Many transaction affect the revenue expense of two or more accounting period .Adjusting entries are made at the end of each accounting period there are several different types of adjusting entries in fact many business make a dozen or more adjusting entries at the end of every accounting period.The concept of end of period adjustment with the entry to record depreciation expense,this is the most common of all adjusting entries .the term depreciation mean the systematic allocation of the cost of an assets to expense over the accounting period.
EXPENSE
Expenses are the cost of the goods and services used up in the process of earning revenue.For example the cost of employees salaries,advertising,rent,utilities depreciation of such as building automobile and office equipment.All these cost are necessary to attract and serve customers and there by earn revenue.An expense always causes a decrease in owner equity.the related changes in the accounting equation can be either,A decrease in assets or an increase in liabilities.An expense reduces assets if payment accour at the time that the expense is incurred. if the expense will not be paid until later. Expense are incurred for the purpose of producing revenue.Revenue should be offset by all the expenses incurred in producing that revenue .this concept of offsetting expense revenue on a basis of cause and effect is the called matching principle.
EXPENSES:
Transporting expenses
salaries expense
Advertisement expense
Traveling expense
Rent expense
office expenses
Telephone expenses
Conveyance expenses
Entertainment expenses
Postage Expenses
Depreciation Expense
Bad debts expense
EXPENSES:
Transporting expenses
salaries expense
Advertisement expense
Traveling expense
Rent expense
office expenses
Telephone expenses
Conveyance expenses
Entertainment expenses
Postage Expenses
Depreciation Expense
Bad debts expense
REVENUE
Revenue is the price of goods sold and service rendered during a given accounting period. Earning revenue causes owner equity to increase it is usually receive cash or acquires or sell merchandise to its customer.The accounting equation the liabilities do not change but owner equity increase to match the increase in total assets revenue is the gross increase in owner equity resulting from operation of the business.The revenue various term are used to describe different types of revenue.the revenue earned by a real estate broker might be called sales commission earned or alternatively commission revenue.An other type of revenue is interest earned which mean the amount received as interest on notes receivable bank deposit government bond or other securities.
REVENUES:
sale
fees
commission
markup
other sources of revenue
REVENUES:
sale
fees
commission
markup
other sources of revenue
NET INCOME
An increases in owner equity resulting from the profitable operation of the business and a decreases in owner's equity resulting from an profitable operation of the business is termed a net loss.The invest in the capital stock of a large corporation also expect the business to earn a profit which will increase the value of their investment that net income does not consist of cash or any other specific assets net income is a computation of the overall effect of many business transaction upon owner equity.The increases in owner equity resulting from profitable operation usually is accompanied by an increase in total assets though not necessarily an increase in cash an increase in owner equity is accompanied by a decrease in total liabilities.In the balance sheet the changes in owner equity resulting from profitable or UN- profitable operations are reflected in the balance of the owner's capital account.the assets of the business organization appear in the assets of the balance sheet
ERRORS OF TRIAL
If the total of the trial balance does not agree this indicates that there are one or more errors in posting the trial balance,or errors in the computation of balances.Some typical errors are as under:
1)Error in recording a transaction in the ledger:
a)Error in amount:
An erroneous amount was recorded as a debit or a credit in an account
b)Error of omission:
A debit or credit entry was omitted
c) ERRORS OF POSTING:
A debit entry was recorded as a credit or vice verse.
2) ERRORS IN FOOTING AND BALANCING OF LEDGER ACCOUNT:
a)COMPUTING ERROR:
A balance was incorrectly computed.
b)ERROR OF PRINCIPLE:
A balance was entered on the wrong side of an account.
c)ERROR OF COMPUTATION:
One side of an account was incorrectly computed.
3)ERROR IN COMPILING THE TRIAL BALANCE:
a)One of the debit or credit columns incorrectly added.
b)An account balance was omitted or incorrectly recorded in the trial balance.
Some errors do not affect the equality of trial balance,which are as under:
1)Failures or omitted to post a transaction from journal to ledger in posting.
2)posted a transaction twice.
3)posted a wrong amount on one side (debit) of an account in ledger and the same amount on the other side (credit) to another account.
1)Error in recording a transaction in the ledger:
a)Error in amount:
An erroneous amount was recorded as a debit or a credit in an account
b)Error of omission:
A debit or credit entry was omitted
c) ERRORS OF POSTING:
A debit entry was recorded as a credit or vice verse.
2) ERRORS IN FOOTING AND BALANCING OF LEDGER ACCOUNT:
a)COMPUTING ERROR:
A balance was incorrectly computed.
b)ERROR OF PRINCIPLE:
A balance was entered on the wrong side of an account.
c)ERROR OF COMPUTATION:
One side of an account was incorrectly computed.
3)ERROR IN COMPILING THE TRIAL BALANCE:
a)One of the debit or credit columns incorrectly added.
b)An account balance was omitted or incorrectly recorded in the trial balance.
Some errors do not affect the equality of trial balance,which are as under:
1)Failures or omitted to post a transaction from journal to ledger in posting.
2)posted a transaction twice.
3)posted a wrong amount on one side (debit) of an account in ledger and the same amount on the other side (credit) to another account.
PURPOSE OF TRIAL BALANCE
we can say that there are two main purpose of a trial balance.
1- To prove the equality of debit and credit in the ledger.
2-To summarize the information of ledger for preparation of financial statement.
Finally the debit-credit or credit-debit plan result in the following normal debit balance of accounts related to:
Debit Balance of accounts related to: Credit balance of Accounts related to:
Assets Contra assets
Expenses Liabilities
Prepaid expenses Capital
Drawings Revenue/Income
In the chart of the statement the balance of all the accounts are posted in their respective debit or credit columns.If any account posses debit credit column.As it is prepared on a certain date at the end of a period,therefore,date is mentioned in its heading.
1- To prove the equality of debit and credit in the ledger.
2-To summarize the information of ledger for preparation of financial statement.
Finally the debit-credit or credit-debit plan result in the following normal debit balance of accounts related to:
Debit Balance of accounts related to: Credit balance of Accounts related to:
Assets Contra assets
Expenses Liabilities
Prepaid expenses Capital
Drawings Revenue/Income
In the chart of the statement the balance of all the accounts are posted in their respective debit or credit columns.If any account posses debit credit column.As it is prepared on a certain date at the end of a period,therefore,date is mentioned in its heading.
TRIAL BALANCE
The equality of debit and credit balance is called a trial balance.A trial balance is a two column schedule listing the names and balances of all the accounts in the order in which they appear in the ledger the debit balances are listed in the left hand column and credit balance in the right hand column the total of two column should agree.
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