Accounting Miscellaneous

Drawings accounts will be debited if the business’s owner withdraws cash from business for personal use. Goods withdrawn for personal use by the owner of a business reduce inventory and are recorded on a drawings account.

The normal balance of capital account is Credit balance. Normal balance is the side where the balance of the account is normally found. Asset accounts normally have debit balances, while liabilities and capital normally have credit balances. Income has a normal credit balance since it increases capital .

Net income will increase is the effect on net income if a business decreases its provision for bad debts.

Acid test ratios indicate the short-term liquidity of a business. The acid-test ratio uses a firm’s balance sheet data as an indicator of whether it has sufficient short-term assets to cover its short-term liabilities.

NRV or net realizable value of inventory is the expected selling price or market value less Expenses necessary to complete sale. Net realizable value is generally equal to the selling price of the inventory goods less the selling costs (completion and disposal).

Payment of expenses will reduce the assets. When an expense is recorded at the same time it is paid for with cash, the cash (asset) account declines, while the amount of the expense reduces the retained earnings account.

Net Profit = Gross Profit minus Operating expenses.

Partial omission of a transaction will affect the agreement of a trial balance. When only one aspect of a transaction is posted to the ledger, it is called as error of partial omission.

Legal expenses incurred on a suit for breach of contract to supply goods is a Revenue expenditure. A revenue expenditure is a cost that will be an expense in the accounting period when the expenditure takes place.

Merchandise on hand at either the beginning or end of the accounting period is called Inventory. Inventory is the array of finished goods or goods used in production held by a company. Inventory is classified as a current asset on a company’s balance sheet, and it serves as a buffer between manufacturing and order fulfillment.