Accountancy: Recording, Adjusting, and Reporting
Core concepts
Accountancy requires mastery of the accounting equation, double entry, journal, ledger, trial balance, and final accounts. Learn depreciation methods (straight-line and diminishing balance), provisions, accruals and prepayments, bank reconciliation, and partnership and company accounts. Understand the link from trial balance to trading account, profit and loss account, and balance sheet.
Traps in questions
- Debit and credit confusion: assets and expenses increase on the debit side; liabilities, capital, and income on the credit side.
- Adjusting entries: outstanding expenses and prepaid expenses must be adjusted twice - in the P&L and in the balance sheet.
- Depreciation on additions: calculate depreciation only for the period the asset was held.
- Suspense accounts: if the trial balance does not agree, do not force it; locate the error type first.
- Closing stock: appears in the trading account credit and the balance sheet asset.
Worked example
A machine costs 100,000 with scrap value 10,000 and life 5 years. Straight-line depreciation: $(100{,}000 - 10{,}000)/5 = 18{,}000$ per year. Show the asset in the balance sheet at cost less accumulated depreciation; after two years, book value is $100{,}000 - 36{,}000 = 64{,}000$.
Rule of thumb
For every transaction, ask which two accounts are affected, which type each is, and whether it increases or decreases. Then apply the debit/credit rule.