Accounting Miscellaneous

The revenue recognition principle dictates that all types of incomes should be recorded or recognized when they are earned. The revenue recognition principle, a combination of accrual accounting and the matching principle, stipulates that revenues are recognized when realized and earned, not necessarily when received.

In the calculation of depreciation, all of the following items are actually estimates except Historical cost. A historical cost is a measure of value used in accounting in which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the company.

Listed company is quoted company. The CA 2006 definition of ‘quoted company’ in s. 385 refers to companies listed on ‘regulated markets’ including the Main Market, but not AIM.

The normal balance of liability 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 .

Land on lease should be shown in Blance sheet contrary to the fact that the company does not own that piece of land is the implementation of Substance over form concept.

A debit balance in the bank statement indicates Bank overdraft. Overdrafts are where the bank account becomes negative and the businesses in effect have borrowed from the bank.

Sales return journal records “goods returned by customers”. Sales Return (Journal) Book Sales return books are used to record the goods returned by customers to them on credit.

A bill of exchange is called a Bill payable by one who is liable to pay it on the due date. It is a written, unconditional order by one party (the drawer) to another (the drawee) to pay a certain sum, either immediately (a sight bill) or on a fixed date (a term bill), for payment of goods and/or services received.

Trial balance It lists down the balances of accounts. The debit balance values will be listed in the debit column of the trial balance and the credit value balance will be listed in the credit column.

Exercising a degree of caution in the case of judgements needed under the condition of uncertainity is the assumption of Prudence concept. Prudence Concept or Conservatism principle is a key accounting principle which makes sure that assets and income are not overstated and provision is made for all known expenses and losses whether the amount is known for certain or just an estimation.