Definition: Liability, as the name suggests, is a legal obligation which reflects an amount that the company owes to outside parties, i.e. banks, financial institutions, individuals or entities, whose settlement may lead to the outflow of the firm's economic resources. In finer terms, liabilities are a company's financial debts, which indicates creditors claim on business … [Read more...] about Liabilities
Assets
Definition: Assets refers to the resources of economic value which are owned and controlled by a business entity, owing to events in the past, which are expected to generate monetary benefit in future. In the balance sheet, assets appear in the second part, i.e. after equity and liabilities. Classification of Assets Assets are classified into two major categories, i.e. … [Read more...] about Assets
Petty Cash Book
Definition: Petty Cash Book is a ledger book, which is used to record petty cash expenses formally in chronological order, with the date. For this purpose, a petty cashier is appointed by the firm, to pay for small payments (usually below Rs. 200) and keep a record of the same. Petty cash implies a small amount of cash in hand, with the petty cashier, who uses the amount to … [Read more...] about Petty Cash Book
Bank Reconciliation Statement
Definition: Bank Reconciliation Statement (BRS) refers to a statement which an entity prepares on a particular date to match the bank balance indicated in the cash book with the balance shown by the bank's passbook, by displaying the reasons for differences between the two. The entity can prepare BRS any time during the financial period, as per the requirement. Significance … [Read more...] about Bank Reconciliation Statement
Kaizen Costing
Definition: Kaizen is a Japanese term which means "continuous improvement" on which Lean Manufacturing System is based. It refers to the continuous improvement and examination program constantly going on in the organization that stresses on the effective waste management, during the manufacturing process, as a result of which costs is further reduced below the initial standards … [Read more...] about Kaizen Costing
Crossing of Cheque
Definition: Crossing of a cheque is nothing but instructing the banker to pay the specified sum through the banker only, i.e. the amount on the cheque has to be deposited directly to the bank account of the payee. Hence, it is not instantly encashed by the holder presenting the cheque at the bank counter. If any cheque contains such an instruction, it is called a crossed … [Read more...] about Crossing of Cheque
Cheque
Definition: Cheque refers to a negotiable instrument that contains an unconditional order to the bank to pay a certain sum mentioned in the instrument, from the drawer's account, to the person to whom it is issued, or to the order of the specified person or the bearer. Parties to Cheque Basically, there are three parties to a cheque: Drawer: The person who draws the … [Read more...] about Cheque
Inventory
Definition: The word 'inventory' refers to the collection of unsold goods ready for sale in the normal course of business. In finer terms, it implies the stock held by the business in the process of production to serve as a buffer, which ensures proper supply of materials and maintains the smooth functioning of the business. The type of inventory depends on the nature of the … [Read more...] about Inventory
Ledger
Definition: Ledger implies the principal books of accounts, wherein all accounts, i.e. personal, real and nominal are maintained. After recording the transactions in the journal, the transactions are classified and grouped as per their title, and so all the transactions of similar type into are put in a particular account. Format of Ledger A ledger account is T-shaped, having … [Read more...] about Ledger
Journal
Definition: In the accounting world, Journal refers to a book wherein transactions are logged for the very first time, and that is why it is also called as "Book of Original Entry". In this book, all the regular business transactions are entered sequentially, i.e. as an when they arise. After that, the transactions are posted to the Ledger, in the concerned accounts. When … [Read more...] about Journal