Some Important Accounting Concepts

Some important Accounting concepts:

We are very close to learn the root of accounting that is, journal entries but before that we need to learn some important concepts of accounting that will come in the question while doing journal entries. Students are expected to have sound knowledge of these.

Invoice--:

 It is a bill issued by seller to buyer when goods are sold on credit, stating the quantity, description and price of the goods with trade discounts.  It may include additional charges like carriage, container, insurance, etc. It also reveals total amount due from customer. Invoice can be of two types: purchase invoice and sales invoice. Take an example: Mr. X purchases goods on credit from Mr. Y and sales goods on credit to Mr. Z. Here Y issued sales invoice to X, X got that and for him it is his purchase invoice; now X issued sales invoice to Z and for Z it is his purchase invoice. At the end, if we talk about X; he will have two bundles of invoice- first, stating total amount of goods purchased on credit by him, and second, stating total amount of goods sold by him on credit. So, he has both purchase invoice and sales invoice in his hand. Not only X this is the case with Y, Z and with every trader or businessman if he is purchasing or selling goods on credit.   

There is a term related with it called “Performa invoice” which is nothing but a commitment given by a seller to supply goods to the buyers with description and quantity mentioned in it.

Debit note and Credit note:

Debit note is a document given by a buyer to the seller stating that his Account has been debited. What actually happens is thisà X purchased goods from Y on credit for Rs 50000. Journal entry in the books of X would be:

Debit-purchase a/c…50000

Credit-Y a/c…..50000.

 Here Y is the creditor of X because X has to pay 50000 to Y. After receiving goods, X found that there are some goods of value 4000 that got damaged and he decided to return them back to the Y. the entry for this would be:

Debit ----Y a/c..4000

Credit ---purchase A/c 4000

 For this X have to debit the value 4000 from that credited amount 50000 (in accounting if we have to cancel any amount, we pass opposite entry).thus, X will issue debit note to Y implying “your account has been debited for Rs 4000, now I have to pay only 46000.”

Now on the other hand, Y on selling those goods debited X with an amount of 50000-entry in the beginning would be:

Debit X a/c---50000

Credit sales a/c---50000 (implying that he have to receive 50000 from X)

After that he got that above Debit note from X. He checked his damaged goods, apologize for that and send credit note to X-stating that he has credited his amount of 4000 and now he will receive only 46000. It is deemed that Y will record the opposite journal entry in his book also.

So this was the whole concept of Debit and Credit note. It is to be noted that is not necessary that there should always be purchase or sales return transaction for debit and credit note to occur in books. If for any reason buyers and sellers think that their account should be debited or credited either because of wrong entry or because of any other reason they can issue debit or credit note accordingly.

Now we come to the last topic before we start learning journal entries. Here it is-:

Vouchers:

We know at this point that recording of transaction takes place with the help of source documents explained above. On the basis of source documents detailed statement is prepared which is termed as voucher. We get to know from the vouchers number of accounts debited and credited.

Voucher is of two types:

Source vouchers and accounting vouchers:

Source vouchers:

As and when transaction takes place, recording is done with the help of source vouchers such as cash memo/invoice/ credit note/debit note etc

Accounting vouchers are such vouchers which determine posting of transaction either on debit side or credit side. Accounting vouchers are of two types:

Cash vouchers and non cash vouchers:

Cash vouchers are such vouchers which are prepared when transaction is for cash. It may be either receipt or payment. Voucher for cash is received is called credit voucher and voucher for cash paid is called debit vouchers.

Non cash voucher are such voucher which are used as debit note or credit note/ invoice or bill.

Here is the specimen of credit voucher:

			M/S Murli &co.
			F/D 36 vidyasagarpally
Voucher 1			Kolkata 7001	1/1/2014
				Amount
Credit M/S Manmohan and sons				80000
(cash received vide cash memo receipt no 4)
SD			SD.	80000
(manager)			Accountant

So this was the total concept of vouchers.

Here we have come to an end of last topic before we start learning journal entry. stay tuned guys I'm coming soon to begin new chapters of accounting called Journal and ledger.