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I grew up in Raigad, India. I started college at Janta Vidyalay, and then I transferred to the Dr. BATU, Lonere for my B.Tech In (Information Technology) and graduated in 2007.
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Debit & Credit

Introduction

A debit transaction indicates an asset or an expense transaction, a credit transaction indicates a transaction that will cause a liability or a gain. A debit transaction can also be used to reduce a credit balance or increase a debit balance. A credit transaction can be used to decrease a debit balance or increase a credit balance

Debit and credit are bookkeeping and accounting terms. They are the most fundamental concept of accounting, representing the two sides of each individual transaction recorded in any accounting system.

Debits and credits are notations used in accounting to keep track of money movements (transactions) into and out of an account.

Traditionally, an account's transactions are recorded in two columns of numbers: debits in the left hand column, credits in the right.Keeping the debits and credits in separate columns allows each to be recorded and totaled independently. The smaller of the two totals is then subtracted from the larger to give the account balance. An account may thus have a balance either the debit or credit side.n double-entry bookkeeping assets and expense accounts, which represent the resources used by the business, are debit accounts. Their balance increases with entries made in the debit column and decreases with entries in the credit column.

What is the Difference Between Debit and Credit When I Use My Bank Card?

When you use a bank card in a store, you are often offered the option of using it as a debit or credit card. It can help to understand the difference between debit and credit in the sense of a bank card when you make this decision, as there are some distinct and important differences. It is important to remember that in either case, the funds are taken directly from your account; using your bank card as a credit card does not magically create a line of credit.

The primary difference between debit and credit is in the way that the transactions are processed. When you run your bank card as a debit card, you will be asked to enter a personal identity number (PIN), and the funds are removed from your account instantly. When you select a credit option, the transaction is verified with your signature, and the funds may not be removed from your account right away, depending on how the store processes its credit card transactions. Many do what is known as “batching,” meaning that all of the credit transactions are run in a batch, typically at the end of the day, and it may take several days for your credit transaction to clear.

From the point of view of the merchant, the difference between debit and credit is typically a fee. Smaller companies may be charged less by the companies which process their card transactions for running cards as debits, so if you are visiting a small, locally owned business, you may want to consider selecting the debit option as a courtesy. In both cases, the store will get the money for the transaction, so both credit and debit transactions are protected from that point of view. This difference between debit and credit may not be important to you, and it doesn't apply to all merchants, as some stores negotiate deals with equal fees for debit and credit.

Typically debit transactions have a daily limit, for example, so if you are making a large purchase, it may not go through when you try to use your card as a debit card. In addition, banks handle disputes involving debit and credit transactions differently.

When you use a bank card as a credit card, you are protected from liability by the same laws which protect credit card users. If someone steals your card and you report it, you will not be liable for their credit transactions, for example. You can also take advantage of the credit card company's mediation process to handle any merchant disputes you may have.

When you run a bank card as a debit card, you are potentially less protected than if you run it as a credit card. If your card is stolen and you report it promptly, for example, you may not be held liable for transactions, but if more than a few days elapses, you may find yourself forced to pay these charges. You must also use the bank to mediate disputes with merchants, which can result in varying degrees of success, depending on your bank.

Accounts payable

Introduction

Money which a company owes to vendors for products and services purchased on credit. This item appears on the company's balance sheet as a current liability, since the expectation is that the liability will be fulfilled in less than a year. When accounts payable are paid off, it represents a negative cash flow for the company.
It is an accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable entry is found on a balance sheet under the heading current liabilities.
Accounts payable are often referred to as "payables".

Accounts payable is a strategic, value-added accounting function that performs the primary non-payroll disbursement functions in an organization. As such, the AP operation plays a critical role in the financial cycle of the organization. AP enables an organization to accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of the entire payables process. In addition to the traditional AP activities whereby liabilities to third-party entities (suppliers, vendors, taxing authorities, etc.) are recognized and paid based on the credit policies agreed to between the company and its suppliers, today's AP departments have taken on much wider roles including fraud prevention, cost reduction, workflow system solutions, cash-flow management, internal controls and vendor (supply chain) financing.
Another common usage of AP refers to a business department or division that is responsible for making payments owed by the company to suppliers and other creditors.
For example, at the corporate level, AP refers to short-term debt payments to suppliers and banks.

Payables are not limited to corporations. At the household level, people are also subject to bill payment for goods or services provided to them by creditors. For example, the phone company, the gas company and the cable company are types of creditors. Each one of these creditors provide a service first and then bills the customer after the fact. The payable is essentially a short-term IOU from a customer to the creditor.

Each demands payment for goods or services rendered and must be paid accordingly. If people or companies don't pay their bills, they are considered to be in default.

Accounts receivable

What is Accounts Receivable?

Accounts receivable (A/R) is one of a series of accounting transactions mainly deals with billing of customers who owe money to a person, company or organization for goods and services that have been provided to the customer.

One of the basics of operating a business is having a means for keeping up with the money that is owed by clients as well as maintaining an accurate record of money received from clients that is to be applied to the amounts they currently owe. In order to perform these functions as well as several other tasks, the principle of Accounts Receivable comes into play. Here are some highlights of the functions of Accounts Receivable and why those functions are so important to the life of any business.

The basic purpose of accounting is to ensure that any functioning entity has a concise picture of what is happening financially at any given time. Accounts Receivable contributes to the accuracy in several ways. A common function is the billing of customers for services or goods rendered. Typically, it is Accounts Receivable that keeps up with the billing information and customized billing needs of the client.

For instance, a larger customer may receive a percentage discount on monthly goods or services, based on the volume of business conducted with the company. Accounts Receivable would maintain that discount information as part of that customer’s billing profile, ensuring that all invoices to that client reflect the proper discount. Often, Accounts Receivable has a great deal of input on the look of the invoice, what information is included and how the information is organized.

Along with creating and distributing invoices to customers, Accounts Receivable is often responsible for receiving payments on those invoices and making sure the payments are applied correctly. While some Accounts Receivable departments tend to post a payment to a customer and apply it to the oldest outstanding invoice, it is more common for a payment to be applied to a specific invoice, even if it is not the oldest outstanding invoice for that client. This allows Accounts Receivable to identify aging on older invoices and work with the client to resolve any issues that may be preventing the payment of invoices that are older than the standard terms of payment.

Accounts Receivable also works closely with the Accounts Payable arm of the accounting process. Just as clients are expected to pay for goods and services rendered, so the company is expected to pay outstanding invoices to their vendors in a timely manner. Accounts Receivable supports Accounts Payable in this function by making sure information about the amount of usable revenue is on hand. With that data available, Accounts Payable is able to schedule and make payments on behalf of the company.

Subsidiary Ledger

Introduction

A subsidiary ledger is a group of similar accounts whose combined balances equal the balance in a specific general ledger account.
The general ledger account that summarizes a subsidiary ledger's account balances is called a control account or master account.

For example, an accounts receivable subsidiary ledger (customers' subsidiary ledger) includes a separate account for each customer who makes credit purchases. The combined balance of every account in this subsidiary ledger equals the balance of accounts receivable in the general ledger. Posting a debit or credit to a subsidiary ledger account and also to a general ledger control account does not violate the rule that total debit and credit entries must balance because subsidiary ledger accounts are not part of the general ledger; they are supplemental accounts that provide the detail to support the balance in a control account.

The accounts receivable subsidiary ledger is essential to most businesses. Companies may have hundreds or even thousands of customers who purchase items on credit, who make one or more payments for those items, and who sometimes return items or purchase additional items before they finish paying for prior purchases. Recording all credit purchases, returns, and subsequent payments in a single account would make an individual customer's balance virtually impossible to calculate because the customer's transactions would be interspersed among thousands of other transactions. But the accounts receivable subsidiary ledger provides quick access to each customer's balance and account activity.

Companies create subsidiary ledgers whenever they need to monitor the individual components of a controlling general ledger account. In addition to the accounts receivable subsidiary ledger, companies often use an accounts payable subsidiary ledger (creditors' subsidiary ledger), which has separate accounts for each creditor, an inventory subsidiary ledger, which has separate accounts for each product, and a property, plant, and equipment subsidiary ledger, which has separate accounts for each long-lived asset.

The numbers in the maximum and minimum fields near the upper left corner of the account are optional control fields designed to prevent the company from having too many or too few of the items in stock. In this example, the company purchases new tires whenever the overall number of units in stock drops to seven or less, and the number purchased should never cause the company's stock to exceed fifteen units.

If you study the journal entries on the subsidiary ledger account immediately previous, you will notice that the cost of the tires sold on April 22 changes from $100 in the journal entries to $99 in the inventory account. These examples illustrate two different cost flow methods, so they are intended to be used for illustration purposes only. A company must use one cost flow method consistently.

General Ledger

The general ledger is a collection of the firm's accounts. While the general journal is organized as a chronological record of transactions, the ledger is organized by account. In casual use the accounts of the general ledger often take the form of simple two-column T-accounts. In the formal records of the company they may contain a third or fourth column to display the account balance after each posting.

To illustrate the posting of transactions in the general ledger, consider the following transactions taken from the example on general journal entries:

Date	Account Names	Debit	Credit
9/1	Cash	7500
	Capital		7500
9/8	Bike parts	2500
	Accounts payable		2500
9/15	Expenses	1000
	Cash		1000
9/17	Cash	400
	Accounts Receivable	700
	Revenue		1100
9/18	Expenses	275
	Bike parts		275
9/25	Cash	425
	Accounts receivable		425
9/28	Accounts payable	500
	Cash		500

The above journal entries affect a total of seven different accounts and would be posted to the T-accounts of the general ledger as follows:

General Ledger

(T-Accounts)

Cash Sep 1 7500 17 400 25 425 Sep 15 1000 28 500

Accounts Receivable Sep 17 700 Sep 25 425

Bike Parts Sep 8 2500 Sep 18 275

Accounts Payable Sep 28 500 Sep 8 2500

Capital Sep 1 7500

Revenue Sep 17 1100

Expenses Sep 15 1000 Sep 18 275

Note the direct mapping between the journal entries and the ledger postings. While this posting of journalized transactions in the general ledger at first may appear to be redundant since the transactions already are recorded in the general journal, the general ledger serves an important function: it allows one to view the activity and balance of each account at a glance. Because the posting to the ledger is simply a rearrangement of information requiring no additional decisions, it easily is performed by accounting software, either when the journal entry is made or as a batch process, for example, at the end of the day or week.

Finally, while such T-accounts are handy for informal use, in practice a three-column or four-column account may be used to show the running account balance, and in the case of a four column account, whether that balance is a net debit or credit. Additionally, reference numbers may be used so that each posting can be traced back to its original journal entry.

What is Accounting ?

Introduction

Accounting is the art of recording, summarizing, reporting, and analyzing financial transactions. An accounting system can be a simple, utilitarian check register, or, as with Microsoft Office Small Business Accounting 2006, it can be a complete record of all the activities of a business, providing details of every aspect of the business, allowing the analysis of business trends, and providing insight into future prospects.

Bookkeeping is the practice of recording transactions. Bookkeepers tend to focus on the details, recording transactions in an efficient and organized manner, and they may or may not see the overall picture.

Accountants use the work done by bookkeepers to produce and analyze financial reports. Although accounting follows the same principles and rules as bookkeeping, an accountant can design a system that will capture all of the details necessary to satisfy the needs of the business—managerial, financial reporting, projection, analysis, and tax reporting. A good accountant will create a system of financial reporting that gives a complete picture of a business.

By using Small Business Accounting, you can work with your accountant to set up your accounting system to meet the needs of your business. You can then enter transactions and generate reports—all the bookkeeping tasks and some accounting tasks, such as generating reports, that you might previously have relegated to your accountant.

Recording, summarizing, reporting, and analyzing

Recording transactions includes documenting revenues (by invoices or sales receipts), and entering purchases (in the account payable account) and expenditures (in the check register). Using Small Business Accounting, the small business owner can move beyond daily recording to higher level accounting tasks, such as recording sales orders, tracking prospective customers, and projecting sales opportunities and cash flow.

Calculating and summarizing transactions in a traditional accounting system is a tedious process. Small Business Accounting frees you from these repetitive tasks by calculating and summarizing hundreds or thousands of individual transactions and generating reports to satisfy managerial, governmental, investing, or banking needs. Based on a generally accepted standard, these reports are powerful tools to help the business owner, accountant, banker, or investor analyze the results of their operations.

Double-entry Accounting

Since the fourteenth century, when Luca Pacioli first wrote about the practice, the term “accounting” has referred to double-entry accounting. Double-entry accounting uses a system of accounts to categorize transactions. Each transaction that is entered consists of one or more debits and credits, and the total debits must equal the total credits. For example, if you purchase a car with a down payment of $1,000 and a loan from your bank for another $14,000, the entries to record this transaction would be the following:

• A debit of $15,000 to your fixed asset account named, for example, “Vehicles”.
• A credit of $1,000 to your bank account for the down payment.
• A credit to an Auto Loans account for $14,000.

The entries balance because the $15,000 debit is equal to the sum of the two credits.

If you’re not a bookkeeper or an accountant, the whole system of debiting certain accounts and crediting others can seem reversed. This is because banking transactions have traditionally been described from the bank’s perspective. A credit from the bank will increase your checking account balance on the bank’s books. Bank accounts are assets on your books, so you will record a debit (see the following table) to your checking account while the bank records a credit to its liability account.

Account Type	Normal Balance	Debit	Credit
Asset	Debit	Debits increase asset balances	Credits decrease asset balances
Liability	Credit	Debits decrease liability balances	Credits increase liability balances
Equity	Credit	Debits decrease equity balances	Credits increase equity balances
Income	Credit	Debits decrease income balances	Credits increase income balances
Expense	Debit	Debits increase expense balances	Credits decrease expense balances

The following table illustrates which accounts are debited and which are credited for three types of transactions.

Action	Account Type	Debit or Credit
Sell an inventory item	Accounts Receivable	Debit
	Income	Credit
	Inventory	Credit
	Cost of Goods Sold	Debit
Create a credit memo for a customer for an inventory item	Inventory	Debit
	Cost of Goods Sold	Credit
	Income	Debit
	Accounts Receivable	Credit
Purchase an inventory item	Inventory	Debit
	Accounts Payable	Credit

If debits and credits seem overwhelming, don’t be discouraged. Small Business Accounting uses double-entry accounting; however, the debiting and crediting to various accounts is done for you. You enter transactions and Small Business Accounting will calculate and enter the debits and credits. Because you are freed from thinking about debits and credits, you can focus on the accounts used to summarize and categorize transactions.

Small Business Accounting focuses on individual transactions. The user enters transactions on forms that represent paper documents, using accounts to categorize transactions. Selecting an account on the transaction form dictates how Small Business Accounting applies debits and credits, summarizes transactions, and which information is included in reports. Each transaction that is entered must be in balance; by accepting only transactions that are in balance, Small Business Accounting keeps the balance sheet and the accounting system in balance.

Double-entry accounting use five—and only five—account types to record all the transactions that can possibly be recorded in an accounting system. There are sub-types of the following list, but all financial transactions can be recorded using these five types of accounts. The five account types are the following:

• Balance sheet accounts:

1. Assets Things of value that are owned and used by the business.

2. Liabilities Debts that are owed by the business.

3. Equity The owner’s claim to business assets.

• Profit and loss accounts:

4. Revenue The amounts earned from the sale of goods and services.

5. Expenses Costs incurred in the course of business.

You must select the proper account types when entering a transaction. Using an incorrect account type can result in a report that is incomplete or that makes no sense. The balance sheet accounts are permanent accounts that carry a balance from year to year, like checking accounts, accounts receivable, and inventory accounts. The profit and loss accounts are temporary accounts which track revenues and expenses for a yearlong fiscal period and are then closed, with balances transferred to an equity account. Using an asset, liability, or equity account type for a revenue or expense transaction will result in a report that is incorrect and improper.

The Accounting Equation

The accounting equation defines the relationship between the five account types. The basic equation is assets equal liabilities plus equity. This is the format seen on a balance sheet. The profit and loss accounts—revenues and expenses—also affect equity. Revenues from the sale of goods and services increase equity, while expenses incurred in the course of business decrease equity. Therefore, the accounting equation can be expanded to assets equal liabilities plus equity plus revenues minus expenses. Small Business Accounting will record the appropriate debits and credits, and track the changes to assets, liabilities, equity, revenue, and expense accounts.

Double-entry accounting provides a system of checks and balances, where the accuracy of the system can be verified by reconciling asset, liability, and equity accounts to external sources. For example, the bank account is reconciled to a statement of account from the bank to verify that all transactions that have cleared the bank have been recorded in the accounting system. Similarly, accounts payable can be reconciled to statements received from vendors, and accounts receivable can be verified by mailing statements to customers. The inventory account is commonly reconciled by taking a physical count of inventory and comparing the physical account to the accounting records. You can uncover simple errors, such as transposing numbers or misplacing a decimal point, when you reconcile accounts. Because each entry in a double-entry system affects two or more accounts, and virtually all entries affect at least one balance sheet account, reconciling the balance sheet accounts provides a high degree of probability that the profit and loss accounts are correct.

An efficient system of organization

Double-entry accounting is a system of organization that records financial transactions in an efficient process that has been used by private enterprise for over five hundred years. It has been said by some that the industrial revolution could not have occurred without the system of organization created by double-entry accounting. The famous author Johann Wolfgang Von Goethe wrote about double entry accounting in 1796:

"Double-entry bookkeeping is one of the most beautiful discoveries of the human spirit… It came from the same spirit which produced the systems of Galileo and Newton and the subject matter of modern physics and chemistry. By the same means, it organizes perceptions into a system, and one can characterize it as the first Cosmos constructed purely on the basis of mechanistic thought… Without too much difficulty, we can recognize in double-entry bookkeeping the idea of gravitation, or the circulation of the blood and of the conservation of matter."

Small Business Accounting combines double-entry accounting with the personal computer to create a complete, easy-to-use computerized accounting system.