Accounting Miscellaneous

A credit balance in cash book indicates Bank overdraft. Overdrafts are where the bank account becomes negative and the businesses in effect have borrowed from the bank. This is shown in the cash book as a credit balance.

Memorandum of association is the most important document of the company. It is the charter of the company, which defines the objects of the company’s formation and the utmost possible scope of its operations beyond which its actions cannot go.

Revenue earned but not yet received by the business is known as Accrued revenue. Accrued income is very important in accounting because companies receive advances for their goods or services all the time. To prevent overstating certain accounts, companies need to differentiate between the revenue that they have earned versus revenue that they have not earned yet.

If current assets>current liabilities, a company will have positive working capital. When a company has more current assets than current liabilities, it has positive working capital.

Net profit is computed in Income statement. Net income, also called net profit, is a calculation that measures the amount of total revenues that exceed total expenses. It other words, it shows how much revenues are left over after all expenses have been paid.

A promissory note is drawn by Maker in favor of Payee. Maker or Drawer is the person who makes or draws the promissory note. He is also called the promisor. Drawee or Payee is the person in whose favour the promissory note is drawn.

The maximum amount beyond which a company is not allowed to raise funds by issue of shares is Nominal capital. Nominal capital, also known as authorized capital, represents the securities that are designated for shareholders.

The debts which are to be repaid within a short period (year or less) are known as Current liabilities. Current liabilities are a company’s debts or obligations that are due within one year or within a normal operating cycle.

Cash Account is Real account. A real account is an account that retains and rolls forward its ending balance from period to period. The areas in the balance sheet in which real accounts are found are assets, liabilities, and equity.

Prepaid expenses are considered as Asset. Prepaid expenses are future expenses that have been paid in advance. You can think of prepaid expenses as costs that have been paid but have not yet been used up or have not yet expired. The amount of prepaid expenses that have not yet expired are reported on a company’s balance sheet as an asset.