If both the balance remain same there is nothing to worry, however in case of mismatch of balance in both the acorns will leads to error and these errors are called as accounting error.  The accounting error is a very broad term and it has a classification and here we are presenting that.

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Rectification of Errors

Error of principle: It is a kind of error where there will be a wrong entry with another head. Instead of making an entry to a head if the entry will be done to another head this error will be considered as the error of principle.

Clerical error: The name itself is self explanatory to know the character of the type of error. The error basically done by the concerned clerk who involved with the entering of the data in the ledger book. The clerical error has again a sub classification and it is again classified into two categories.

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Error of omission: The error of omission is due to the omission of an entry. As a clerical error it will be     committed by a clerk and the there will be a complete omission or a partial omission of an entry. This omission will leads to the trail balance error. Irrespective of the size of the error the error will be certainly reflected in the trail as well as the gross balance sheet and finally an error will appear.

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Error of omission: The error of omission is something which will reflect the balance sheet due to the wrong entry of an amount. The wrong entry may be a partial wrong or an absolute wrong; there will be an imbalance in the balance sheet.

Compensating error: To be simpler the compensating error was designed to counter the balance the other error in the balance sheet. The compensating error will help a long extent to produce a well balanced gross and trial balance sheet.

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Accounting ErrorsCompensation of errors: The compensation of error is an exercise to nullify the various error found during the course of accounting. The first and fore most steps is to identify the error, its type and the magnitude of the error.  If you are successful in tracking the error certainly you will be able to compensate the error with the corresponding value. In fact compensation of error is not tedious and time taking at all. You have to pay special attention in order to locate and find the error so that the same amount can be compensated with the corresponding value. This article will certainly help you to present a fool proof balance sheet.