Bookkeeping includes keep your books of accounts updated. it could be updated daily, weekly or monthly. but the most accounts department need their books be keep updated daily. iGreen accounting with forms as cash receipt, cash payment, Expense entry, invoice, Purchase and journal entry could be used for your bookkeeping. Download Full version You need […]
The merits of historical cost accounting and the advantages and disadvantages of the competing alternative measurement systems have been debated vigorously for at least 40 years. However, with some rare exceptions, most companies worldwide still use historical cost. for example This is not to say that experimentation has not occurred in the Netherlands, for a […]
Historical cost has always been the most widely used measurement system. Essentially, transactions are recorded in the books of account at the date the transaction occurred.
This original cost is maintained in the books of account and not updated for any future changes in value that might occur.
if we paid £5,000 for a building in 1980, this will be the cost that is shown in the balance sheet when we prepare our accounts in 2006. This is even when the building has increased in value to say £20,000 through inflation.
The depreciation will be based on the original value of the asset(i.e., f5,000 not t20,000)
The main strength of historical cost is that it is objective. In other words, you can objectively verify the original cost of the asset. You only need to refer to the original invoice. In addition, historical cost is very easy to use and to understand. Finally, historical cost enables businesses to keep track of their assets. There is, however, one crucial problem with historical cost. It uses a fixed monetary capital maintenance system, which does not take inflation into account. This failure to take into account changing prices can cause severe problems. In particular, as Soundbite 12.2 shows, it may not accurately value a company's worth Replacement
Historical Cost and Asset-Rich Companies
The balance sheets of asset-rich companies, such as banks, may not reflect their true asset values, if prepared under historical cost accounting. Why do you think this might be? f we take banks and building societies as examples of asset-rich companies, these businesses have substantial amounts of prime location fixed assets occupy properties in central locations. These properties were also often acquired many years indeed possibly centuries ago. ago, Using strict historical cost, these buildings would be recorded in the balance sheet at very low amounts. This is because over time money values have changed. If a prime site was purchased for £1,000 in 1700 that might have been worth a lot then. Today, it might be worth say £400 million. Thus, fixed assets will be radically understated, unless revalued.
Replacement cost attempts to place a realistic value on the assets of a company
It is concerned with maintaining the operating capacity of a business. Essentially, replacement cost asks the question:
what would it cost to replace the existing business assets with identical, equivalent assets at today's prices? Replacement cost is an alternative method of measuring the assets and profits of a business rather than principally a method of tackling inflation. In the Netherlands, replacement costing has been successfully used by many businesses, such as Heineken. As The Company Cam era 12.1 shows, Heineken values its tangible fixed assets at replacement cost based on expert valuation. the problem for the Dutch is not I convincing rest of the world that it so much the difficulties of using replacement cost, but of the is a worthwhile system.
Example of Replacement Cost
Replacement Cost in SmithX Tangible Fixed Assets(Property, Plant and Equipment)
Except for land, which is not depreciated, tangible fixed assets are stated at replacement cost less accumulated depreciation. The following average useful lives are used for depreciation purposes:
- Buildings 30-40 years
- Plant and equipment 10-30 years
- Other fixed assets 5-10 years
The replacement cost is based on appraisals by internal and external experts, taking into account technical and economic developments. Other factors taken into account include the experience gained in the construction of breweries throughout the world. Grants received respect of investments in tangible fixed assets are deducted from the amount of the investment. Projects under construction are included at cost.
Read more: Historical Cost Valuation in Real Life
Measurement systems underpin not only profit, but also asset valuation. Essentially, a measurement system is the way in which the elements in the accounts are valued. Traditionally, historical cost has been accepted measurement system. Incomes, Expenses, Assets and liabilities have been recorded in the accounting system at cost at the time that they were first recognized. […]
Fixed assets must be differentiated from current assets and investment assets. Current assets are assets with a value available to the business in the short term, which is usually taken to mean up to a year. These are cash and assets used in the course of business, such as stock and debtors(money owing by customers). […]
At the first look, it seems single entry is very easy way to record your financial transactions but single entry has many disadvantage. double entry has strong structure and protect you from some basic mistakes in balance sheets so learning and practice double entry principle is recommended to have a perfect double entry accounting for your business.
what is Double Entry Accounting
To understand it, it's enough to pay attention to word "Double". so you will see two columns for each row of voucher. in single entry you need only record amount in on column as name: "Amount" but in double entry you have two columns as names: "Debit" and "Credit".
Double Entry System
Basically, this type of entry system has been invented by Luca Pacioli but it has been improved by accountants in pass of times. Nowadays we have a modern double entry systems in accounts departments with advanced accounting software so it could generate very useful reports and statements.
What is Double Entry Bookkeeping
When you listen about double entry, it seems that you should waste too much times everyday for recording financial transactions but with modern accounting software, actually you enter a single amount of any voucher and the accounting program will adjust double entry exactly in journal book. by Hand a double entry journal will takes a much time but with accounting software it is very fast and accurate. so why we should know about double entry if accounting software will it for us? It is a hot question !. usually operator and bookkeepers don't need it and it will do by software automatically but auditors need to know about double entry systems to help themselves to find mistakes in non-balanced sheets.
Double Entry Bookkeeping Examples
Here we show you some examples of double entry accounting from a mobile shop:
- Receive 2200$ from client: Jack Smith
- Pay 25$ for Telephone bill of office
- Buy some food for staffs as amount of 45$
- Purchase 11 New mobiles, each mobile 260$
- Sell one mobile of above models for 370$ for cash
- Sell 5 mobiles of above models for 310$ to Jack Smith
Note: We did these example by iGreen Accounting Software
Receive 2200$ from client: Jack Smith
Purchase 11 New mobiles, each mobile 260$
Pay 25$ for Telephone bill of office
Sell one mobile of above models for 370$ for cash
Buy some food for staffs as amount of 45$
Sell 5 mobiles of above models for 310$ to Jack Smith
The two principal systems for determining the inventory quantities on hand are the periodic system and the perpetual system. Both systems may be used simultaneously by companies with different classes of inventory.
The Periodic System
This system requires a physical count of goods on hand at the end of the period. A cost basis (i.e., FIFO, LIFO, etc.) is then applied to derive an inventory value. This system is widely used because it is simple and requires records and computations primarily only at the end of the period. It is not as useful as the perpetual system, however, in the planning and control of inventories.
The Perpetual System
This system calls for a continuous record of receipt and disbursement for every item of inventory. Physical counts of the quantities on hand are usually made at least once a year and reconciled to the perpetual records. Most large manufacturing and merchandising companies use the perpetual system to provide continuous control over the quantities and the investment in inventory.
Adequate supplies are assured for production or sale and costly machine shut-downs and customer complaints are minimized.
Inventory cost includes all expenditures relating to inventory acquisition, preparation and readiness for sale. Any purchase discounts are treated as reductions in the cost of inventory. Accounting for inventory costs for goods in process and finished
goods can be best accomplished by means of a good cost accounting system, a topic which will be treated in depth in later volumes of this series. In a manufacturing company, the two primary methods for accumulating costs are (1) by job order and (2) by process or operation.
Job Order Cost System
This system is generally used by companies which manufacture a number of different products in limited quantities. The costs for each job are accumulated separately on a job order cost record and are included in goods in process until the job is completed. The completed job and its associated costs are considered finished goods until the job is sold. Examples of companies using job order cost systems are printing shops and construction companies.
Process Cost System
This system is used where large amounts of similar units are produced on an assembly-line basis. The controlling factor is the cost center or department. Costs of raw material, direct labor, and manufacturing overhead are accumulated by cost center rather than by individual job. The unit cost is obtained by dividing total costs by the quantity produced for the week, month, etc. Examples of companies using process cost systems are steel mills, paper companies, and other
Heart of any accounting system is Chart of accounts and sometimes it will be summarized to term: "C.O.A" , whatever it is on paper or a computerized system. any voucher should show debit amount and credit amount on mentioned accounts. Actually, Accounts are like humans in a society of financial area. each accounts has its unique identity and behaviors. As your accounts are more clear and sorted then your income statement will be more useful.
At a glance C.O.A is list of all accounts but categorized in standard format to be understandable for any accountant. they are categorized in groups and each group has sub groups as term: "Subsidiary".
General Groups in Chart of Accounts
Typically 6 main groups will be find in coa as:
Some accountants as they need then they will add more groups and it is vary from company to company and accountant to accountant.
This group covers any things that shows a ownership of company at current time or will be occurs in future time like money will be received from trade debtors. subsidiaries in this groups are : Cash, Bank Accounts, Accounts Receivable, Paid loans to employees, ...
This groups will increase volume of capital
Any money should be pay to anybody or company out of company will be categorized in this group. for example, accounts payable (Trade creditors), bank loans, ...
This groups will decrease volume of capital
When you pay any amount to your vendors or clients then this amount will be reduced from your cash account. cash flow of this type of transaction is important because you should control cash out from your business. However cash book entry of cash payment in bookkeeping is very important for auditing. here we will […]
Cash flow is the most important transaction in any accounting and has two sections of receipt and payment. However cash book entry in bookkeeping is very important for reports. here we will show you how to do it in iGreen accounting software. Cash Book Entry, Cash Receipt When you receive any amount of cash from your […]
Accounting is not only theory, it includes practice too, however you should doing real practice in some financial departments and learn from professional accountants how to enter and record invoices and payments in journal books to understand accounting deeply.
At the first of all, doing practice Double-Entry bookkeeping is the heart of accounting learning to be a talent accountant.
You can do it on paper or by computers but as you know nowadays, most companies use PC or Mac computers to doing their financial accounting so we recommend you to start this practice by accounting software.
There are many accounting software available on sites to download for this purpose but some of them have hidden charges or are limited to a maximum quantity of vouchers after this limitation you should pay to get full version.
Here, we suggest you iGreen accounting software for Double-Entry practice. This software are really free without any limitation or hidden charges .
Start of Practice Double-Entry Bookkeeping
1. Download iGreen accounting software
2. Install it on your PC or laptop (note : this accounting software only will be installed on windows operating systems )
3. Create the first company in iGreen accounting ( help of how to create company in iGreen)
4. Please, in iGreen home screen click on chart of accounts to add your ledger accounts
( about types of accounts ) (how to add accounts in iGreen )
5. Run Journal entry form from home screen of iGreen accounting
Journal Entry form in iGreen Accounting
Double entry bookkeeping is much superior to single entry bookkeeping and all significant businesses keep their accounting records in this way. At the heart of double entry bookkeeping is the concept that every transaction involves both the giving of a benefit and the receiving of a benefit. Consequently, every transaction is written into the books twice, once as […]
Wages and salaries are very often grouped together and it is not easy to fix the distinctions between them. It is hard to believe that snobbery does not sometimes playa part. It is sometimes said that wages are paid weekly, whereas salaries are paid monthly, and it is sometimes said that wages are paid in cash, whereas salaries […]
VAT is a simple concept that has somehow managed to get very complicated in practice. Its complexities once led to a celebrated court case to establish whether a jaffa cake is a cake or a biscuit. If you enjoy a jaffa cake with your afternoon tea, you will be pleased to know that you are eating a cake which […]
Businesses operate by selling goods, services or both. A business that only sells services does not have account for stock, but businesses that sell goods like a shop (either bought in or manufactured by itself) must keep stock accounts and should carry out periodic stock-takes.
- The cost of goods purchased or manufactured is debited to this account, which is of course an asset account. This cost is transferred out when the goods are sold, scrapped or otherwise disposed of.
Returns Inwards Account
- This is for the cost of goods returned to the business by its customers. The a propitiate sum is debited and increases the value of the stock held by the business.
Returns Outwards Account
- This is for the cost of goods returned by the business to its suppliers. The appropriate sum is credited
and reduces the value of the stock held by the business.
- This is for the cost of goods returned by the business to its suppliers. The appropriate sum is credited
There must be at least one stock account (possibly incorporating returns inwards and returns outwards) but many businesses have a number of them, perhaps even hundreds or thousands. This is to identify accurately the different categories of finished goods, and perhaps of raw materials, components and work in progress. Keeping different accounts may assist in stock control, stocktaking and the efficient management of the business. Some businesses have a stock purchases account for stock acquired and a stock sales account for stock sold. If this is done, the value of stock held by the business is the difference between the two, after adding the opening balance of course.
Shown below are illustrations of the double entry postings for different types of transactions involving stock.
Purchase of stock for cash
Goods costing £8,000 are purchased on 4 April. Stock (the asset account) is debited and cash (which is being diminished) is credited.
Stock Account 8000 DB
Cash Account 8000CR
Purchase of stock on credit
Goods costing £5,000 are purchased on 6 April on credit from Dennis Clinton Ltd. Stock (the asset account) is debited and Dennis Clinton Ltd (a liability account) is credited. Dennis Clinton Ltd is a creditor because money is owed to it.
Stock Account 5000 DB
Payable Accounts (Dennis Clinton) 5000 CR
Goods returned inwards for credit
Goods with a cost value of £1,000 that had been supplied to Hannah Smith Ltd are returned for credit on 7 April. Stock (the asset account) is debited and Hannah Smith Ltd is credited.
This money is owing to Hannah Smith Ltd and it must be paid to her, or it may of course reduce the amount that Hannah Smith Ltd owes.
Returns Inwards Account 1000 DB
Payable Accounts (Hannah Smith Ltd) 1000 CR
Goods returned outwards for credit
Goods that had been purchased for £2,000 are returned by the business to Cilia and Green (the supplier) on 8 April.
Stock (the asset account) is credited and Cilia and Green is debited.
Payable Accounts(Cilia and Green): 2000 DB
Returns Outwards Account: 2000 CR
Real Journal Entry in Accounting software
We use iGreen accounting to practice above transaction in double entry form
We will soon be ready to move on to the preparation of the accounts but first it is necessary to look at three major features of many bookkeeping systems. They should be understood because they are important and also because they generate some rather special entries. The page also deals with the important topic of the trial balance and […]
Accounting is a blend of theory and practice. One of the key elements to understanding the practice of accounting is double entry bookkeeping. to do it, you should be in real accounts department in companies but usually, no company hire accountant without any experiment, so it is recommended to seek for a trainee position in large […]
The founding father of double entry bookkeeping was a Franciscan monk called Luca Pacioli. He did not invent it, but in 1493 he wrote down the principles of the system being used by him and others. Given his calling he must have been a man of considerable education and wide-ranging interests. His work has stood the test of time […]
Almost any business has sales of items and services and sales journal Entry for invoice is a most too. some of company use accounting software to record their sales and some company intend to have a record on paper too because they cloud not trust of data lost in computer systems. Any sales for cash […]